UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

   

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20162018

☐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 0-19125
   

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, CA92010
(Address of Principal Executive Offices)(Zip Code)
2855 Gazelle Court, Carlsbad, CA 92010
(Address of principal executive offices, including zip code)

760-931-9200
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:None
Title of each className of each exchange on which registered
Common Stock, $.001 Par ValueThe Nasdaq Stock Market, LLC

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 Par ValueNone

   

Indicate by check mark whetherif the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒  No ☐

Indicate by check mark whetherif 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 Registrantregistrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definitionthe definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☒
 
Accelerated filer ☐
   
Non-accelerated filer ☐
(Do not check if a smaller reporting company)
 
Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 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 NASDAQNasdaq Global Select Market was $2,337,558,702$4,805,287,142 as of June 30, 2016.2018.*

The number of shares of voting common stock outstanding as of February 21, 201720, 2019 was 123,749,472.138,397,754.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive Proxy Statement to be filed on or about April 5, 201726, 2019 with the Securities and Exchange Commission in connection with the Registrant’s annual meeting of stockholders to be held on May 24, 2017June 6, 2019 are incorporated by reference into Part III of this Report. The Exhibit Index (Item No. 15) located on pages 70 to 76 incorporates several documents by reference as indicated therein.

  
*
Excludes 20,485,23621,838,695 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, 2016.2018. 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.


FORWARD-LOOKING STATEMENTS

This report on Form 10-K and the information incorporated herein by reference includes forward-looking statements regarding our business the business of Akcea Therapeutics, Inc., a subsidiary of Ionis Pharmaceuticals, and the therapeutic and commercial potential of SPINRAZA (nusinersen), volanesorsenTEGSEDI (inotersen), WAYLIVRA (volanesorsen) and IONIS-TTRRx our technologies and otherproducts in development, including the business of Akcea Therapeutics, Inc., our drugs in development.majority-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 drugs that are safe and effective for use as human therapeutics, and in the endeavor of building a business around such drugs. 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,” the Ionis PharmaceuticalsTM is a trademarklogo, and other trademarks or service marks of Ionis Pharmaceuticals, Inc.

Akcea Therapeutics™ is a trademark appearing in this report are the property of Ionis Pharmaceuticals, Inc.

Regulus Therapeutics® is a registered trademark “Akcea,” the Akcea logo, and other trademarks or service marks of RegulusAkcea Therapeutics, Inc.

SPINRAZATM is a trademarkappearing in this report are the property of Biogen,Akcea Therapeutics, Inc.

KYNAMRO 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 ® is a registered trademark of Kastle Therapeutics LLC

Glybera® is a registered trademark of uniQure NV

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 our wholly owned subsidiary, Akcea Therapeutics, Inc., as a Delaware corporation, with its principal office in Cambridge, Massachusetts,Boston, Massachusetts. Prior to develop and commercialize drugs to treat patients with serious cardiometabolic diseases caused by lipid disorders.Akcea’s IPO in July 2017, we owned 100 percent of Akcea’s stock. At December 31, 2018, we owned approximately 75 percent of Akcea’s stock.

12
IONIS PHARMACEUTICALS, INC.
FORM 10-K
For the Fiscal Year Ended December 31, 20162018
Table of Contents

PART I  
  Page
Item 1.Business34
Item 1A.Risk Factors3739
Item 1B.Unresolved Staff Comments4448
Item 2.Properties4448
Item 3.Legal Proceedings4448
Item 4.Mine Safety Disclosures4549
PART II
  
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities4549
Item 6.Selected Financial Data4749
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations4750
Item 7A.Quantitative and Qualitative Disclosures About Market Risk6775
Item 8.Financial Statements and Supplementary Data6775
Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure6775
Item 9A.Controls and Procedures6775
Item 9B.Other Information6977
   
PART III
  
Item 10.Directors, Executive Officers and Corporate Governance6977
Item 11.Executive Compensation6977
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters6977
Item 13.Certain Relationships and Related Transactions, and Director Independence6977
Item 14.Principal Accounting Fees and Services6977
   
PART IV
  
Item 15.Exhibits, Financial Statement Schedules7078
   
Signatures  

23


PART I

Item 1. Business
Overview

We are leadersa leader in discovering and developing RNA-targeted therapeutics.therapeutics with sustained and growing revenues. We have created an efficient and broadly applicable drug discovery platform. Using this platform leveraging our expertise in antisense oligonucleotide therapeutics that we have developed abelieve has fundamentally changed medicine and transformed the lives of people with devastating and often deadly diseases. Our large, diverse and advanced pipeline of potentiallyover 40 first-in-class and/or best-in-class drugsmedicines addresses diseases across a broad range of therapeutic areas, targeting small, medium and large patient populations.

We have two commercial medicines approved in major markets around the world, SPINRAZA and TEGSEDI. We have at least four medicines that have entered pivotal studies or have the potential to begin pivotal studies this year, and another six medicines that could start pivotal studies in 2020. These medicines, along with the more than 30 additional medicines in our pipeline, represent multiple potential drivers of value for years to come. We believe our efficient drug discovery platform, coupled with our innovation-centric business model, provides us with the flexibility to determine the optimal development and commercialization strategy to maximize the commercial opportunity for each of our medicines and ensure that we continue to produce transformative medicines for patients who need them. We believe can provide highwe are positioned to drive substantial value for patients with significant unmet medical needs.and shareholders.

As of January 2019, SPINRAZA was approved in over 40 countries around the world, and our partner Biogen, who is responsible for global SPINRAZA commercial activities, reported that more than 6,600 patients are now on SPINRAZA therapy. In this way, we believe we are fundamentally changing medicine with the goaladdition, Biogen plans to transform the lives of those suffering from severe, often life-threatening, diseases. The recent U.S. approvalcontinue to pursue regulatory filings in additional countries. Biogen reported 2018 annual sales of SPINRAZA for pediatricof more than $1.7 billion, and adult patients with spinal muscular atrophy, or SMA, highlights our progress toward this goal. Our pipeline also contains two near-term potentially transformative medicines for two different severe and rare diseases, each with significantwe earned $238 million in commercial potential. We plan to report datarevenues from our Phase 3 studyroyalties on sales of volanesorsen in patients with familial chylomicronemia, or FCS in the first quarter of 2017. We also plan to report data from our Phase 3 study of IONIS-TTRRx in patients with familial amyloid polyneuropathy, or FAP, in the second quarter of 2017.

With FDA approval in December 2016, SPINRAZA™ (nusinersen) injection becameSPINRAZA. SPINRAZA is the first and only approved drugmedicine for the treatment of spinal muscular atrophy, or SMA. SPINRAZA is the established standard-of-care for all people with this progressive, debilitating and often fatal genetic disease. In November 2018, SPINRAZA was recognized with the 2018 International Prix Galien award as Best Biotechnology Product. This prestigious honor marks the seventh Prix Galien award for SPINRAZA.

TEGSEDI, a once weekly, self-administered subcutaneous medicine, was approved in 2018 in the U.S., EU and Canada for the treatment of polyneuropathy caused by hereditary TTR amyloidosis, or hATTR, in adult patients. hATTR is a debilitating, progressive, and fatal disease. Akcea, our majority-owned affiliate focused on developing and commercializing medicines to treat pediatric and adult patients with SMA. SMA is a leading genetic causerare and serious diseases, launched TEGSEDI globally in late 2018. In the fourth quarter of death2018, we earned more than $2 million in infants and toddlers that is marked by progressive, debilitating muscle weakness.  TEGSEDI product sales. Akcea has an exclusive license agreement with PTC Therapeutics, or PTC, to commercialize TEGSEDI in Latin America. In January 2019, PTC filed an application for regulatory approval in Brazil with ANVISA, the Brazilian regulatory authority. ANVISA granted priority review for TEGSEDI.

We and Biogen conducted a broad, innovative clinical development program that moved SPINRAZA from its first dose in humans in 2011Akcea are preparing to its first regulatory approval five years later. We conducted two sham-controlled Phase 3 studies, one in babies with infantile-onset SMA called ENDEAR and one in children with later-onset SMA called CHERISH. Both of these studies achieved statistically significant improvements in their primary endpoints and the drug demonstrated a favorable safety profile. Biogen has filed for marketing authorizationcommercialize WAYLIVRA in the EU, Japan, Australia and Canada, and plans to file in other countries this year.EU. The Committee for Medicinal Products for Human Use, or CHMP, of the European Medicines Agency, or EMA, is reviewing the SPINRAZAadopted a positive opinion recommending conditional marketing application under accelerated assessment. Biogen estimates that there are approximately 20,000authorization for WAYLIVRA as an adjunct to diet in adult patients with SMAgenetically confirmed familial chylomicronemia syndrome, or FCS, who are at high risk for pancreatitis, in whom response to diet and triglyceride lowering therapy has been inadequate. The positive opinion will now be referred to the European Commission, or EC, which grants marketing authorization for medicines in the U.S., EU, as well as to European Economic Area members Iceland, Liechtenstein and Japan, with a large percentageNorway. With this positive opinion, and, pending adoption of the positive opinion by the EC, Akcea plans to leverage its existing commercial infrastructure in Europe to market WAYLIVRA. Akcea is continuing to conduct open-label extension and early access programs. We are also focused on regulatory discussions in the United States.

Akcea Therapeutics, Inc. is our wholly owned subsidiary focused on developing and commercializing volanesorsen and three other clinical-stage drugs for serious cardiometabolic diseases caused by lipid disorders, AKCEA-APO(a)-LRx, AKCEA- AKCEA-APOCIII-LRx and ANGPTL3-LRx.Each of these four drugs could potentially treat multiple patient populations. Moving these drugs into a company that we own allows us to retain substantial value from them and ensures Ionis’ core focus remains on innovation. Akcea is assembling the global infrastructure to continue developing the drugs in its pipeline, to commercialize them with a focus on lipid specialists as the primary call point and to provide the specialized patient and physician support required to address rare disease patient populations.

U.S. We and Akcea are developing volanesorsenWAYLIVRA to treat twofamilial partial lipodystrophy, or FPL, a second severe and rare, genetically defined diseases, FCS and familial partial lipodystrophy, or FPL.disease. 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. Volanesorsen acts

In addition to reduce triglyceride levels by inhibitingcommercializing TEGSEDI and preparing to commercialize WAYLIVRA, Akcea is developing four other clinical-stage medicines: AKCEA-APO(a)-LRx (TQJ230), AKCEA-ANGPTL3-LRx, AKCEA-APOCIII-LRx and AKCEA-TTR-LRx, each of which could potentially treat multiple patient populations. Moving these drugs into Akcea allows us to retain substantial value from these medicines and ensures our core focus remains on innovation. As of February 2019, we owned approximately 75 percent of Akcea.

We are continuously advancing our technology and pipeline to provide the productionmost value to patients. We have a pipeline of ApoC-III,over 40 medicines that, like SPINRAZA and TEGSEDI, have the potential to transform the treatment of diseases with no adequate treatment today. These medicines range from treatments for rare diseases with small patient populations to more common diseases afflicting millions of patients. Our pipeline covers a protein thatbroad spectrum of therapeutic areas, such as cardiometabolic diseases, neurodegenerative diseases, cancer, severe and rare diseases and others. We believe our large and diverse pipeline contains many near-, mid- and longer-term growth drivers for the company.

Our pipeline includes at least 10 potentially transformative medicines anticipated to enter pivotal clinical studies in the next two years. We anticipate at least four of these medicines will enter pivotal studies this year including: AKCEA-APO(a)-LRx, AKCEA-TTR-LRx, IONIS-HTTRx (RG6042) and IONIS-SOD1Rx. Roche recently initiated a Phase 3 study of IONIS-HTTRx for Huntington’s disease, or HD. We believe each of these medicines is a key regulator of triglyceride clearance. Thefirst-in-class and/or best-in-class medicine with the potential to deliver significant value to patients and shareholders. We anticipate that the data from these pivotal studies, if positive, will support global regulatory filings for each medicine.

AKCEA-APO(a)-LRx (TQJ230) – In February 2019, Novartis exercised its option to license AKCEA-APO(a)-LRx and we earned a $150 million license fee. Novartis is responsible for conducting and funding all future development and commercialization activities for AKCEA-APO(a)-LRx, including a global pivotal cardiovascular outcomes study, for which planning and initiation activities are underway. AKCEA-APO(a)-LRx targets a cardiovascular risk factor, lipoprotein(a) or Lp(a). Lp(a) is well-recognized by the medical community as a major risk factor for cardiovascular disease. Lp(a) is genetically determined at birth and there are currently no treatments available to substantially and specifically lower Lp(a). In September 2018, we reported dose-dependent and substantial reductions in Lp(a) levels in the Phase 2 clinical development program for volanesorsen consists of three Phase 3 studies called APPROACH, BROADEN and COMPASS. The APPROACH study is in patients with FCS. It is fully enrolledestablished cardiovascular disease, or CVD, due to elevated levels of Lp(a), which was also the longest and largest study, regardless of phase, conducted with a LICA antisense medicine to date. 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. In addition, AKCEA-APO(a)-LRx demonstrated a favorable safety and tolerability profile in the study.

4
AKCEA-TTR-LRx – We are developing AKCEA-TTR-LRx for the treatment of people with all forms of TTR amyloidosis as a once a month or even less frequent subcutaneous self-administered injection. In April 2018, we licensed to Akcea the worldwide rights to commercialize TEGSEDI and AKCEA-TTR-LRx. We plan to report data from it in the first quarterPhase 1/2 study this year, followed by the initiation of 2017.a pivotal program. We plan to file for marketing authorization in the U.S., Europe and Canada in 2017 if the data are positive. The BROADEN study is in patients with FPL. The study is currently enrolling patients and we plan to have data from this study in 2019. We also recently completed the COMPASSinitiate a Phase 3 study in patients with triglycerides above 500 mg/dL to expand the exposure database for volanesorsen to support global regulatory filings. In December 2016, we reported that the COMPASShereditary TTR amyloidosis with polyneuropathy first, followed closely by a Phase 3 study met its primary endpoint of a statistically significant 71% mean reduction in triglycerides in volanesorsen-treated patients. In a small subset of patients with FCS, volanesorsen-treated patients achieved a mean reduction in triglycerides of 73% from baseline. Safety inwild type and hereditary TTR cardiomyopathy, also planned for this study was supportive of continuing development. We estimate that FCS and FPL each affect 3,000 to 5,000 patients globally. If approved, we plan to commercialize volanesorsen for both FCS and FPL through Akcea.year.

IONIS-TTRIONIS-HTTRx is potentially a first-in-class and best-in-class drug for(RG6042) – Roche initiated the treatment of all forms of transthyretin, or TTR, amyloidosis, a debilitating, progressive, fatal disease in which patients experience a progressive buildup of amyloid plaque deposits in tissues throughout the body, including peripheral nerves, heart, intestinal tract, kidney and bladder. IONIS-TTRRx is given as one subcutaneous injection, once a week. We are evaluating IONIS-TTRRx in an ongoing Phase 3 study NEURO-TTR,of IONIS-HTTRx for HD in patients with FAP. More than half of these patients also have TTR amyloid cardiomyopathy. As part of ourDecember 2018 and we earned a $35 million milestone payment when the first patient was dosed in the Phase 3 study in January 2019. HD is a genetic, devastating and fatal neurodegenerative disease that negatively affects psychological, cognitive and motor functions. In March 2018, we are evaluating cardiomyopathy in this subset of patients by cardiac imaging and biomarkers which will provide data on cardiovascular endpoints.Togetherthe polyneuropathy and cardiomyopathy forms of TTR amyloidosis represent a large commercial opportunity for IONIS-TTRRx. We plan to havereported data from the NEURO-TTRa Phase 1/2 study that demonstrated up to a 60 percent reduction in the second quartermutant huntingtin protein, or mHTT, as observed in the cerebral spinal fluid, or CSF. It was the first study to demonstrate disease-modifying potential in HD patients. Based on preclinical data, the mHTT reductions of 2017. We40-60 percent in the CSF are predicted to result in 55-85 percent reduction in the cortex of the brain, where mHTT is highly expressed. IONIS-HTTRx demonstrated a favorable safety and GSK, our partner for IONIS-TTRRx, are preparing to file for marketing authorization if these data are positive. In our open-label extension study, we have observed substantial TTR reductionstolerability profile in patients with FAP. In a Phase 2 open-label, investigator-initiated study, Dr. Merrill Benson, professor of pathology and lab medicine and molecular genetics at Indiana University School of Medicine, observed sustained reductions in TTR and evidence of disease stabilization in patients with the cardiomyopathy form of TTR amyloidosis. GSK is preparing to commercialize IONIS-TTRstudy.Rx.
3

In addition to our Phase 3 programs, we have a pipeline of drugsIONIS-SOD1Rx (BIIB067) – IONIS-SOD1Rx, for people with the potential to be first-in-class and/or best-in-class drugs to treat patients with diseases that have inadequate treatment options. We are addressing a broad spectrum of diseases from common diseases affecting millions, such as cardiovascular disease, clotting disorders, Alzheimer’s and Parkinson’s disease, to rare diseases, such as amyotrophic lateral sclerosis, or ALS, is the fourth medicine we anticipate we will move into pivotal studies this year. ALS is a rare, fatal neurodegenerative disease characterized by the loss of motor neurons  in the brain and Huntington’s disease. Our pipeline has over a dozen drugsspinal cord resulting in Phase 2 development, manyan inability to control muscle movement.  Scientists have identified mutations within multiple genes as causative of which we believe haveALS, including mutations in the potential to be significant commercial opportunities. In particular, IONIS-FXISOD1 gene. IONIS-SOD1Rx directly targets the SOD1 gene and AKCEA-APO(a)-Lis delivered intrathecally into the CSF. The average life expectancy for an ALS patient with the SOD1 mutation is less than five years from the time of diagnosis. Based on the positive interim analysis from the Phase 1/2 study that demonstrated proof-of-biology and proof-of-concept, in December 2018, Biogen exercised its licensing option with us to develop and commercialize IONIS-SOD1Rx represent. IONIS-SOD1Rx demonstrated a favorable safety and tolerability profile in the value we have created. IONIS-FXIstudy. Biogen plans to add an additional cohort to this study to potentially support registration. We earned $40 million in payments from Biogen in the fourth quarter of 2018 when Biogen advanced and licensed IONIS-SOD1Rx is the first antithrombotic in development that has shown it can decrease the risk of blood vessel obstruction caused by a blood clot without increasing bleeding risk. Given the unique profile of IONIS-FXIRx, we believe that IONIS-FXIRx has the potential to be an important therapy for the many patients who need an antithrombotic but cannot take currently available therapies due to the high risk of bleeding. AKCEA-APO(a)-LRx is the first and only drug in clinical development designed to selectively and robustly lower Lp(a), a key driver of cardiovascular disease. We believe that addressing Lp(a) is the next important horizon in lipid-focused cardiovascular disease treatment..

The depth of our knowledge and expertise with antisense technology together with our strong financial position provides us the flexibility to determinepartner our medicines at what we believe is the optimal development and commercialization strategytime to maximize the near-near-term, mid-term and longer-termlong-term value of our drugs.medicines. We have a distinct partnering strategies that we employstrategy based on theeach specific drug, therapeutic areamedicine and the expertise and resources we and our potential partners may bring to thea collaboration. For some drugs, weWe may choose to develop and commercialize themsome medicines through wholly owned subsidiaries like Akcea.affiliates. In general, these are drugs, such as volanesorsen,medicines, like TEGSEDI, that we have thecan benefit from our internal expertise to advance, thatand infrastructure, have a clearmanageable development path with manageable costs and that have the potential for initial rare disease indications. For other drugs,medicines, we may form partnerships that enable usestablish collaborations to leverage our partner’s global expertise and resources needed to support large commercial opportunities, as we did with Bayer and Novartis.

advance the medicine. 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, and preparing to commercialize our products.medicines and selling our medicines. Our partners include the following companies, among others: AstraZeneca, Bayer, Biogen, GSK, Janssen, Novartis and Roche. Our partners bring substantial resources and expertise that augment and build upon our internal capabilities. We have strategic partnerships with Biogen and AstraZeneca through whichFor example, we can broadly expand our drug discovery efforts to new disease targets in specific therapeutic areas for which our partners can provide expertise, tools and resources to complement our drug discovery efforts. 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 each partnership. Most recently, in January 2017, we and Akcea initiated a collaborationpartnered AKCEA-APO(a)-LRx with Novartis to develop and commercialize AKCEA-APO(a)-LRx and AKCEA-APOCIII-LRx. As a leader in the cardiovascular disease space,because we believe Novartis brings significant resources and expertise that should supportaccelerate our ability to deliver AKCEA-APO(a)-LRx to the large population of patients with  elevated levels of Lp(a) and established CVD. As a result of Novartis exercising its option for AKCEA-APO(a)-LRx in February 2019, Novartis is responsible for conducting and funding all future 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 conductactivities, including a Phase 3 cardiovascular outcomes study for each of these drugs. In addition, Akcea has the rightNovartis is planning to co-commercialize these drugs using its specialized sales force focused on lipid specialists in select markets.conduct. We also form early stage research and development partnerships that allow usare eligible to expand the application of our technology to new therapeutic areas. For example, we established a collaboration with Janssen, 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 gastrointestinal, or GI, tract. Lastly, 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 companiesearn additional payments from Novartis as satellite companies.AKCEA-APO(a)-LRx progresses.

We are now a multi-product commercial company. 2018 marks our seventh consecutive year of revenue growth. Through our partnerships, we have createdearned significant commercial revenue and a broad and sustaining base of potential research and development, or R&D, revenue in the form of license fees, upfront payments and milestone payments, while spending prudently to advanceinvesting in advancing our pipeline and technology. Our R&D revenue has consistently grown year over year since 2011. In 2016, we earned more than $345 million in R&D revenue. Moreover, we have the potential to earn nearly $13over $20 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 earn out or royalty arrangements. With the approval of SPINRAZA in the U.S.,Looking forward, we are adding commercial revenue from SPINRAZA royalties to our existing R&D revenue base. Looking forward,believe we have the potential to increase our commercial revenue from SPINRAZA royalties if Biogen achieves marking authorizationand TEGSEDI product sales from the continued growth we anticipate in additional countries.the U.S., EU and other markets globally. We also have the potential to further increase our commercial revenue with volanesorsen product salesthe potential approval of WAYLIVRA.

We ended 2018 with a strong balance sheet with more than $2 billion in cash and IONIS-TTRRx royalties. We believeshort-term investments, making this the sixth year out of seven that we have been cash accretive. Our strong balance sheet provides us with the key elementsfinancial wherewithal to invest in place to achieve sustained long-term financial growth, including multiple drivers of revenue; a mature, broadexpanding and rapidly-advancing clinical pipeline; a partnership strategy that leveragesadvancing our partner resources;pipeline, in commercializing our medicines through commercial affiliates, and an innovative drug technology that we continue to deploy across a range of therapeutic areas to address both rare and large patient populations.advancing our technology.

2016 and Recent SPINRAZA Accomplishments
●We and Biogen achieved FDA approval of SPINRAZA in three months under Priority Review for the treatment of SMA in pediatric and adult patients.
●Biogen filed for marketing authorization in the EU and was granted Accelerated Assessment.
●Biogen filed for marketing authorization in Canada, Japan, and Australia.
●Biogen reported positive data from an end of study analysis of the ENDEAR Phase 3 study in patients with infantile-onset (consistent with type 1) SMA at the British Pediatric Neurology Association annual conference. We previously reported data from an interim analysis of ENDEAR, which along with several other studies, formed the basis for the marketing application for SPINRAZA in the U.S.
●We and Biogen reported positive data from an interim analysis of the Phase 3 CHERISH study in patients with later-onset (consistent with Type 2) SMA.
●We and Biogen presented new positive clinical data with SPINRAZA at the World Muscle Society Congress supporting the companies' efforts to rapidly make SPINRAZA available to patients with SMA, including:
oSafety results from the interim analysis of the Phase 3 ENDEAR study in patients with infantile-onset (consistent with Type 1) SMA;
oEncouraging preliminary results from NURTURE, a Phase 2 open-label study in pre-symptomatic infants; and
oA recent analysis of the ongoing Phase 2 open-label study in patients with later-onset SMA.
●We and Biogen reported positive data from an interim analysis of the ENDEAR Phase 3 study in patients with infantile-onset (consistent with Type 1) SMA. Biogen paid us $75 million to license the drug.

45

Corporate Highlights
●We earned more than $200 million from Biogen in 2016, including payments related to SPINRAZA.
●
We and Akcea formed a strategic collaboration with Novartis to develop and co-commercialize AKCEA-APO(a)-LRx and AKCEA-APOCIII-LRx for the treatment of lipid disorders, for which Ionis and Akcea are eligible to receive $225 million in near-term payments, including $100 million we have received and $75 million we expect to receive in the first quarter of 2017. The transaction has a potential value of up to over $1 billion.
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We earned $75 million from Bayer to advance both IONIS-FXIRx and its LICA follow on, IONIS-FXI-LRx.
●We sold the global rights to develop and commercialize Kynamro to Kastle Therapeutics and earned a $15 million upfront payment.
●We and MD Anderson Cancer Center formed a strategic alliance to advance novel cancer therapies.
●We added to our pipeline our first oral locally acting drug for gastrointestinal autoimmune diseases for which Ionis earned a $10 million license fee from Janssen.
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We advanced IONIS-KRAS-2.5Rx into development and earned $28 million from AstraZeneca.
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We advanced IONIS-AZ4-2.5-LRx, our first Generation 2.5 LICA drug, into development and earned $25 million from AstraZeneca.
●Our CEO, Dr. Stanley Crooke, received two awards, the E. B. Hershberg Award from the American Chemical Society and the Lifetime Achievement Award from the Oligonucleotide Therapeutics Society, recognizing his achievements in the field of oligonucleotide therapeutics.
Our Marketed Medicines – Transformational Medicines Bringing Value to Patients Today

Drug DevelopmentSPINRAZA – SPINRAZA (nusinersen) injection for intrathecal use is a survival motor neuron-2, or SMN2, directed antisense oligonucleotide indicated for the treatment of SMA in pediatric and Technology Highlights
●We continued to advance our pipeline of innovative first-in-class or best-in-class drugs, reported positive data from 11 clinical studies with six drugs. These data and clinical advancements represent the broad applicability of our technology to address unmet medical needs across multiple disease targets.
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The FDA and EMA granted orphan drug designation to IONIS-HTTRx for the treatment of patients with Huntington's disease.
●Akcea launched IN-FOCUS, a research study to assess the impact of FCS.
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Akcea published positive clinical data from a Phase 2 study of volanesorsen in patients with high plasma triglyceride levels and type 2 diabetes in Diabetes Careadult patients. SPINRAZA is the first and only approved medicine for the treatment of SMA and is the established standard-of-care for all people around the globe with this progressive, debilitating genetic disease. SPINRAZA is approved in over 40 countries around the world. In February 2019, SPINRAZA was approved by the China National Medical Products Association. Our partner, Biogen, who is responsible for global SPINRAZA commercial activities, reported in January 2019 that approximately 6,600 patients were on SPINRAZA therapy. Biogen reported 2018 annual sales of more than $1.7 billion, and we earned $238 million in commercial revenues from royalties on sales of SPINRAZA..
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We published a paper in Nature Biotechnology on the novel mechanism of action for antisense drugs that significantly expands therapeutic opportunities for the technology.
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We published a paper in Nucleic Acid Therapeutics on the analysis of its Integrated Safety Database, which demonstrated no class generic effect of 2’-O-methoxyethyl (2’MOE)-modified antisense oligonucleotides (ASOs) on platelet numbers and function.

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, 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 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 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, produce greater amounts of SMN protein and have less severe, but still life-altering, forms of SMA.

SPINRAZA was recognized with the 2018 International Prix Galien Best Biotechnology Product award. The prestigious honor marks the seventh Prix Galien award for SPINRAZA, following country recognitions in the U.S., Germany, Italy, Belgium-Luxembourg, the Netherlands and the U.K. The International Prix Galien award is given every two years by Prix Galien International Committee members in recognition of excellence in scientific innovation to improve human health.

Biogen is conducting NURTURE, a Phase 2 open-label study of SPINRAZA in pre-symptomatic infants. Biogen presented an interim analysis of the NURTURE data at the Annual Congress of the World Muscle Society in October 2018. The interim analysis showed that SPINRAZA-treated infants 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. All of the infants in the study were able to sit without support and 88 percent of the infants were able to walk either with assistance or independently. No new safety concerns were identified.

The safety and efficacy of SPINRAZA has been evaluated in multiple clinical studies in more than 270 patients, including two 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.

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, sit, and stand. Additionally, infants treated with SPINRAZA demonstrated a statistically significant improvement in event-free survival compared to untreated patients.

In the CHERISH EOS 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. The majority of children treated with SPINRAZA demonstrated benefits in upper limb and general motor function, including crawling and standing with support. The overall findings from the CHERISH EOS analysis continue to support the robust efficacy and favorable safety profile of SPINRAZA across a broad patient population.

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 (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).

TEGSEDI – TEGSEDI (inotersen) injection is a Generation 2+ antisense medicine and the world’s first and only approved subcutaneous RNA-targeting medicine designed to treat people with polyneuropathy caused by hATTR. In October 2018, the FDA approved TEGSEDI for the treatment of the polyneuropathy of hereditary transthyretin-mediated amyloidosis in adults. TEGSEDI is also approved in the EU and Canada for the treatment of stage 1 or stage 2 polyneuropathy in adult patients with hereditary transthyretin amyloidosis. It is administered as a once weekly, self-administered, at-home, subcutaneous injection. In March 2018, Akcea licensed TEGSEDI from us.

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 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 transthyretin amyloidosis, or ATTR.

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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. Cardiomyopathy caused by ATTR is 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 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 three to five years from disease onset.

The TEGSEDI approval relied 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.

Thrombocytopenia and safety signals related to renal function were identified during the study. 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.

Additionally, at the 60th American Society of Hematology, or ASH, Annual Meeting and Exposition held in December 2018, we presented data from the open-label extension study, or OLE, in patients with hATTR treated with TEGSEDI. The OLE is an ongoing study and is intended to evaluate the long-term efficacy and safety profile of TEGSEDI. The benefits observed from TEGSEDI in the NEURO-TTR study continued in the OLE. In addition, the OLE results demonstrated that patients who initiated TEGSEDI treatment at the start of the NEURO-TTR study, 15 months earlier, experienced greater benefit than those who received placebo treatment in the NEURO-TTR study and then initiated treatment in the OLE. Patients who began the NEURO-TTR study on placebo experienced a rapid onset of effect following TEGSEDI treatment that has been sustained for up to 2 years in the OLE. These patients further experienced improvements in quality of life and activities of daily living as measured by Norfolk QoL-DN and showed improved mNIS+7 progression compared to their rate of progression in the NEURO-TTR study. Specifically, these patients experienced a mean increase in Norfolk QoL-DN of 16.8, a 10 point improvement over projected placebo values and a mean increase in mNIS+7 of 34 points from baseline, a 24 point improvement over projected placebo values. No new safety concerns were identified 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 TEGSEDI’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).

We developed TEGSEDI under a collaboration agreement we had with GSK. Under the agreement, we are required to pay GSK a nominal royalty on net sales of TEGSEDI.

See our separate section below where we further discuss Akcea, our affiliate focused on developing and commercializing medicines to treat people with serious 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 drugs because antisense drugsmedicines can modify the production of proteins by targeting RNAs. In this way, antisense drugsmedicines can reduce 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 disease.diseases (so called “toxic RNAs”). RNAs are naturally occurring molecules in the body that primarily provideact as messengers that carry the information the cell needs to produce proteins.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.

Our Development Projects

We are thea leader in the discovery and development of an exciting class of RNA-targeted drugsmedicines called antisense drugs.oligonucleotide, or ASO, medicines, or just antisense 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 wherein which our drugsmedicines will work best, efficiently screening many targets in parallel and carefully selecting the best drugs.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 onsuch as cardiometabolic diseases, neurodegenerative diseases, cancer, severe and rare diseases including neurodegenerative diseases, cardiovascular, metabolic diseases, and cancer.others. We are developing antisense drugsmedicines for systemic intrathecal and local delivery. delivery (e.g., intrathecal, intraocular, oral and aerosol).

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We expectplan to continue to add new drugsmedicines to our pipeline, building a broad proprietary portfolio of drugsmedicines to treat many diseases and creating opportunities 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 chemistries. Ourchemical modifications we use in our antisense medicines, such as with our Generation 2.0+2+ antisense drugsmedicines, 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 andmedicines, which broadens the organs and tissues in which our drugsmedicines can work. We currently have six13 Generation 2.5 drugsmedicines in development, and we expectanticipate that somemore of our future drugsmedicines will also 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
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designed design to enhance the deliveryeffective uptake and activity of our drugs tomedicines in particular tissues. We believe thatWith our LICA technology could further enhance the potency of our drugs. For example, our LICA technology directed toward liver targets produced a ten-fold increase in potency in preclinical studies in both our Generation 2.0+ and our Generation 2.5 drugs. Our LICA technology conjugateswe attach specific chemical structures or molecules to our antisense drugs and hasmedicines. With our first LICA conjugate, a complex sugar-like molecule called N-acetylgalactosamine, or GalNac, we have shown toan increase the efficiencyin medicinal potency of drug uptake in a particular tissue and increase drug potency from 20 to over 30 fold30-fold for liver targets, compared to non-conjugated antisense drugs.medicines. We currently have ten Generation 2.0+13 LICA drugsmedicines in our pipeline, all of which we designed to inhibit targets in the liver. We also recently added IONIS-AZ4-2.5-LRx a drugdevelopment, including two medicines that combinescombine our Generation 2.5 chemistry and LICA technology, to our preclinical pipeline.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.



The above table lists the medicines in our pipeline includingthat are in registration for marketing authorization or in clinical trials. The table includes the disease indications, ourindication, a partner if(if the drugmedicine is partnered,partnered), and the development status of each drug.medicine. Typically, the names of our drugsmedicines incorporate the target of the drug, such as IONIS-TTRmedicine. For example, with IONIS-HTTRx. In this case, TTR, the RNA produced from the huntingtin gene, represented by the acronym HTT, is the target of the drug.medicine. Unless indicated otherwise, the majority of the drugsmedicines in our pipeline are Generation 2.0+2+ antisense drugs.medicines. We differentiate drugs thatmedicines discovered at Ionis but being developed by Akcea is developing by starting the drug name with AKCEA,using “AKCEA”, instead of IONIS,“IONIS” at the beginning of the medicine name, such as AKCEA-ANGPTL3-LRx. We differentiate our Generation 2.5 drugsmedicines by adding a 2.5“2.5” notation at the end of the drugmedicine name, such as IONIS-STAT3-2.5IONIS-JBI1-2.5Rx. We differentiate our LICA drugsmedicines by adding an L“L” at the end of the drugmedicine name, such as AKCEA-APO(a)-LIONIS-PKK-LRx. We also recently added IONIS-AZ4-2.5-LRx, a drug that combines our Generation 2.5 and LICA technology, to our preclinical pipeline. As the drugsmedicines in our pipeline advance in clinical development, we will adopt nonproprietary names given to each drugmedicine from the United StatesU.S. Adopted Names Council. For example, volanesorseninotersen is a nonproprietary name that we obtained for ISIS-APOCIIIIONIS-TTRRx. Once we or our partners establish a brand name, we will adopt the brand name. For example, SPINRAZATEGSEDI is the brand name for nusinersen, which was formerly ISIS-SMNRx.inotersen.

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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 2017, we plan to initiate multiple clinical studies, report data on multiple drugs and add three to five new drugs into development.

Our Newly Marketed DrugWAYLIVRA – Potential Approval in Europe Following Positive CHMP Opinion

SPINRAZAWAYLIVRA (volanesorsen) – SPINRAZAWAYLIVRA is a Generation 2.0+2+ antisense drug and is the first and only approved treatment for SMA in pediatric and adult patients in the U.S.

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, consistent with Type 1, SMA, the most severe life-threatening form, 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, consistent with Type 2 or Type 3 SMA, produce greater amounts of SMN protein and have less severe, but still life-altering, forms of SMA.
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SPINRAZA is administered via intrathecal injection, which delivers therapies directly to the cerebrospinal fluid, or CSF, around the spinal cord, where motor neurons degenerate in patients with SMA due to insufficient levels of SMN protein.

In December 2016, the FDA approved SPINRAZA for the treatment of pediatric and adult patients with SMA. The European Medicines Agency, or EMA, has validated the Marketing Authorization Application, or MAA, for SPINRAZA for the treatment of SMA and the Committee for Medicinal Products for Human Use, or CHMP,  has granted SPINRAZA Accelerated Assessment. The Accelerated Assessment designation can reduce the standard review time. The EMA has granted Orphan Drug Designation to SPINRAZA for the treatment of patients with SMA. Biogen has also submitted regulatory filings in Japan, Canada and Australia and will be initiating regulatory filings in additional countries in 2017.

We and Biogen submitted marketing applications for SPINRAZA in the U.S. and EU in less than two months after announcing positive results from the ENDEAR interim analysis. ENDEAR was a pivotal Phase 3 controlled study evaluating SPINRAZA in patients with infantile-onset SMA. The data package included the interim analysis of ENDEAR, as well as open-label data in pre-symptomatic and symptomatic patients with SMA, or likely to develop, Types 1, 2 and 3 SMA.

In ENDEAR, infantile-onset SMA patients treated with SPINRAZA achieved and sustained clinically meaningful improvement in motor function compared to untreated study participants. In addition, a greater percentage of patients on SPINRAZA survived compared to untreated patients. In January 2017, Biogen presented the ENDEAR pre-specified primary endpoint, time to death or permanent ventilation, from the end of study, or EOS, analysis, which includes data from patients’ final study visit, which occurred after the announcement that the study was being stopped and was not part of the interim analysis. SPINRAZA met the pre-specified primary endpoint at the ENDEAR EOS, demonstrating a statistically significant 47% reduction in the risk of death or permanent ventilation (p<0.01). SPINRAZA demonstrated a favorable safety profile, with commonly reported adverse events including respiratory events and constipation, consistent with those expected in the general population of infants with SMA.

We also conducted CHERISH, our Phase 3 study in patients with later-onset SMA. CHERISH also met the primary endpoint for the pre-specified interim analysis. The analysis found that children receiving SPINRAZA experienced a highly statistically significant improvement in motor function compared to those who did not receive treatment.  SPINRAZA demonstrated a favorable safety profile in the study.

Additionally, Biogen conducted NURTURE, a Phase 2 open-label study in pre-symptomatic infants. At the 2016 World Muscle Society Congress in October 2016, encouraging preliminary results from NURTURE were presented in addition to an analysis of the then ongoing Phase 2 open-label study in patients with later-onset SMA. The interim analysis of the ongoing, open-label, 30-month, Phase 2 NURTURE study showed that SPINRAZA-treated pre-symptomatic infants exhibited improvements in motor function and motor milestones such as full head control, independent sitting, standing with support, standing unaided, and walking with support, as measured by validated scales. 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 of these studies support the effectiveness of SPINRAZA across the range of SMA patients, and appear to support the early initiation of treatment.

The most common adverse reactions reported for SPINRAZA were upper respiratory infection, lower respiratory infection and constipation. Serious adverse reactions of partial or complete lung collapse were more frequent in SPINRAZA-treated patients.

We and Biogen entered into an alliance to develop and commercialize SPINRAZA in January 2012. In July 2016, Biogen licensed SPINRAZA from us and paid us a $75 million license fee. We have transitioned all SPINRAZA development activities to Biogen as they are now responsible for all global development, regulatory and commercialization activities and costs.

Our Phase 3 Drugs


We have two drugs for which we are conducting pivotal Phase 3 studies: volanesorsen and IONIS-TTRRx. Both of these drugs have the potential to transform the treatment of patients with an orphan disease, and we believe these drugs are close to commercialization. In 2015, we completed target enrollment in a Phase 3 study for each of these drugs.

Volanesorsen – Volanesorsen is a Generation 2.0+ antisense drugmedicine we and Akcea are developing to treat patientspeople with FCS and FPL, orphanwhich are severe, rare, genetically defined diseases characterized by extremely elevated triglyceride levels and a high risk of life-threatening pancreatitis.
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In February 2019, the CHMP of the EMA adopted a positive opinion recommending conditional marketing authorization for WAYLIVRA as an adjunct to diet in adult patients with genetically confirmed FCS who are at high risk for pancreatitis, in whom response to diet and triglyceride lowering therapy has been inadequate. The positive opinion will now be referred to the EC, which grants marketing authorization for medicines in the EU, as well as to European Economic Area members Iceland, Liechtenstein and Norway. With this positive opinion, and, pending adoption of the positive opinion by the EC, Akcea plans to leverage its existing commercial infrastructure in Europe to market WAYLIVRA.

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. We are continuing our discussions with the FDA regarding WAYLIVRA.

Due to the high levels of triglycerides in their blood, patientspeople with FCS and FPL experience a varietymay suffer from many chronic health issues including severe, recurrent abdominal pain, fatigue, high risk of debilitating and potentially life-threatening conditions, including pancreatitis persistent and often severe abdominal pain and abnormal enlargement of the liver or spleen. It is estimated to affect 3,000 to 5,000 people in treatable markets. In addition, patientspeople with FCS or FPL have tomust adhere to a very low fatstrict, low-fat diet. FPL is a rare, orphan disease that is estimated to affect 3,000 to 5,000 patients worldwide. Patients with FPL typically have diabetes and other metabolic abnormalities, including elevated triglycerides, which increases their risk of pancreatitis. As a result of these factors, patientspeople 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. Patients with FCS and FPL suffer from acute pancreatitis, a sudden inflammation of the pancreas that may be fatal. The symptoms of an acute pancreatitis episode are severe, debilitating upper abdominal pain that radiates into the back, fever and nausea and vomiting.these diseases. 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 FCS patients and an additional 3,000 to 5,000 FPL patients globally.

VolanesorsenWAYLIVRA acts to reduce triglyceride levels by inhibiting the production of ApoC-III,apolipoprotein C-III, or apoC-III, a protein that is a key regulator of triglyceride clearance.levels. People who have low levels of ApoC-IIIapoC-III or reduced ApoC-IIIapoC-III function have lower levels of triglycerides and a lower incidence of cardiovascular disease, or CVD. By inhibiting the production of ApoC-III, volanesorsenapoC-III, WAYLIVRA is able to increase triglyceride clearance in FCS patients, reducingreduce their triglyceride levels.

The marketing authorization application for WAYLIVRA is based on results from the Phase 3 APPROACH study and the ongoing APPROACH Open Label Extension, or OLE, study and supported by results from the Phase 3 COMPASS study. 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 WAYLIVRA-treated patients. We demonstratedobserved 50 percent of treated patients achieved triglyceride levels below 500 mg/dL, a commonly accepted threshold for pancreatitis risk. In addition, in Phase 2 studies that volanesorsen robustlythe APPROACH study, treatment with WAYLIVRA was associated with a statistically significant reduced ApoC-IIIrate of pancreatitis attacks in the group of patients who had the highest incidence of pre-study pancreatitis and triglyceridesreduced abdominal pain in patients reporting pain before treatment in the study.

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. 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 WAYLIVRA was associated with a statistically significant reduction in on-study pancreatitis attacks. The most common adverse event in the WAYLIVRA-treated group of patients was injection site reactions, which were mostly mild. In addition, a potentially treatment-related SAE of serum sickness reaction, from which the patient fully recovered, was reported. There have been no deaths and no treatment-related bleeding or cardiovascular events in any WAYLIVRA clinical study.

We are conducting the BROADEN study, a Phase 3 clinical trial in patients with FPL, with data anticipated this year.

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. Additionally, we have expanded access programs, or EAPs, for WAYLIVRA. Patients in the BROADEN study are also eligible to roll over into an open-label extension study upon completing dosing in the pivotal study. We plan to commercialize WAYLIVRA through Akcea for patients with FCS and also hadFPL, if approved in other markets.

Potential Next Wave of Pivotal Medicines

Focusing on our key fundamental strategies has created a beneficial impact on insulin sensitivity.deep and broad pipeline of over 40 first-in-class and/or best-in-class medicines that we believe have the potential to deliver significant value to patients affected by these devastating diseases, many of which have limited treatment options. We published our findings fromhave at least four medicines that have begun pivotal studies or have the potential to begin pivotal studies this year.

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AKCEA-APO(a)-LRx (TQJ230) – AKCEA-APO(a)-LRxis a Generation 2+ LICA medicine we designed to reduce 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.

Akcea is developing AKCEA-APO(a)-LRx for people who are at significant risk of CVD because of their elevated levels of Lp(a). AKCEA-APO(a)-LRx inhibits the production of the Apo(a) protein, thereby reducing Lp(a). Lp(a) is a very atherogenic 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 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. 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.

We reported results of the Phase 2 studiesstudy with volanesorsenAKCEA-APO(a)-LRx in two publicationspatients 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 dependent reductions from baseline in Lp(a) levels. Approximately 98 percent of patients who received the highest dose in the New England Journalstudy demonstrated a reduction in Lp(a) levels to below 50 mg/dL, the recognized threshold for risk of Medicine.

WeCVD. This study of AKCEA-APO(a)-LRx was the longest and Akcea are currently conducting two Phase 3 studies of volanesorsen. Thelargest clinical study in patients with FCS, called APPROACH,established 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.

In February 2019, Novartis exercised its option to license AKCEA-APO(a)-LRx and Novartis’ preparations to initiate Phase 3 a cardiovascular outcomes study are already underway

AKCEA-TTR-LRx – We are co-developing AKCEA-TTR-LRx with Akcea 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 developing AKCEA-TTR-LRx for the treatment of people with all forms of TTR amyloidosis as a once a month or even less frequent subcutaneous self-administered injection. We plan to report data from the Phase 1/2 study this year, followed by the initiation of a pivotal program. We plan to initiate a Phase 3 study in patients with hereditary TTR amyloidosis with polyneuropathy first, followed closely by a Phase 3 study in patients with wild type and hereditary TTR cardiomyopathy, also planned for this year.

IONIS-HTTRx – IONIS-HTTRx (RG6042) is fully enrolleda Generation 2+ antisense medicine we designed to target the underlying cause of HD by reducing the production of the toxic mHTT protein. Roche initiated the Phase 3 study of IONIS-HTTRx for Huntington’s disease, or HD, in December 2018 and the first patient was dosed in the Phase 3 study in January 2019. In addition to the Phase 3 study, all participants who took part in the Phase 1/2 study are eligible to continue to receive IONIS-HTTRx as part of an OLE study to assess the safety and tolerability of IONIS-HTTRx. In parallel with the Phase 3 study and 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 observational study aimed at further understanding the role of mHTT in disease progression and is anticipated to include up to 100 participants with Stage I and II HD. There is no drug treatment in the observational study, as the goal is to understand the natural progression of HD.

We completed a randomized, placebo-controlled, dose escalation, Phase 1/2 clinical study of IONIS-HTTRx in patients with early stage HD. In this study, we observed dose-dependent reductions of mHTT among patients treated with IONIS-HTTRxand Akcea planIONIS-HTTRx demonstrated a favorable safety and tolerability profile. In March 2018, we reported data from the study that demonstrated up to a 60 percent reduction in the mHTT as observed in the CSF. It was the first study to demonstrate disease-modifying potential. The mHTT reductions of 40-60 percent in the CSF correspond to an estimated 55-85 percent reduction in the cortex of the brain, where mHTT is highly expressed, based on preclinical data. There were no serious adverse events reported and no participants discontinued from the study. In August 2018, the EMA granted PRIME designation to IONIS-HTTRx. 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 granted Orphan Medicine Designation for IONIS-HTTRx to treat people with HD.

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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. 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 are no disease-modifying treatments available for HD patients, with current drugs only managing some disease symptoms.

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 IONIS-HTTRx following the completion of a Phase 1/2 randomized, placebo-controlled, dose escalation study of IONIS-HTTRx in people with HD. Roche is responsible for all IONIS-HTTRx development, regulatory and commercialization activities and costs.

IONIS-SOD1Rx (BIIB067) – IONIS-SOD1Rx is a Generation 2+ antisense medicine we designed to reduce the production of superoxide dismutase 1, or SOD1, which is a 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 breathing and swallowing and eventually succumb to the disease. Currently, treatment options for people with ALS are extremely limited, with no medicines that significantly slow disease progression.

In December 2018, Biogen exercised its licensing option to develop and commercialize IONIS-SOD1Rx based on the positive interim analysis from the Phase 1/2 study that demonstrated proof-of-biology and proof-of-concept. Biogen is responsible for all IONIS-SOD1Rx development, regulatory and commercialization activities and costs. At the highest dose tested, treatment with IONIS-SOD1Rx 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 ALS functional rating scale-revised, 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 supports the continued development of IONIS-SOD1Rx in ALS.

Biogen plans to add an additional cohort to this study to potentially support registration of IONIS-SOD1Rx.

Neurological Disease Franchise

We are discovering and developing antisense medicines to treat people with inadequate treatment options for both common and 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

IONIS-HTTRx – See the medicine description under “Next Wave of Pivotal Medicines” section above.

AKCEA-TTR-LRx – See the medicine description under “Next Wave of Pivotal Medicines” section above.

IONIS-SOD1Rx – See the medicine description under “Next Wave of Pivotal Medicines” section above.

IONIS-MAPTRx – IONIS-MAPTRx is a Generation 2+ antisense medicine we designed to selectively reduce production of the tau protein in the brain. We are collaborating with Biogen to develop IONIS-MAPTRx to treat people with Alzheimer’s disease, or AD, and frontotemporal dementia, or FTD, common forms of dementia.

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Microtubule-associated protein tau, or tau, is a contributor or cause of certain neurodegenerative diseases, known as tauopathies, characterized by the deposition of abnormal tau protein in neurons and non-neuronal cells in the brain. AD and FTD are characterized by predominant 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 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 1/2 double-blind, randomized, placebo-controlled, dose-escalation study to evaluate the safety and activity of once-monthly intrathecal injections in patients with mild AD. We are planning to report data from this study in the first quarter of 2017. The study in patients with FPL, called BROADEN, is currently enrolling and we and Akcea plan to report data from this study in 2019. We and Akcea also conducted an additional Phase 3 study, called COMPASS, in patients with triglycerides above 500 mg/dL to expand the exposure database for volanesorsen to support global regulatory filings.
In December 2016, we and Akcea announced that the COMPASS study met its primary endpoint. The treatment effect observed was sustained through the end of the 26 week treatment period for both the full study population and the subset of patients with FCS.

Volanesorsen has been granted orphan drug status in both the U.S. and EU for the treatment of FCS. Further, volanesorsen has been granted orphan drug status in the EU for the treatment of FPL, and we are in the process of applying for this status for this indication in the U.S. Akcea plans to globally commercialize volanesorsen for both FCS and FPL if approved.

See our separate section below where we further discuss our subsidiary, Akcea.2020.

IONIS-TTRIONIS-C9Rx – IONIS-C9Rx – IONIS-TTRRx, also referred to as BIIB078, is a Generation 2.0+2+ antisense drugmedicine we are developingdesigned to treat patients with all formsselectively reduce the production of TTR amyloidosis. TTR amyloidosis is a severe, progressive and fatal disease. In all formsthe mutated chromosome 9 open reading frame 72, or C9ORF72, gene. A mutation in this gene results in an inherited form of TTR amyloidosis TTR protein forms amyloid deposits in various tissues and organs, including peripheral nerves, heart, intestinal tract, eyes, kidneys, central nervous system, thyroid and bone. The progressive accumulation of TTR amyloid deposits in these tissues and organs leadsALS, referred to organ failure and eventually death. We designed IONIS-TTRRx to be administered as one subcutaneous injection, once a week for all TTR amyloidosis patients.

TTR amyloidosis is a single disease that clinicians characterize into three forms that can have multiple overlapping clinical manifestations: FAP, FAC and wt-TTR. FAP affects approximately 10,000 patients worldwide and is a painful, fatal disease that ultimately leads to multi-organ failure and death within five to 15 years after symptom onset and diagnosis. FAP patients primarily have TTR build up inC9ORF72-ALS, the peripheral nervous system, but can also have significant TTR build up in multiple organs. FAC affects approximately 40,000 patients worldwide and wt-TTR amyloidosis affects approximately 200,000 patients worldwide. While both FAC and wt-TTR differ in themost prevalent genetic cause of TTR amyloidosis, both diseases progressALS worldwide. There is substantial evidence that this mutation is responsible for a toxic gain of function repeat expansion that can lead to rapid progressive loss of motor neurons in similar ways. Patientspeople with FACC9ORF72-ALS. This is a fatal disease characterized by muscle weakness, loss of movement, and wt-TTR amyloidosis have TTR build up in the heart muscledifficulty breathing and succumbswallowing. We believe IONIS-C9Rx represents a novel approach to heart failure within threetargeting ALS, for which there is no cure.

We and Biogen are collaborating to five years after symptom onset and diagnosis. TTR amyloidosis is fatal and there are limited therapeutic optionsdevelop IONIS-C9Rx to treat patients with this disease.

We areform of ALS. In August 2018, we initiated a Phase 1/2 clinical study evaluating IONIS-TTRRx in NEURO-TTR, a randomized, double-blinded, placebo-controlled, international Phase 3 study for FAP patients. We have completed target enrollment. We plan to report data from this study in the second quarter of 2017. We designed this study to support an application for marketing authorization of IONIS-TTRIONIS-C9Rx in patients with FAP. OurC9ORF72-ALS. The current study is measuringa randomized, blinded, placebo-controlled study designed to assess the effectssafety, tolerability, and pharmacokinetics of IONIS-TTRmultiple ascending doses of IONIS-C9Rx on neurological dysfunction and on quality-of-life.administered intrathecally to adults with C9ORF72-ALS. IONIS-C9Rx is the second medicine from our Biogen collaboration targeting a familial form of ALS. The first is IONIS-SOD1Rx, designed to treat SOD1 related ALS, caused by a mutation in the SOD1 gene.

The FDA has granted Orphan Drug Designation and Fast Track Status to IONIS-TTRRx for the treatment of patients with FAP. The EMA has granted Orphan Drug Designation to IONIS-TTRRx for the treatment of patients with TTR amyloidosis.

Severe and Rare Disease Franchise

Our severe and rare disease franchise is one the largest franchisefranchises in our pipeline. We are discovering and developing antisense drugsmedicines to treat patientspeople with severe and rare and neurodegenerative diseases who need new treatment options. We believe our antisense technology could offer effective therapies for these patients.people. According to the National Institutes of Health, or NIH there are approximately 5,000 to 8,0007,000 rare diseases and more than 600 neurological diseases, many life-threatening or fatal. Unfortunately, patientspeople with many of these severe and rare diseases have few 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.
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Due to the severe nature of these diseases and the lack of available treatments, there is 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 approved five years after we began the Phase 1 study for it.

IONIS’IONIS’ Severe and Rare Disease Clinical Pipeline


SPINRAZA – WAYLIVRASPINRAZA is our recently marketed Generation 2.0+ antisense drug to treat patients with SMA. SMA is a severe motor neuron disease that is - See the leading genetic cause of infant mortality. For more information on SPINRAZA, see the drugmedicine description under Our Newly Marketed Drug.“WAYLIVRA - Under Regulatory Review for Marketing Authorization” section above.

Kynamro AKCEA-TTR-LRx– Kynamro(mipomersen sodium) injection is an oligonucleotide inhibitorSee the medicine description “Next Wave 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 HoFH. Kynamro is approved for use in patients 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.Pivotal Medicines” section above.

Volanesorsen – Volanesorsen is a Generation 2.0+ antisense drug we and Akcea are developing to treat patients with FCS and 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. For more information on the development plan for volanesorsen see the drug description under Our Phase 3 Drugs.

IONIS-TTRIONIS-GHR-LRx – IONIS-TTRIONIS-GHR-LRx is a Generation 2.0+ antisense drug we designed to treat all forms of TTR amyloidosis. TTR amyloidosis is a severe, progressive and fatal disease. For more information on the development plan for IONIS-TTRRx see the drug description under Our Phase 3 Drugs.

IONIS-HTTRx – IONIS-HTTRx is a Generation 2.0+ antisense drug2+ LICA medicine we designed to reduce the production of the huntingtin,growth hormone receptor, or HTT, protein,GHr, to decrease the genetic causecirculating level of Huntington'sinsulin-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 in excess, IGF-1 results in acromegaly, a chronic, and life-threatening disease.

High levels of circulating GH and IGF-1 lead to this multisystem disease or HD. We are collaboratingcharacterized by organ overgrowth and physical disfigurement, such as enlarged hands, feet, and facial features. Patients with Rocheacromegaly also experience multiple co-morbidities, 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 turn decrease levels of IGF-1 and provide a potential treatment to develop IONIS-HTTRx to treat patients with HD.acromegaly. Acromegaly is a rare disease with an estimated 25,000 patients in the U.S. 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.

HD is an inherited genetic brain disorder that results in the progressive loss
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We have completed a Phase 1, double-blind, placebo-controlled, dose-escalation study of both mental faculties and physical control. 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 HTT protein is toxic and gradually destroys neurons. 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 is no effective disease-modifying treatment, and current approaches only focus on managing the severity of some disease symptoms.

We are evaluating IONIS-HTTIONIS-GHR-LRx in healthy volunteers. In this study, IONIS-GHR-LRx demonstrated a randomized, placebo-controlled, dose escalation, Phase 1/2 clinicalfavorable safety and tolerability profile. There were no reports of deaths, serious adverse events or adverse events that led to study indiscontinuation. IONIS-GHR-LRx has the potential to bring substantial benefit to patients with early stage HD.

The FDA and EMA have granted Orphan Drug Designation for IONIS-HTTRx to treat patientsacromegaly with HD.at home, monthly subcutaneous administration.

IONIS-SOD1In November 2018, we initiated the Phase 2 proof of concept clinical study of IONIS-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. Patients in the study will receive monthly subcutaneous injections for four months. We anticipate we will complete this study by the end of this year.

IONIS-TMPRSS6-LRx – IONIS-SOD1IONIS-TMPRSS6-LRx is a Generation 2.0+ antisense drug2+ LICA medicine we designed to reduce the production of superoxide dismutase 1,transmembrane protease, serine 6, or SOD1, which is the best understood genetic cause of familial amyotrophic lateral sclerosis, or ALS. We are collaborating with Biogen to develop IONIS-SOD1RxTMPRSS6, to treat patientsanemia and iron toxicity in people with an inherited form of ALS, SOD1-ALS.

ALSβ-thalassemia, a disease caused by mutations in the beta globin gene. TMPRSS6 is a rare, fatal neurodegenerative disorder. Patients with ALS suffer progressive degenerationprotein produced in the liver that is important in the regulation of the motor neurons,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 a declining quality of life and ultimately death. The second most common familial form of ALS is SOD1-ALS, in which patients have a mutationmore effective red blood cell production in the SOD1 gene that causes a progressive loss of motor neurons. Asbone 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, with SOD1-ALS experience muscle weakness, lossiron toxicity is a common complication leading to high rates of movement, difficultymortality as a result of iron accumulation in breathingmajor organs, such as the heart and swallowing and eventually succumb to their disease.liver. Currently treatment optionsthere are no effective therapies for patients with ALS are extremely limitedβ-thalassemia. The current standard of care is managing patients’ symptoms with no drugs that significantly slow disease progression.
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blood transfusions, hydroxyurea, and iron chelation.

Weβ-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 evaluating IONIS-SOD1Rx in a randomized, placebo-controlled, dose escalation, Phase 1/2 clinical studynot needed to support life in patients with ALS, including patients with SOD1-ALS.NTDT, the associated complications of the disease are severe and often fatal. There are approximately 20,000 people in North America and Europe who suffer from β-thalassemia intermedia.

AKCEA-ANGPTL3-LRx – AKCEA-ANGPTL3-LResults 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. In December 2018, we presented positive Phase 1 data at the ASH Annual Meeting. In a randomized, double-blind, placebo-controlled, dose-escalation Phase 1 study in healthy volunteers, we demonstrated dose-dependent reductions of serum iron and serum transferrin saturation. Additionally, we observed an increase in serum hepcidin and predicted changes in hemoglobin. IONIS-TMPRSS6-LRx isdemonstrated a LICA drug we designed to reduce angiopoietin-like 3 protein, or ANGPTL3, an independent risk factor for cardiovascular disease. Wefavorable safety and Akcea are developing AKCEA-ANGPTL3-LRx to treat multiple lipid disorders, or mixed dyslipidemias. For more information on the development plan for AKCEA-ANGPTL3-LRx, see the drug description under the Akcea Therapeutics section below.tolerability profile.

We are planning to begin the Phase 2 proof of concept study of IONIS-TMPRSS6-LRx this year.

IONIS-PKKRxand IONIS-PKK-LRx – IONIS-PKKRx is a Generation 2.0+and IONIS-PKK-LRx are antisense drugmedicines we designed to reduce the production of prekallikrein, or PKK, to treat patientspeople 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-LRxcould be an effective prophylactic approachapproaches 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 patients with few therapeutic options.

We have completed a Phase 1 study evaluating IONIS-PKKRx in healthy volunteers and we are exploring potential development options. In this study, IONIS-PKKRx demonstrated a favorable safety and tolerability profile. We are currently evaluating 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-LRx administered subcutaneously.

CardiovascularIONIS-ENAC-2.5Rx – IONIS-ENAC-2.5Rx is a Generation 2.5 antisense medicine we designed to selectively reduce epithelial sodium channel, or EnaC, to treat people with cystic 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 chloride channel expressed in epithelial cells, including those in the lung. Targeting ENAC may enable treatment of all forms of CF due to various CFTR mutations, unlike existing therapeutics. CF is a multisystem disease that mostly affects the lungs, 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 worsened symptoms, known as pulmonary exacerbations. CF is estimated to affect approximately 30,000 people in the U.S. and another 70,000 worldwide. Despite progress with other treatments, there remains a need for effective treatment options.

Antisense aerosol technology for lung delivery may provide a novel solution for targeting ENaC potentially enabling all patients with CF to be treated. In preclinical studies in transgenic rodents, treatment with ENaC-targeting antisense drugs specifically suppressed ENaC expression, resulting in the reduction of markers of CF mucus pathology and improved lung function. Treatment prevented manifestations of the disease from occurring and reversed existing CF.

In December 2018, we initiated a Phase 1 study of healthy volunteers in a double-blinded, placebo-controlled, dose-escalation study to evaluate the safety and efficacy of IONIS-ENAC-2.5Rx. The study will consist of four randomized single-dose cohorts and four multiple-dose cohorts.

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Cardiometabolic and Renal Disease Franchise

Cardiovascular disease is an important area of focus for us. OurAccording to the World Health Organization, or WHO, cardiovascular franchise includesdisease was the drugs Akcea is developing that we describe below and IONIS-FXIRx, which we are developing and have licensed to Bayer.number one cause of death globally. An estimated 17.9 million people died from CVD in 2016, representing 31 percent of all deaths globally. The drugsmedicines in our cardiovascular franchise target all the key components of cardiovascular disease, including various atherogenic lipids, inflammation and thrombosis.

IONIS’ Cardiovascular Metabolic disorders are chronic diseases that affect tens of millions of people. There is a significant need for new therapies for these people. According to the Centers for Disease Pipeline

 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.

IONIS’ Cardiometabolic and Renal Disease Clinical Pipeline


AKCEA-ANGPTL3-LRx– AKCEA-ANGPTL3-LRx is a Generation 2+ LICA medicine we designed to reduce the production of the angiopoietin-like 3, or ANGPTL3, protein. We and Akcea are developing AKCEA-ANGPTL3-LRx to treat nonalcoholic fatty liver disease, or NAFLD.

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 have completed a Phase 1/2 program for AKCEA-ANGPTL3-LRx in healthy volunteers with elevated triglycerides. Results for the initial cohort from this study were reported at the AHA meeting in November 2016 and the data were published in The New England Journal of Medicine. 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 the fourth quarter of 2017, we initiated a multicenter, randomized, double-blind, placebo-controlled dose-ranging study of AKCEA-ANGPTL3-LRx in patients with NAFLD with metabolic complications, which include hypertriglyceridemia, type 2 diabetes and nonalcoholic steatohepatitis, or NASH. We are planning to report data from this study in 2020.

Further, we have a small ongoing study of AKCEA-ANGPTL3-LRx in patients with rare hyperlipidemias.

IONIS-FXIRx and IONIS-FXI-LRx – IONIS-FXIRx is a Generation 2.0+and IONIS-FXI-LRx are antisense drugmedicines we designed to reduce 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, which is the formation of a blood clot inside blood vessels. Thrombosis 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. Given the mechanism of Factor XI inhibition, we believe that our drug has the potential tomedicine can be used broadly as an anti-thrombotic in many different therapeutic settings for which additional safe and well tolerated anti-thrombotic drugsmedicines are needed.

We completed a Phase 2 open-label, comparator-controlled global study evaluating IONIS-FXIRx in patientspeople undergoing total knee replacement surgery. The study compared the safety and activity of IONIS-FXIRx to enoxaparin. In this study patients treated with 300 mg of IONIS-FXIRx 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. In this study, IONIS-FXIRx demonstrated a favorable safety and tolerability profile. The data from this study were published in theThe New England Journal of Medicine in December 2014.

In May 2015, we exclusively licensed IONIS-FXIRx to Bayer.

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In November 2016, we completed a Phase 2 double-blinded, randomized, placebo-controlled study of IONIS-FXIRx in patientspeople 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 clinically meaningful reductions in platelets and no treatment-related major or clinically relevant non-major bleeding events.

In February 2017 we announced the advancement of IONIS-FXIRx in clinical development under the existing exclusive license agreement with Bayer. We plan to conduct a Phase 2b studyare currently evaluating IONIS-FXIRx in approximately 200 patientsa Phase 2b study in people with end-stage renal disease on hemodialysis to finalize dose selection. We will alsoare planning to report data from this study this year.

In February 2017, we amended our agreement with Bayer to advance IONIS-FXIRx and to initiate development of IONIS-FXI-LRx which. We plan to develop IONIS-FXI-LRx through Phase 1. The Phase 1 study is currently in preclinical developmentprogress in healthy volunteers. It is a double-blind, randomized, placebo-controlled, dose-escalation study that will assess the safety and is shown in our Preclinical Pipeline section below.efficacy of IONIS-FXI-LRx.

AKCEA-APO(a)-LRx – See the medicine description under “Next Wave of Pivotal Medicines” section above.

AKCEA-APOCIII-LRx – AKCEA-APO(a)-LAKCEA-APOCIII-LRxis a LICA drugmedicine we designed to reduce apolipoprotein(a) in the liver to offer a direct approach for reducing lipoprotein(a), or Lp(a). Lp(a) is an independent risk factor for CVD. We believe addressing Lp(a) is the next important horizon in lipid focused CVD treatment. For more information on the development plan for AKCEA-APO(a)-LRx, see the drug description under the Akcea Therapeutics section below.
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AKCEA-APOCIII-LRx – AKCEA-APOCIII-LRx is a LICA-conjugated Generation 2.0+ antisense drug designed to inhibit the production of apoC-III, the same protein inhibited by volanesorsen,WAYLIVRA, for the broad population of patientspeople who are at risk for cardiometabolic disease due to their elevated triglyceride levels. For more information on the development plan forWe and Akcea are developing AKCEA-APOCIII-LRx, see. 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 drug description under the Akcea Therapeutics section below.enhancements offered by our LICA technology can provide greater patient convenience by allowing for significantly lower doses and less frequent administration, compared to WAYLIVRA.

CancerIn 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.

Novartis entered into a collaboration with us in January 2017 to advance AKCEA-APOCIII-LRx. In the first quarter of 2018, we initiated a Phase 2b dose-ranging study of AKCEA-APOCIII-LRx in patients with hypertriglyceridemia and established CVD. We plan to report data from this study in 2020.

IONIS-DGAT2Rx – IONIS-DGAT2Rx is a Generation 2+ antisense medicine we designed to reduce the production of DGAT2, or diacylglycerol acyltransferase 2, to treat people with 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. Currently, it is estimated that two to three percent of the general population have NASH. 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 - 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 NAFLD, lowered blood lipid levels and reversed diet-induced insulin resistance. NASH is a more severe form of NAFLD.

IONIS-DGAT2Rx was evaluated in a Phase 2 randomized, placebo-controlled, dose-escalation study in patients with type 2 diabetes and NAFLD. In December 2018, we reported that IONIS-DGAT2Rx substantially reduced liver fat after only three months of treatment. 50 percent of IONIS-DGAT2Rx treated patients had relative liver fat reductions of greater than or equal to 30 percent. IONIS-DGAT2Rx demonstrated a favorable safety profile with no safety concerns related to the liver, kidney or platelets. Additionally, there were no increased levels of triglycerides or cholesterol. We plan to develop a liver LICA version of IONIS-DGAT2Rx.

IONIS-AGT-LRx– IONIS-AGT-LRx is a Generation 2+ LICA medicine we designed to reduce the production of angiotensinogen to decrease blood pressure in people with treatment resistant hypertension, or TRH. Despite the availability of generic antihypertensive agents, TRH is 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. Current estimates approximate that there are up to three million people with TRH in the U.S. 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.

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Oncology Franchise and Other Medicines 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 from 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. We preferentially select anti-cancer targets that can potentially provide a multi-faceted approach to treating cancer.

Our canceroncology franchise consists of anti-cancer antisense drugsmedicines that act upon biological targets associated with cancer progression, treatment resistance, and/or treatment resistance.the tumor immune environment. We have a strategic alliance with AstraZeneca, which includes an anti-cancer collaboration that expands our anti-cancer efforts and supports a robust clinical development plan for IONIS-STAT3-2.5danvatirsen and IONIS-AZ7-2.5Rx. 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 canceroncology franchise with a number of promising new anti-cancer targets. In December 2016 we expanded our cancer franchise when AstraZeneca licensed our preclinical drug, IONIS-KRAS-2.5Rx.  IONIS-KRAS-2.5Rx is an antisense drug we discovered and designed to directly target KRAS, one of the most frequently mutated genes in cancer. We also have a collaboration agreement with University of Texas MD Anderson Cancer Center to identify cancer targets and create novel antisense drugsmedicines to treat cancer together.

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, however, it has been difficult to approach with traditional drug modalities. Data from a Phase 1/1b/2 clinical study of IONIS-STAT3-2.5Rxdanvatirsen in combination with durvalumab, AstraZeneca’s programmed death ligand, or PD-L1, blocking antibody showed evidence of antitumor activity in patientspeople with cancer, including advanced/advanced solid tumors and recurrent metastatic hepatocellular carcinoma.

IONIS’ Oncology Pipeline

head and neck cancer.

IONIS’ Oncology/Other Clinical Pipeline


Danvatirsen (formerly IONIS-STAT3-2.5Rx) – Danvatirsen is a Generation 2.5 antisense medicine we designed to reduce 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. Danvatirsen is a part of our collaboration with AstraZeneca to discover and develop anti-cancer medicines. We believe the significant potency we observed in our preclinical studies with danvatirsen broadens the therapeutic opportunities danvatirsen into many different types of cancer in which STAT3 is implicated.

In October 2018, we and AstraZeneca announced new data from a Phase 1b/2 study of danvatirsen in combination with durvalumab in recurrent metastatic head and neck cancer. The combination treatment resulted in seven percent of patients achieving a complete tumor response and 23 percent achieving either a partial or complete tumor response. This response rate is estimated to be double that with durvalumab alone, based on previous studies in this difficult to treat patient population. Results from this study demonstrated safety and tolerability profile supportive of continued development.

AstraZeneca is evaluating danvatirsen in a range of cancer types as part of a broader oncology partnership evaluating Generation 2.5 antisense therapies against undruggable targets either alone or in combination with immuno-oncology agents, including in non-small cell lung cancer, bladder cancer and head and neck cancer.

IONIS-AR-2.5Rx – IONIS-AR-2.5Rx, also known as AZD5312, is a Generation 2.5 antisense drugmedicine we designed to treat patientspeople 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 AR or removing circulating androgens. Although androgen deprivation therapy approaches are initially effective in delaying disease progression, patients 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 patients with all stages of prostate cancer, including those who are resistant to current therapies.

AstraZeneca completed anAn open-label, dose-escalation, Phase 1/2 clinical study of IONIS-AR-2.5Rx was completed in patientspeople with advanced tumors for which the androgen receptor pathway is potentially a contributing factor. The drugstudy was primarily conducted in prostate cancer patients and it showed durable responses in a number of those patients. The medicine exhibited a goodfavorable safety and tolerability profile supportive of continued development. We plan to continue developingIn March 2017, we licensed IONIS-AR-2.5Rx, independent of AstraZeneca. to Ribo to develop and commercialize the medicine in China.

IONIS-STAT3-2.5Rx – IONIS-STAT3-2.5Rx, also referred to as AZD9150, is a Generation 2.5 antisense drug we designed to reduce the production of signal transducer and activator of transcription 3, or STAT3, to treat patients 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.

We and AstraZeneca have evaluated IONIS-STAT3-2.5Rx in patients with advanced metastatic hepatocellular carcinoma and advanced lymphoma. AstraZeneca is evaluating IONIS-STAT3-2.5Rx in combination with MEDI4736, AstraZeneca's investigational anti-PD-L1 drug, in patients with head and neck cancer and in patients with diffuse large B cell lymphoma.

Metabolic Franchise
Metabolic disorders are chronic diseases that affect millions of people. There is a significant need for new therapies for these patients. 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.
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We designed the majority of our drugs in our metabolic franchise to be effective alone or when added to existing therapies to treat metabolic diseases, such as diabetes.
We have reported positive Phase 2 data from IONIS-GCGRRx, the most advanced drug in our metabolic franchise. We designed this drug to act upon targets in the liver or fat tissue through a distinct mechanism to improve insulin sensitivity, reduce glucose production, or affect other metabolic aspects of this complex disease. In addition to our work in diabetes, we are also evaluating nonalcoholic steatohepatitis, or NASH. NASH is a common liver disease characterized by excessive triglycerides in the liver with concurrent inflammation and cellular damage. Currently, it is estimated that two to three percent of the general population have NASH. However, with the growing obesity epidemic, the number of patients with NASH should also continue to rise. About 20 percent of NASH patients are reported to have a liver that does not function properly due to long-term damage, known as cirrhosis and 30 to 40 percent of patients with NASH cirrhosis experience liver-related death. IONIS-DGAT2Rx is an antisense drug we designed to treat patients with NASH.

IONIS’ Metabolic Pipeline


AKCEA-ANGPTL3-LRx – AKCEA-ANGPTL3-LRx is a LICA drug we designed to reduce angiopoietin-like 3 protein, or ANGPTL3, an independent risk factor for cardiovascular disease. We and Akcea are developing AKCEA-ANGPTL3-LRx to treat multiple lipid disorders, or mixed dyslipidemias. For more information on the development plan for AKCEA-ANGPTL3-LRx, see the drug description under the Akcea Therapeutics section below.

IONIS-GCGRRx – IONIS-GCGRRx is a Generation 2.0+ antisense drug we designed to reduce the production of glucagon receptors, 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. We are developing IONIS-GCGRRx to provide better glucose control for patients with type 2 diabetes. In patients 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 have completed two Phase 2 studies with IONIS-GCGRRx: 1) a 13-week study in patients with type 2 diabetes who are poorly controlled on stable metformin therapy and 2) a 26-week study to identify the optimal dose and schedule to achieve glucose control with manageable glucagon receptor-related liver enzyme elevations. In January 2017, we reported results from the Phase 2 dose optimization study in which patients treated with IONIS-GCGRRx achieved robust and sustained, statistically significant improvements in hemoglobin A1c, or HbA1c, and other measures of glucose control after 26 weeks of treatment. Additionally, IONIS-GCGRRx-treated patients experienced a mean increase in total GLP-1 from baseline compared to a decline in placebo-treated patients. The safety and tolerability profile of IONIS-GCGRRx in the Phase 2 studies supports continued development.

We are now evaluating partnership opportunities for IONIS-GCGRRx.

IONIS-DGAT2Rx – IONIS-DGAT2Rx is a Generation 2.0+ antisense drug we designed to reduce the production of DGAT2, or diacylglycerol acyltransferase 2, to treat patients with NASH, a common liver disease. 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, 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.

We completed a Phase 1 randomized, placebo-controlled, dose-escalation study of IONIS-DGAT2Rx in healthy, overweight volunteers. We designed this study to give us valuable insights on the effects of IONIS-DGAT2Rx in a patient population that is closely matched to patients with NASH.

Other Drugs in Development

Together with our partners, we continue to advance drugs in clinical development that are outside of our core therapeutic areas, such as the antiviral drugs we and GSK are developing. 

IONIS’ Pipeline of Drugs in Development for Viral Infection or Ocular Disease



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IONIS-GSK4-LRx – IONIS-GSK4-LRx is a LICA drug we designed to reduce an undisclosed ocular target. We are developing IONIS-GSK4-LRx with GSK.

IONIS-HBVRx and IONIS-HBV-LRx – IONIS-HBVRx and IONIS-HBV-LRx are antisense drugsmedicines we designed to reduce 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, which is present in both acute and chronic infections and is associated with a poor prognosis in patientspeople with chronic HBV infection. IONIS-HBV-LRx is our first anti-infective drugmedicine 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 have completed a randomized, placebo-controlled, dose-escalation, Phase 1 study of IONIS-HBVRx in healthy volunteers.  The safety and tolerability profile of IONIS-HBVRx in the Phase 1 study supports continued development. In January 2016, GSK initiated a Phase 1 studyare evaluating IONIS-HBV-LRx in healthy volunteers. The Phase 1 study of IONIS-HBV-LRx is a randomized, placebo-controlled, dose-escalation study in healthy volunteers. GSK is planning to initiate Phase 2 studies for both IONIS-HBVRx and IONIS-HBV-LRx in Phase 2 studies designed to reduce production of viral proteins associated with HBV infection.

IONIS-FB-LRx – IONIS-FB-LRx is a Generation 2+ LICA medicine 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 overactivity of this cascade has been associated with the development of several complement-mediated diseases, including dry age-related macular degeneration, or AMD.

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. In this study, IONIS-FB-LRx demonstrated a favorable safety and tolerability profile.

In October 2018, we entered into a new collaboration with Roche to develop IONIS-FB-LRx for the treatment of complement-mediated diseases. The first quarterindication that we and Roche agreed to pursue is the treatment of 2017.patients with geographic atrophy, or GA, the advanced stage of dry AMD. We plan to start a Phase 2 study of IONIS-FB-LRx in people with dry AMD this year.

IONIS-JBI1-2.5Rx – IONIS-JBI1-2.5Rx is a Generation 2.5 antisense medicine we designed to treat people for an undisclosed target of gastrointestinal autoimmune disease. In December 2014, we entered into a collaboration agreement with Janssen to discover and develop antisense drugs that can be locally administered, including oral delivery, to treat autoimmune disorders of the GI tract. In July 2016, Janssen licensed IONIS-JBI1-2.5Rx from us. Janssen is currently conducting a Phase 1 study of IONIS-JBI1-2.5Rx.

Preclinical DrugsMedicines in Development

The 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 months to complete the preclinical studies necessary to support clinical development. Over the last year we added sixeight new drugsmedicines to our preclinical pipeline, IONIS-PKK-LRx, IONIS-ENAC-2.5Rx, IONIS-KRAS-2.5Rx, IONIS-JBI1-2.5Rx, IONIS-FXI-LRx and IONIS-AZ4-2.5-LRx, our first drug that combines our Generation 2.5 and LICA technology.pipeline.

IONIS’IONIS’ Preclinical Pipeline


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Akcea Therapeutics: Our Wholly Owned SubsidiaryAffiliate Focused on Developing and Commercializing Medicines to DevelopTreat People with Serious and Commercialize Drugs for CardiometabolicRare Diseases Caused by Lipid Disorders

Akcea Therapeutics is our wholly owned subsidiary that we formed in late 2014. We formed Akcea Therapeutics in 2015 to focus on developing and commercializing our drugsmedicines to treat patientspeople with serious cardiometabolic diseases caused by lipid disorders. As partand rare diseases. Akcea is commercializing TEGSEDI, a medicine we discovered and developed. Additionally, Akcea is advancing a mature pipeline of its formation, we granted Akcea exclusive rights to develop and commercialize volanesorsen,five of our novel medicines, including WAYLIVRA, 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, all with the potential to treat multiple indications.diseases. We describe eachdiscovered all of these medicines, which are based on our proprietary antisense technology. Akcea is co-developing these five drugs in more detail below.with us.

Akcea is assembling the global infrastructure to develop the drugs in its pipeline, to commercialize them with a focus on lipid specialists as the primary call point and to create the specialized support required to address rare disease patient populations. We and Akcea entered into a collaboration, option and license agreement with Novartis. Akcea granted Novartis an exclusive option to license AKCEA-APO(a)-LRx and AKCEA-APOCIII-LRx, which have the potential to treat patients who are at high cardiovascular risk due to inadequately treated lipid disorders. After Akcea completes its Phase 2 development of each of these drugs, if Novartis exercises its option, it plans to 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 for each licensed drug. 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.
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This report includes financial information for this separate business segment in Note 7, Segment Information and Concentration of Business Risk, in the Notes to the Consolidated Financial Statements.

VolanesorsenTEGSEDI – Volanesorsen is an antisense drug we and Akcea are developing to treat patients with FCS and FPL. For more information onSee the development plan for volanesorsen see the drugmedicine description under Our Phase 3 Drugs“Our Marketed Medicines” section above.

WAYLIVRA –See the medicine description under “WAYLIVRA – Potential Approval in Europe Following Positive CHMP
Opinion” section above.

AKCEA-APO(a)-LRx – AKCEA-APO(a)-LRx is a LICA drug we designed to reduce apolipoprotein(a) in– See the liver to offer a direct approach for reducing lipoprotein(a), or Lp(a). Lp(a) is an independent risk factor for CVD. We and Akcea initiated a collaboration with Novartis in January 2017 to advance AKCEA-APO(a)-LRx.
Akcea is developing AKCEA-APO(a)-LRx for patients who are at significant riskmedicine description under “Potential Next Wave of CVD because of their elevated levels of Lp(a). AKCEA-APO(a)-LRx inhibits the production of the apolipoprotein(a), or Apo(a), protein, thereby reducing Lp(a), a very atherogenic (promoting the formation of plaques in the arteries) and thrombogenic (promoting the formation of blood clots) form of low density lipoprotein, or 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 patients with hyperlipoproteinemia(a), a condition in which individuals have elevated levels of Lp(a), which we define as levels greater than 60 mg/dL. Lp(a) is difficult to target using other technologies, like small molecules and antibodies, because there are multiple forms of the Apo(a) molecule that are determined by genetic variation. We believe addressing Lp(a) is the next important horizon in lipid focused CVD treatment and, through Akcea’s collaboration with Novartis, Akcea plans to develop AKCEA-APO(a)-LRx to treat patients with CVD in whom hyperlipoproteinemia(a) plays a causal role.

We and Akcea completed a Phase 1/2a study with AKCEA-APO(a)-LRx in patients with hyperlipoproteinemia(a)and reported results at the AHA meeting in November 2015. In this clinical study, Akcea observed significant and sustained reductions in Lp(a) after only a single, small volume dose of AKCEA-APO(a)-LRx. With multiple doses of AKCEA-APO(a)-LRx, we and Akcea observed even greater reductions of Lp(a). Based on these results, Akcea is planning to start a dose range finding Phase 2 study of AKCEA-APO(a)-LRx in patients with hyperlipoproteinemia(a) and established CVD in the first half of 2017.Pivotal Medicines” section above.

AKCEA-ANGPTL3-LAKCEA-TTR-LRx – AKCEA-ANGPTL3-LRx is a LICA drug we designed to reduce angiopoietin-like 3 protein, or ANGPTL3, an independent risk factor for cardiovascular disease. We and Akcea are developing AKCEA-ANGPTL3-LRx to treat multiple lipid disorders, or mixed dyslipidemias.

People with elevated levels– See the medicine description under “Potential Next Wave 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 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 and multiple metabolic disorders. In preclinical studies, an analog of AKCEA-ANGPTL3-LRx inhibited the production of the ANGPTL3 protein in the liver, inhibiting liver fat accumulation and lowering blood levels of LDL-C 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 are conducting a Phase 1/2 program for AKCEA-ANGPTL3-LRx in people with elevated triglycerides and in patients with FCS. If we find that AKCEA-ANGPTL3-LRx can effectively lower triglyceride levels in FCS patients by using a different mechanism of action than volanesorsen, it may represent an opportunity to expand Akcea’s FCS franchise in the future. We and Akcea reported initial results for the initial group of people with elevated triglycerides from this study at the AHA meeting in November 2016. These people achieved dose-dependent, statistically significant mean reductions in ANGPTL3 of up to 83% and also experienced statistically significant mean reductions in triglycerides of up to 66% and in total cholesterol of up to 36%. In this study, AKCEA-ANGPTL3-LRx displayed a favorable safety and tolerability profile. We plan to report the data from patients with FCS in the first half of 2018. We plan to begin a study of AKCEA-ANGPTL3-LRx in patients with fatty liver disease, which may include patients with nonalcoholic fatty liver disease, or NAFLD, or nonalcoholic steatohepatitis, or NASH, in the second half of 2017. Additional potential indications for which we may consider developing AKCEA-ANGPTL3-LRx include mixed dyslipidemias and numerous lipodystrophies.Pivotal Medicines” section above.

AKCEA-APOCIII-LAKCEA-ANGPTL3-LRx – AKCEA-APOCIII-LRx is a LICA-conjugated Generation 2.0+ antisense drug we designed to inhibit– See the production of apoC-III, the same protein inhibited by volanesorsen, for the broad population of patients who are at risk for cardiometabolic disease due to their elevated triglyceride levels.  Wemedicine description under “Cardiometabolic and Akcea initiated a collaboration with Novartis in January 2017 to advance AKCEA-APOCIII-LRx.Renal Disease Pipeline” section above.

ApoC-III impacts triglyceride levelsAKCEA-APOCIII-LRx – See the medicine description under “Cardiometabolic and may also increase inflammatory processes. This combination of effects makes ApoC-III a valuable target for reducing the residual cardiovascular risk in patients already on statin therapy, or for whom triglycerides are poorly controlled. We believe that the enhancements offered by our LICA technology will provide greater patient convenience by allowing for much lower and less frequent dose administration, compared to volanesorsen.

 We and Akcea are conducting a Phase 1/2 study of AKCEA-APOCIII-LRx in people with elevated triglycerides and plan to report results from this study in 2017.
14Renal Disease Pipeline” section above.

Satellite Company DrugsMedicines in Development

We have successfully developed novel drugsmedicines we designed to treat many different diseases. In therapeutic areas that are outside of our core areas of development, we have licensed our drugsmedicines to highly focused satellite companies that have the specific expertise and resources to continue developing the drugs.medicines. For our satellite company drugs,medicines, we refer to the drugmedicine by the partner’s ownname or compound number, such as ATL1103ZEMDRI or RG-101.ATL1102. We have listed these drugsmedicines below in theour Satellite Company pipeline.

IONIS’IONIS’ Satellite Company Pipeline


* Named Patient Supply (see below).

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 UC patients 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 patients with inflammatory bowel disease. In January 2017, Atlantic announced that it received agreement from the FDA to initiate a rolling submission of its NDA for alicaforsen to treat pouchitis ahead of its Phase 3 data expected in the second half of 2017.

ATL1103 – ATL1103 is an antisense drug we designed to reduce the production of the growth hormone receptor, or GHr, to treat patients 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.

RG-012 – RG-012 is an anti-miR, or an antisense oligonucleotide inhibitor of microRNA, targeting microRNA-21, or miR-21, to treat patients with Alport syndrome. Alport syndrome is a life-threatening genetic kidney disease with no approved therapy. While there is little known information on the progression of this disease, scientists believe that miR-21 plays a critical role because they have observed increased miR-21 levels in animal models of Alport syndrome and in patients with chronic kidney disease. Regulus is developing RG-012 in a strategic alliance with Genzyme, a Sanofi company, to treat Alport syndrome. In December 2015, Regulus completed a Phase 1 randomized, double-blind, placebo-controlled, single ascending dose study showing the drug was well-tolerated.

Apatorsen – Apatorsen is an antisense drug we designed to reduce the production of heat shock protein 27, or Hsp27, to treat patients with cancer. In January 2005, we entered into an agreement with OncoGenex to develop apatorsen. Under the terms of the agreement, OncoGenex is responsible for all development costs and activities. OncoGenex and collaborators are evaluating apatorsen in multiple Phase 2 studies in patients with cancer.

Plazomicin – Plazomicin is an aminoglycoside drug that Achaogen, Inc. is developing for the treatment of multi-drug resistant gram-negative bacterial infections. Aminoglycosides are a group of antibiotics that inhibit bacterial protein synthesis that physicians can use 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. The CARE Phase 3 study was designed to evaluate the efficacy of plazomicin in patients with infections caused by carbapenem-resistant Enterobacteriaceae, or CRE. In December 2016, Achaogen announced that a lower rate of mortality or serious disease-related complications were observed in its CARE Phase 3 study in patients receiving plazomicin compared with colistin therapy, one of the few remaining antibiotics for treatment of infections due to CRE. Also in December 2016, Achaogen announced that the EPIC Phase 3 study to evaluate the efficacy of plazomicin in patients with complicated urinary tract infections, met its primary endpoints.
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Achaogen plans to submit an NDA, which will include EPIC and CARE data, to the FDA in the second half of 2017 and also plans to submit an 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 was created by the Generating Antibiotic Incentives Now, or GAIN, Act, which was part of the FDA Safety and Innovation Act and provides certain incentives for the development of new antibiotics, including priority review and an additional five years of market exclusivity.

ATL1102 – ATL1102 is an antisense drug we designed to reduce the production of CD49d, a subunit of Very Late Antigen-4, or VLA-4, for the treatment of patients 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. ATL plans to submit an IND application for its Phase 2b study in early 2017.

RG-101 – RG-101 is an anti-miR targeting microRNA-122, or miR-122, to treat patients with hepatitis C virus, or HCV. RG-101 is wholly owned by Regulus, but Regulus has entered into a clinical trial collaboration with GSK. Regulus is evaluating RG-101 as part of an HCV combination regimen with GSK’s investigational HCV compound. Regulus completed a Phase 1/2 study in patients with HCV and is evaluating RG-101 in a Phase 2 study in combination with direct acting antivirals in patients with HCV. Regulus is also evaluating RG-101 in a Phase 1 study in patients with severe renal insufficiency or end-stage renal disease. The FDA initiated a clinical hold after Regulus reported a second serious adverse event, or SAE, of jaundice in June 2016. Subsequently, the FDA requested the final safety and efficacy data from on-going RG-101 clinical and pre-clinical studies before reconsidering the clinical hold. Regulus anticipates that data will be available in the fourth quarter of 2017.

RG-125 – RG-125, also referred to as AZD4076, is a GalNAc-conjugated anti-miR targeting microRNA-103/107, or miR-103/107, for the treatment of NASH in patients with type 2 diabetes/pre-diabetes. Regulus reported that inhibition of miR-103/107 with anti-miRs led to a sustained reduction in fasting glucose and fasting insulin levels in mouse models. RG-125 is part of the strategic alliance between Regulus and AstraZeneca to discover and develop microRNA therapeutics for cardiovascular diseases, metabolic diseases and oncology. In December 2015, Regulus transferred all future development of RG-125 to AstraZeneca. In December 2015, AstraZeneca initiated a Phase 1 study evaluating RG-125 in healthy volunteers and in the third quarter of 2016, AstraZeneca initiated a Phase 1/2a study in patients with type 2 diabetes and NAFLD.

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 because, unlikedisease. Unlike most other drug technologies that targetwork by affecting existing proteins in the body, antisense medicines 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 is an RNA-targeted drug technology.to increase, decrease or alter the production of specific proteins. The unique properties of antisense drugstechnology provide several advantages over traditional drug discovery technologies.

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These advantages include:

●Direct application to diseasesintervention 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 only 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 of approximately two 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 drugs once a week. Antisense drugs using our more advanced technology also have the potential for patients and/or their healthcare providers to dose our drugs once a month, once a quartermedicines weekly, monthly or even less frequently.frequently depending on the medicine and target tissue.
●Ability to combine with other drugs: because antisense drugsmedicines do not interact with the enzymes that metabolize or break down other drugs, physicians can use our drugsmedicines in combination with other drugs.
●Broad applications to multiple disease targets, multiple tissues and multiple mechanisms: there are virtually no “undruggable” targets with antisense technology.
●Utilize many different routes of administration including subcutaneous, intravenous, intrathecal, intravitreal, pulmonary and oral.
●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 identifydevelop antisense drugsmedicines to potentially treat a wide range of diseases forin 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 including severe and rare diseases for which there arewith limited or no current treatments or in diseases for which we believe our drugsmedicines have a competitive advantage over existing therapies.
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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(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.

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Figure 1: Illustration of DNA.


Figure 2: Transcription of information contained in a gene, or DNA, to mRNA.

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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(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 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(Figure 3).


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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 medicines 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 drugs can selectivelymedicines bind with high selectivity to anthe mRNA thatthey were designed to target. Since each mRNA codes for a specific protein, and will not bind to closely related RNAs, providingthis selectivity provides a level of specificity that is better than traditional drugs. As a result, we can design antisense drugsmedicines that selectively inhibit the disease-causing member of thea protein groupfamily without interfering with thoseother members of the protein groupfamily that might be necessary for normal cellular or bodily functions. This unique specificity means that antisense drugsmedicines may be less toxic than traditional drugs because we can design them to minimize the impact on unintended targets. We can also design antisense drugs to increase the production of beneficial proteins.

We have developed the majority of the drugsmedicines in our pipeline using our advanced screens to produce drugsmedicines with what we believe arehave the best possible safety and tolerability profiles. We refer to our drugsmedicines that have passed these advanced screens as Generation 2.0+ drugs.2+ 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.medicines. These advancements 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 chemistry,chemistries, Generation 2.5, and our LICA technology.

Generation 2.5 chemistry is an advancement that we believehave demonstrated increases the potency of our drugsmedicines by up to 10-fold over our Generation 2.0+ drugs.2+ 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 2.0+ drugs2+ medicines 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 drugs.medicines to our pipeline.

In additionLICA is a chemical technology we developed that involves attaching 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 improving the chemical foundation of our drugs, we design our LICA technology to enhance theincrease effective delivery of our drugsantisense medicines with higher specificity to particular tissues. This technology adds specific chemical structurescertain cell types that express these receptors relative to non-conjugated antisense medicines. In November 2018, we published an integrated assessment of data from over 600 subjects, with more than 200 subjects on treatment for six months or molecules, such as conjugates, onto antisense drugs to increase the efficiency of drug uptake in a particular tissue. We havelonger, available from randomized placebo-controlled dose-ranging studies. The integrated assessment demonstrated with multiple Generation 2+ LICA medicines that our LICA technology can further enhance the potency of our drugs. For example, our LICA technology directed towardfor liver targets has produced a greatercan increase potency by up to more than thirty fold30-fold over our non-LICA Generation 2+ medicines. In addition to the increase in potency, in a Phase 1 study of favorable safety and tolerability profile was observed and was consistent across the entire LICA platform. There were no safety concerns related to platelets, liver or kidney function.

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AKCEA-APO(a)-LRx further exemplifies these improvements. We designed this medicine to reduce the production of apolipoprotein(a), or Apo(a), protein in the liver to offer a direct approach for reducing lipoprotein(a), or Lp(a). The Phase 2 AKCEA-APO(a)-LRx study 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. Like the integrated assessment, 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 combinehave also combined our LICA technology with both our Generation 2.0+ and our Generation 2.5 drugschemistry medicines to further increase the potency of these drugs. Wepotency. Although we designed theseour first LICA drugsmedicines to inhibit targets in the liver. Weliver, we are also developing LICA conjugation technology that we can use to target other tissues. We expect that we can enhance some of our future drugs, including our Generation 2.5 drugs with our LICA technology.
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tissues, such as the pancreas, and the 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. OurHowever, our antisense technology is broadly applicable to many different antisense mechanisms, including modulation of RNA splicing, exon skipping, RNA interference, or RNAi, and enhancing protein translation to increase protein production. We have also recentlyIn May 2018, we published research showing that we can use our proprietary oligonucleotide technology with CRISPR/Cas9, a gene editing system.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 adeveloping potential therapeutic applicationapplications for CRISPR technology.

The When using antisense drugs we designtechnology to inhibit the production of disease-causing proteins or reduce levels of harmful RNAs, our antisense medicines bind to the target RNA via highly specific nucleotide pairing, or hybridizing,hybridization, and recruitingrecruit a cellular enzyme called ribonuclease H1, or RNase H1, to degrade the target RNA. The drugantisense medicine itself remains intact during this process, so it can remain active against additional target RNA molecules and repeatedly trigger their degradation (figure(Figure 4). Examples of our clinical development stage antisense drugsmedicines that use the RNase H1 mechanism to reduce disease protein production include, volanesorsen, IONIS-TTRRx,WAYLIVRA, TEGSEDI, IONIS-FXIRx, IONIS-FXI-LRx, AKCEA-APO(a)-LRx, IONIS-HTTRx, 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(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 patientspeople with SMA. There are a number of other diseases, including cystic fibrosis and Duchenne muscular dystrophy, which are the result ofmay be treated by modulating splicing disorders. These are diseases we could potentially treat using antisense modulation of splicing.technology.

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Figure 5: Antisense drugmedicine altering splicing of the SMN2 mRNA.

Another class of RNA targettargets for our antisense technology isare 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. Regulus has reported human proof-of-concept data for RG-101 in HCV patients. These data demonstrated that treatment with a single subcutaneous dose of RG-101 as a single agent resulted in significant and sustained reductions in HCV RNA in a varied group of patients.

We are also making progress in designing antisense drugsmedicines to target long, non-coding RNAs, or lncRNAs. TheselncRNAs and RNAs that possess a toxic function in human diseases. Many of these RNAs, such as lncRNAs, do not make proteins but may regulateoften cause disease by regulating the function of other genes.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 cardiovascular,diseases, cardiometabolic diseases, neurologic diseases, cancer and metabolic diseases, and cancer.other diseases.

Collaborative Arrangements and Licensing Agreements

Partnering Strategy

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 and Roche. Our partners bring resources and expertise that augment and build upon our internal capabilities. The depth of our knowledge and expertise with antisense technology together with our strong financial position provides us the flexibility to partner our drugsmedicines at what we believe is the optimal time to maximize the near-near-term, mid-term 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 a strategic partnerships throughpartnership with Biogen, which we can broadly expand our drug discovery efforts to new disease targetsexpanded in specific therapeutic areas. Our partners provide2018. Biogen provides expertise, tools and resources to complement our drug discovery efforts. For instance, we established aOur 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 potential drugsmedicines for neurodegenerative diseases that we believe willhas the potential to expand both our pipeline and Biogen’s pipeline with promising new drugs. Most recently, we licensedmedicines. Our development of and Biogen’s commercialization of SPINRAZA, to Biogen and began receiving commercial revenue from SPINRAZA royalties in December 2016 after SPINRAZA’s approval byis just one example of the FDA.power of our strategic partnership.
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We have partnerships with companies that bring significant expertise and global resources to develop and potentially commercialize drugsmedicines for a particular therapeutic area. InFor example, in January 2017, we and Akcea initiated a collaboration with Novartis to develop and commercialize AKCEA-APO(a)-LRx and AKCEA-APOCIII-LRx. In February 2019, Novartis licensed AKCEA-APO(a)-LRx and AKCEA-APOCIII-Lwe earned a $150 million license fee. Novartis is responsible for conducting and funding all future development and commercialization activities for AKCEA-APO(a)-LRx. As, including a leader in theglobal pivotal cardiovascular disease space,outcomes study, for which planning and initiation activities are underway. We believe Novartis brings significant resources and expertise to the collaboration that should support the development and commercialization ofaccelerate our ability to deliver these two drugs for significant high-risk patient populations. The collaboration with Novartis should enable usmedicines to accelerate the development of these drugs for broaderlarge patient populations as Novartis planswho have high cardiovascular risk due to conduct a cardiovascular outcomes study for each of these drugs.inadequately treated lipid disorders.

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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 establishedhave a collaboration with Janssen whichthat brings together our RNA-targeted technology platform and Janssen’s expertise in autoimmune disorders and therapeutic formulation to discover and develop antisense drugsmedicines to treat autoimmune disorders in the gastrointestinal, or GI tract. Thus far, Janssen has licensed and is advancing two medicines under our collaboration.


●We also work with a consortium of companies that can exploit our drugsmedicines 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.

Financial ImpactBenefits of Our Partnerships

Through our partnerships, we have createdearned both commercial revenue and a broad and sustaining base of potential R&D revenue in the form of license fees, upfront payments and milestone payments while spending prudently to advance our pipeline and technology.payments. Since 2007, we have received more than $1.9$4 billion in cash from upfront and licensing fees, equity purchase payments, milestone payments, and research and development funding and royalties from our partnerships. We have the potential to earn nearly $13more than $20 billion in future milestone payments, and licensing fees and other payments from our current partnerships. partnerships, not including potential royalties.

Strategic Partnership

Biogen

We also have several strategic collaborations with Biogen focused on using antisense technology to advance the potentialtreatment of neurological disorders. These collaborations combine our expertise in creating antisense medicines with Biogen’s expertise in developing therapies for neurological disorders. We developed and licensed to shareBiogen SPINRAZA, our approved medicine to treat people with SMA. In December 2017, we entered into a collaboration with Biogen to identify new antisense medicines for the treatment of SMA. Additionally, we and Biogen are currently developing six other medicines to treat neurodegenerative diseases under our other collaborations, including IONIS-SOD1Rx for ALS, IONIS-MAPTRx for Alzheimer’s disease, IONIS-C9Rx for ALS, and IONIS-BIIB6Rx, IONIS-BIIB7Rx and IONIS-BIIB8Rx to treat undisclosed neurodegenerative diseases. In addition to these medicines, we and Biogen are evaluating numerous additional targets to develop medicines to treat neurological diseases. In April 2018, we entered into a new strategic collaboration for the treatment of neurological diseases with Biogen. From inception through February 2019, we have received over $2 billion from our Biogen collaborations, including $1 billion we received from Biogen in the futuresecond 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 2019 that SPINRAZA was approved in over 40 countries around the world. In February 2019, SPINRAZA was approved in China. Biogen is responsible for global SPINRAZA commercial success ofactivities.

From inception through December 2018, we earned more than $785 million in total revenue under our inventions and drugs resulting from our partnerships through earn out or royalty arrangements. For example, with the approval of SPINRAZA collaboration, including more than $350 million in the U.S., we are adding commercial revenue from SPINRAZA royalties to our broad base ofand more than $435 million in R&D revenue. We are receiving tiered royalties ranging from 11 percent to 15 percent 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 pay Cold Spring Harbor Laboratory and the University of Massachusetts a low single digit royalty on net sales of SPINRAZA. Biogen is responsible for all further global development, regulatory and commercialization activities and costs for SPINRAZA.

Strategic PartnershipsNew antisense medicines for the treatment of SMA

AstraZeneca

Cardiometabolic and Renal Diseases Collaboration

In July 2015,December 2017, we and AstraZeneca formedentered into a strategic collaboration agreement with Biogen to discover and developidentify new antisense therapiesmedicines for treating cardiovascular and metabolic diseases primarily focused on targets in the kidney, and renal diseases. As parttreatment of the agreement, we granted AstraZeneca an exclusive license to a preclinical program andSMA. Biogen will have the option to license a drug for each target advanced undertherapies arising out of this research collaboration.collaboration following the completion of preclinical studies. Upon acceptance of a drug development candidate, AstraZeneca licensing, Biogen will be responsible for all further global development, regulatory and commercialization activities and costs for such drug.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 Neurology

In April 2018, we and Biogen entered into a new 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 for 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. We have generated over $1 billion in payments through February 2019, including $15 million we received in the fourth quarter of 2018 for advancing two targets under this collaboration. In addition, we are eligible to receive tiered royalties up to the 20 percent range on net sales.

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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 for a medicine, it will assume all further global development, regulatory and commercialization responsibilities and costs for that medicine. We are currently advancing five medicines, IONIS-SOD1Rx, IONIS-C9Rx, IONIS-BIIB6Rx, IONIS-BIIB7Rx and IONIS-BIIB8Rx under this collaboration. In December 2018, Biogen exercised its option to license IONIS-SOD1Rx, and as a result Biogen is now responsible for all further global development, regulatory and commercialization activities and costs for IONIS-SOD1Rx.

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 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 per program. We have generated over $215 million through February 2019, including $40 million we earned in the fourth quarter of 2018 when Biogen advanced and licensed IONIS-SOD1Rx. 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.

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. We are currently advancing IONIS-MAPTRx for Alzheimer’s disease under this collaboration. If Biogen exercises its option for a medicine, it will assume all further global development, regulatory and commercialization responsibilities and costs for that medicine. 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. We have generated over $55 million through February 2019. 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.

For additional details about our collaboration agreements with Biogen, including other financial information and termination provisions, see Note 6, Collaborative Arrangements and Licensing Agreements, in the Notes to the Consolidated Financial Statements.

Research, Development and Commercialization Partners

AstraZeneca

Cardiac, Renal and Metabolic Diseases Collaboration

In July 2015, we and AstraZeneca formed a collaboration to discover and develop antisense therapies for treating cardiac, renal and metabolic diseases. Under our collaboration, AstraZeneca has licensed three 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, IONIS-AZ5-2.5Rx, a medicine we designed to treat a genetically associated form of kidney disease and IONIS-AZ6-2.5-LRx, a medicine we designed to inhibit an undisclosed target to treat patients with 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 other future medicines AstraZeneca licenses.

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. We have generated over $165 million in payments through February 2019, including a $10 million milestone payment we earned in the third quarter of 2018 when AstraZeneca initiated a Phase 1 trial for IONIS-AZ4-2.5-LRx. 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 2017, we have generated $90 million in payments under this collaboration, including $25 million when we moved the first development candidate, IONIS-AZ4-2.5-LRx, our first Generation 2.5+ LICA drug, into preclinical development in December 2016.


Oncology Collaboration

In December 2012, we entered into a collaboration agreement with AstraZeneca to discover and develop antisense drugs formedicines 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 a separate research program.cancer. AstraZeneca is now responsible for all global development, regulatory and commercialization activities for IONIS-STAT3-2.5Rxdanvatirsen.We and AstraZeneca have evaluated IONIS-STAT3-2.5Rxdanvatirsen in patients with advanced metastatic hepatocellular carcinoma and advanced lymphoma. AstraZeneca is evaluating IONIS-STAT3-2.5Rx in combination with MEDI4736, AstraZeneca's investigational anti-PD-L1 drug, in patientspeople with head and neck cancer, advanced lymphoma and advanced metastatic hepatocellular carcinoma. AstraZeneca is evaluating danvatirsenin patientscombination with diffuse large Bdurvalumab, AstraZeneca’s PD-L1, blocking drug, in people with head and neck cancer, metastatic bladder cancer and metastatic non-small cell lymphoma. For 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 for 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 identified undermedicine. In the anti-cancer research program was IONIS-KRAS-2.5Rx, which AstraZeneca licensed from us in December 2016. IONIS-KRAS-2.5fourth quarter of 2018, we added IONIS-AZ7-2.5Rx isto our preclinical pipeline, a Generation 2.5 antisensesecond drug we designed to directly target KRAS, one of the most frequently mutated genes in cancer.  under our oncology collaboration.

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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 drugsanother medicine under the research program, we could receive license fees and milestone payments of up to more than $750$450 million. From inception through February 2017, weWe have generated more than $95over $125 million in payments under this collaboration,through February 2019, including $28nearly $30 million in milestone payments we earned in December 2016 following the completion of IND-supporting studiesachieved when AstraZeneca advanced danvatirsen and AstraZeneca’s license of IONIS-KRAS-2.5IONIS-AZ7-2.5Rx.
, in the fourth quarter of 2018.21 In addition, we are eligible to receive tiered royalties up to the mid-teens on net sales from any medicines resulting from these programs.

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 four 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 recently approved drug to treat pediatric and adult patients with SMA. Additionally, we and Biogen are currently developing four other drugs to treat neurodegenerative diseases under these collaborations, including IONIS-SOD1Rx, and three drugs to treat undisclosed neurodegenerative diseases, IONIS-BIIB4Rx,IONIS-BIIB5Rx and IONIS-BIIB6Rx. In addition to these drugs, we and Biogen are evaluating numerous additional targets to develop drugs to treat neurological diseases. From inception through February 2017, we have generated over $550 million from our Biogen collaborations.

SPINRAZA (nusinersen)

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. SPINRAZA is currently under Accelerated Assessment with the EMA for marketing authorization.  Biogen has also submitted regulatory filings in Japan, Canada and Australia and will be initiating regulatory filings in additional countries in 2017. Under our collaboration agreement, we received an upfront payment of $29 million in January 2012 and we are eligible to receive up to an additional $346 million in a license fee and payments. We are also eligible to receive 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 are obligated to pay Cold Spring Harbor Laboratory and the University of Massachusetts nominal amounts for license fees and milestone payments we receive and a low single digit royalty on sales of SPINRAZA. From inception through February 2017, we have generated nearly $320 million in payments for advancing SPINRAZA, including a $75 million license fee we received from Biogen when Biogen licensed SPINRAZA and a $60 million milestone payment we earned from Biogen upon receiving FDA approval, both in 2016. Biogen is responsible for all further global development, regulatory and commercialization activities and costs for SPINRAZA.
Bayer

IONIS-DMPK-2.5Rx

In June 2012, we and Biogen entered into a second and separate collaboration agreement to develop and commercialize a novel antisense drug, IONIS-DMPK-2.5Rx, targeting DMPK for the treatment of myotonic dystrophy type 1, or DM1. We are responsible for global development of the drug through the completion of the first Phase 2 clinical trial. We completed a Phase 1/2 clinical study in patients with DM1. Based on the data reported in December 2016, we plan to pursue a more potent drug using our LICA technology. From inception through February 2017, we have generated nearly $39 million in payments for advancing IONIS-DMPK-2.5Rx.

Neurology

In December 2012, we and Biogen entered into a separate 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-BIIB4Rx under this collaboration. If Biogen exercises its option for a drug, it will assume all further global development, regulatory and commercialization responsibilities 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 $259 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 sales from any drugs resulting from each of the three programs. From inception through February 2017, we have generated $43 million in payments under this collaboration.

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 the 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 for that drug. We are currently advancing three drugs, IONIS-SOD1Rx, IONIS-BIIB5Rx, and IONIS-BIIB6Rx under this collaboration. Biogen will be responsible for all of the drug discovery and development activities for drugs using other modalities.
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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 2017, we have generated nearly $150 million in payments under this collaboration.

For additional details about our collaboration agreements with Biogen, including other financial information and termination provisions, see Note 6, Collaborative Arrangements and Licensing Agreements, in the Notes to the Consolidated Financial Statements.

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 patientspeople 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-FXIRxand to initiate the development of IONIS-FXI-LRx, which Bayer licensed. In conjunction with the decision to advance these programs, we will receivereceived a $75 million payment from Bayer. We plan to conductare conducting a Phase 2b study evaluating IONIS-FXIRx in patientspeople with end-stage renal disease on hemodialysis to finalize dose selection. Additionally, we plan to rapidly developare developing IONIS-FXI-LRx through Phase 1. Following these studies and Bayer'sBayer’s decision to further advance these programs, Bayer will be responsible for all global development, regulatory and commercialization activities and costs for both drugs.medicines. We are eligible to receive additional milestone payments as each drugmedicine advances toward the market. In total over the term of ourthis collaboration, we are eligible to receive up to $385 million in license fees, milestone payments and other payments. We have generated over $175 million through February 2019. In addition, we are eligible to receive tiered royalties in the low to high twenty20 percent range on gross margins of both drugsmedicines combined. From inception through February 2017, we have generated over $175 million in payments under this collaboration.

For additional details about our collaboration agreement with Bayer, including other financial information and termination provisions, see Note 6, Collaborative Arrangements and Licensing Agreements, in the Notes to the Consolidated Financial Statements.

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. Our alliance currently comprises four drugs in development, includingUnder the terms of the agreement, we received upfront payments of $35 million. GSK is advancing two medicines targeting HBV under our Phase 3 drug IONIS-TTRRx. We are currently conducting a Phase 3 study for IONIS-TTRcollaboration: IONIS-HBVRx and we plan to report data from this study in the second quarter of 2017.IONIS-HBV-LRx. GSK has the exclusive option to license drugs resulting from this alliance afteris currently conducting Phase 2 proof-of-conceptstudies for a license fee, including IONIS-TTRRx. If GSK exercises its exclusive option for any drugs resulting from this alliance, it will be responsible for all further global development, regulatory and commercialization activities for such drug.

 In addition to IONIS-TTRRx, we have three drugs in development with GSK, including two antisense drugsboth of these medicines, which we designed to reduce the production of viral proteins associated with hepatitis B virus, or HBV infection; IONIS-HBVRx and IONIS-HBV-LRx, a follow-on drug using our LICA technology.infection. GSK is currently developing IONIS-HBVRx and IONIS-HBV-LRx, and if GSK exercises itshas the exclusive option to license the medicines resulting from this alliance at Phase 2 proof-of-concept for either of these drugs, it will be responsible for all further global development, regulatory and commercialization activities.  We are also developing IONIS-GSK4-LRx which is an antisense drug we designed to treat an ocular disease.a license fee.

Under our agreement, if GSK successfully develops all four drugs for one or more indicationsthese medicines and achieves pre-agreed sales targets, we could receive license fees and milestone payments of up to nearly $900$262 million. From inception through February 2017, weWe have generated more than $155over $162 million in payments under this alliance with GSK.through February 2019. 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.

For additional details about our collaboration agreement with GSK, including other financial information and termination provisions, see Note 6, Collaborative Arrangements and Licensing Agreements, in the Notes to the Consolidated Financial Statements.

Janssen Biotech, Inc., a pharmaceutical company of Johnson & Johnson

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 has the option to license drugsmedicines from us through the designation of a development candidatecandidates for up to three programs. Under our collaboration, Janssen licensed IONIS-JBI1-2.5Rx in July 2016 and IONIS-JBI2-2.5Rx in November 2017. Janssen is currently conducting a Phase 1 study of IONIS-JBI1-2.5Rx and IONIS-JBI2-2.5Rx is in preclinical development. Prior to option exercise we are responsible for the discovery activities to identify a development candidate.candidates. If Janssen exercises an option for oneany of the programs, it will be responsible for the global development, regulatory and commercial activities under that program. Under the terms of the agreement, we received $35 million in upfront payments. We are eligible to receive up to nearlymore than $800 million in milestone payments and license fees for these programs. From inceptionprograms. We have generated over $75 million through February 2017, we generated more than $50 million in payments under this collaboration, including the $10 million license fee we earned in July 2016 when Janssen licensed IONIS-JBI1-2.5Rx from us and a $5 million milestone payment when Janssen selected a development candidate for a second program in December 2016. 2019. In addition, we are eligible to receive tiered royalties up to the near teenson net sales from any drugsmedicines resulting from this collaboration.
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For additional details about our collaboration agreement with Janssen, including other financial information and termination provisions, see Note 6, Collaborative Arrangements and Licensing Agreements, in the Notes to the Consolidated Financial Statements.

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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 IONIS-HTTRx, an antisense medicine targeting HTT protein, 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 IONIS-HTTRx and is now responsible for the global development, regulatory and commercialization activities for IONIS-HTTRx. 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 IONIS-HTTRx advances. We have generated over $145 million through February 2019, 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 IONIS-HTTRx. 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.

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. The first indication we plan to pursue is the treatment of patients with GA, the advanced stage of dry AMD. We are responsible for conducting a Phase 2 study in patients with dry AMD. In addition, we are exploring the medicine in a severe and rare renal indication. 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.

For additional details about our collaboration agreements with Roche, including other financial information and termination provisions, see Note 6, Collaborative Arrangements and Licensing Agreements, in the Notes to the Consolidated Financial Statements.

Akcea Collaborations

The following collaboration agreements relate to Akcea, our majority-owned affiliate. Our consolidated results include all the revenue earned and cash received under these collaboration agreements. We reflect the noncontrolling interest attributable to other owners of Akcea’s common stock in a separate line on our statement of operations and in a separate line within stockholders’ equity on our consolidated balance sheet.

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 option and license agreement, Novartis has an exclusive option to further develop and commercialize these drugs.AKCEA-APO(a)-LRx and AKCEA-APOCIII-LRx. Akcea is responsible for completing a Phase 2 dose ranging study andprogram, conducting an end-of-Phase 2 meeting with the FDA and providing initial quantities of API for each drug.medicine. If Novartis exercises an option for oneeither of these drugs,medicines, Novartis will be responsible for all further global development, regulatory and commercializationco-commercialization activities and costs for each drug.such medicine.

Akcea will receivereceived a $75 million upfront payment in the first quarter of 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 pivotal cardiovascular outcomes study, for which Akcea will retain $60 millionplanning and will pay us $15 million as a sublicense fee under our license agreement with Akcea. Beginning in 2017, we and Akcea will recognize revenue from this collaboration with Novartis.initiation activities are underway. If Novartis exercises its option for a drug,AKCEA-APOCIII-LRx, Novartis will pay Akcea a license fee equal to $150 million for each drug it licenses.million. In addition, Akcea is eligible to receive up to $600$675 million and $530 million in milestone payments related to AKCEA-APO(a)-LRx and AKCEA-APOCIII-LRx, respectively. Akcea retains the right to co-commercialize any such drug through its specialized sales force focused on lipid specialists in selected markets. 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 and AKCEA-APOCIII-LRx. Akcea will pay 50 percent of these license fees, milestone payments and royalties to us as a sublicense fee. 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. Akcea may co-commercialize IONIS-APOCIII-LRx if licensed and commercialized by Novartis in selected markets through its specialized sales force under terms and conditions to be negotiated with Novartis in the future.

Additionally, in January 2017,In conjunction with this collaboration, we and Akcea entered into a stock purchase agreement, or SPA with Novartis. UnderAs part of the SPA, Novartis purchased 1,631,4351.6 million shares of our common stock for $100 million. Additionally, Novartis has an obligation to make a further equity investmentmillion in the first quarter of 2017 and purchased $50 million on or before July 2018 in either ourof Akcea’s common stock at the same premium as its initial investment orIPO price concurrent with the IPO in Akcea’s stock.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.

Roche

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PTC Therapeutics

In April 2013, we formedAugust 2018, Akcea entered into an allianceexclusive license agreement with Hoffman-La Roche Inc.PTC Therapeutics to commercialize TEGSEDI and F. Hoffmann-La Roche Ltd., collectively Roche, to develop treatments for 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.WAYLIVRA in Latin America. Under the license agreement, we are responsible for the discovery and development of an antisense drug targeting HTT protein. We are currently evaluating a drug targeting HTT, IONIS-HTTRx, in a Phase 1/2 clinical study in patients with early stage HD. If Roche exercises its option, it will be responsible for global development, regulatory and commercialization activities for any drug arising out of the collaboration. Under the terms of the agreement, we received an upfront payment of $30 million in April 2013. We areAkcea is eligible to receive up to $365$26 million in a license feepayments, including $12 million which it received in the third quarter of 2018, $6 million upon the earlier of FDA or EMA approval of WAYLIVRA and milestone payments. In addition, we areup to $8 million for regulatory milestones. Akcea 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 $136.5pay 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. 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 2017, we have generated nearly $55 million in payments under this alliance with Roche.including royalties.

For additional details about our collaboration agreement with Roche, including other financial information and termination provisions, see Note 6, Collaborative Arrangements and Licensing Agreements, in the Notes to the Consolidated Financial Statements.

Satellite Company Partnerships

Achaogen, Inc.

In 2006, we exclusively licensed to Achaogen, Inc. specific know-how, patentsWe have a number of satellite company collaborations that expand the reach and patent applications relating to aminoglycosides. In connection with the license, Achaogen issued to us $1.5 millionpotential 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 achievementRNA-targeting medicines into disease areas that are outside of key clinical, regulatory and sales events. In December 2016, Achaogen announced positive data for its CARE Phase 3 study for plazomicin and that its EPIC Phase 3 study met its primary endpoints. Achaogen plans to submit an NDA, which will include EPIC and CARE data, to the FDA in the second half of 2017 and also plans to submit an MAA to the EMA in 2018. Through February 2017, we have earned $7 million in milestone payments from Achaogen, including a $4 million milestone payment we earned in September 2014 when Achaogen initiated a Phase 3 study of plazomicin 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 and commercialization of plazomicin.our core focus.

For example, we have a collaboration with 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. 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.
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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.

Additionally, 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 2017, we have generated over $70 million from Alnylam.

Antisense Therapeutics LimitedIn addition to Alnylam, our satellite company collaborations include collaborations with the following companies:

Satellite CompanyFocus
Achaogen, Inc.
Aminoglycosides
Antisense Therapeutics LimitedInflammation, Acromegaly
Atlantic Pharmaceuticals Limited
Inflammation
Dynacure, SASMuscle Disorders
ProQR Therapeutics N.V.
Ophthalmology
Regulus Therapeutics Inc.microRNA-targeting therapeutics
Suzhou Ribo Life Science Co., Ltd.
ssRNAi
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 patients 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 January 2017, Atlantic announced that it received agreement from the FDA to initiate a rolling submission of its NDA for alicaforsen. 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 patients 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 will share research responsibilities to identify a drug development candidate. Upon exercising its option to license the drug, Dynacure will assume all responsibility for development and commercialization. Under the terms of the agreement, we obtained a 15 percent equity ownership in Dynacure. 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,our satellite collaborations we are eligible to receive royalties on future product sales of the drug under this collaboration.

OncoGenex Technologies Inc., a subsidiary of OncoGenex Pharmaceuticals, Inc.

In January 2005, we entered into an agreement with OncoGenex to allow for the development of an antisense anti-cancer drug, apatorsen. OncoGenex and collaborators are evaluating apatorsen in multiple Phase 2 studies in patients with cancer. OncoGenex is responsible for all development costs and activities. OncoGenex will pay usearn milestone payments, totaling up to $5.8 million forlicense fees and royalties. In addition, in certain cases we own equity in the achievement of key development and regulatory milestones. We are eligible to receive royalties on future product sales of apatorsen. In 2016, we received $1.4 million from OncoGenex related to custirsen, another drug OncoGenex was developing under a collaboration agreement with us. In early 2017, OncoGenex Pharmaceuticals, Inc. entered into a definitive merger agreement under which OncoGenex will acquire Achieve Life Sciences in an all-stock transaction. The merger is expected to close mid-2017. Upon closing OncoGenex Pharmaceuticals, Inc. will be renamed Achieve Life Sciences, Inc.
company.

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 focuses its drug discovery and development efforts in numerous therapeutic areas, including cancer, fibrosis, and viral infections. Regulus currently has three drugs in clinical development. Regulus is evaluating RG-101 in a Phase 2 study in patients with HCV and in a Phase 1 study in patients with severe renal insufficiency or end-stage renal disease. Regulus completed a Phase 1 study of RG-012, a drug to treat patients with Alport syndrome. Regulus and AstraZeneca are also evaluating RG-125 in a Phase 1 study for the treatment of NASH in patients with type 2 diabetes or pre-diabetes. We are eligible to receive royalties on any future product sales of these drugs.
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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 will work together to validate novel “undruggable” cancer targets selected based on human genomic data. We will lead the drug discovery efforts against mutually agreed upon novel targets and MD Anderson will lead 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.medicines. 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. Our External Project Funding partners include the following:

CHDI Foundation, Inc.

●
CHDI Foundation- Through our development collaboration, CHDI provided financial and scientific support to our Huntington’s disease drug discovery program. We have reimbursed CHDI for its support of our Huntington’s disease program out of the payments we received from Roche.
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. We made payments of $5 million and $3 million to CHDI in 2015 and 2013, respectively, associated with the progression of our Huntington’s disease program. If we achieve pre-specified milestones under our collaboration with Roche, we will make additional research related payments to CHDI up to $4 million, upon completion of our Phase 1/2 study of IONIS-HTTRx. If Roche licenses IONIS-HTTRx,we will make an additional payment to CHDI.

●
Cystic Fibrosis Foundation- We received upfront funding from the Cystic Fibrosis Foundation to discover and advance a medicine for the treatment of cystic fibrosis. In exchange for this funding, we are obligated to pay the Cystic Fibrosis Foundation up to $18 million upon achieving specific regulatory and sales events if we advance a medicine under our collaboration.
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 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.

●
The Ludwig Institute; Center for Neurological Studies- We have a collaboration with the Ludwig Institute, the Center for Neurological Studies and researchers to discover and develop antisense medicines 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 medicines resulting from the collaboration.

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 ALS and other neurodegenerative 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.

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.

Intellectual Property Sale and Licensing Agreements

We have a broad patent portfolio covering our products and technologies. 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 over $440 million from our intellectual property sale and licensing program that helps support our internal drug discovery and development programs.

Sales of Intellectual Property

Abbott Molecular Inc.

In January 2009, we sold our former subsidiary, Ibis Biosciences, to Abbott Molecular Inc., or AMI, pursuant to a stock purchase agreement for a total acquisition price of $215 million plus the earn out payments described below. Under the stock purchase agreement, we are eligible to receive earn out payments from AMI equal to a percentage of Ibis’ revenue related to sales of Ibis systems, which AMI launched in 2014 as IRIDICA, including instruments, assay kits and successor products. Once cumulative net sales reach $140 million, and through December 31, 2025, we are eligible to earn out payments in any year that net sales exceed $50 million for the applicable year. The earn out payments will equal five percent of Ibis’ cumulative net sales over $140 million and up to $2.1 billion, and three percent of Ibis’ cumulative net sales over $2.1 billion. AMI may reduce these earn out payments from five percent to as low as 2.5 percent and from three percent to as low as 1.5 percent, respectively, upon the occurrence of certain events.
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Kastle Therapeutics

In May 2016, we entered into an agreement with Kastle under which Kastle acquired the global rights to develop and commercialize Kynamro. Kynamro is approved in the U.S. for use in patients with homozygous familial hypercholesterolemia to reduce low density lipoprotein-cholesterol, apolipoprotein B, total cholesterol and non-high density lipoprotein-cholesterol as an adjunct to lipid lowering medications and diet. We previously licensed Kynamro to Sanofi Genzyme. As a result, Sanofi Genzyme earns a three percent royalty on sales of Kynamro and three percent of non-royalty cash payments we receive from Kastle. Under the terms of our agreement with Kastle, we are eligible to receive up to $95 million, which includes a $15 million up-front payment we received in May 2016, a $10 million payment we are entitled to receive in May 2019 and up to $70 million in sales milestones. In December 2016, we amended our agreement with Kastle. As a result of the amendment, through 2017, Kastle will only pay us the three percent royalty we owe Sanofi Genzyme on sales of Kynamro. Beginning in 2018, we will be eligible to earn tiered royalties on global sales of Kynamro that average in the mid to low teens, increasing slightly in years 2020 and 2021. In addition in May 2016, we received a 10 percent common equity position in Kastle. Because realization of our equity position is uncertain, we recorded a full valuation allowance. Through February 2017, we have generated over $15 million from Kastle.

In-Licensing Arrangements

University of MassachusettsManufacturing

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 are obligated to pay the University of Massachusetts nominal amounts for license fees and milestone payments we receive and 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 will pay a portion of any sublicense revenue and post licensing milestone payments we receive from Biogen under our SPINRAZA collaboration up to $11.3 million and a low single digit royalty on sales of SPINRAZA. In 2016, we paid Cold Spring Harbor Laboratory $3.4 million under our agreement.

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 leasepurchased this building under a lease that has an initial term ending on December 31, 2031 with an option to extend the lease for up to four additional five-year periods.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 GSK.Novartis.

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 developmentpotential commercial needs, including the Phase 3 clinical trials we have for volanesorsen and IONIS-TTRRx, as well as our current and future obligations under existing agreements with our partners for commercial, research, development and developmentcommercial needs. We producedbelieve our current network of CMO partners are capable of providing sufficient quantities to meet anticipated commercial demands. Additionally, we continue to evaluate relationships with additional suppliers to increase overall capacity and diversify our supply chain. While we believe that there are alternate sources of supply that can satisfy our commercial requirements, we cannot be certain 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 not experience a disruption in supply from our current CMO partners.

CMOs are subject to the launch supplyFDA’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 and TEGSEDI, our medicine currently under regulatory review, WAYLIVRA and our medicine in Phase 3 development, IONIS-HTTRx:

SPINRAZA

Pursuant to our collaboration with Biogen, Biogen is responsible for additionalSPINRAZA drug supply. Additionally,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, we are using CMOs to produce custom raw materials, API and finished goods. Our CMO partners have extensive technical expertise and cGMP experience.

WAYLIVRA

We have supplied Akcea either through our manufacturing processes or through our outside vendors, with API and finished drug product to complete Akcea’s ongoing clinical study for WAYLIVRA. We have also supplied the API and the finished drug product for WAYLIVRA’s commercial launch. We believe we have sufficient manufacturing capacity to supply Akcea with the API and finished drug product for at least the first two years of volanesorsen’sWAYLIVRA’s commercial launch. GSK intendsAkcea plans to provideleverage our relationships with CMOs to procure its own long-term raw material and drug supplies at competitive prices in the initial launch supplies for IONIS-TTRRx. We also believe that with reasonably anticipated benefits from increases in scale and improvements in chemistry, we can manufacture antisense drugs at commercially competitive prices.future.

For IONIS-HTTRX

Pursuant to our collaboration with Roche, Roche is responsible for IONIS-HTTRx drug supply.

LICA conjugated drugs, to date, weMedicines

We have manufactured ourselves or through a contract manufacturing organization only limited supplies of our LICA medicines for our own preclinical and clinical studies. We have also used CMOs to manufacture our LICA medicines. LICA enables lower doses than unconjugated oligonucleotides. With our expertise in optimizing manufacturing of oligonucleotides, we believe we willcan develop new processes to scale up manufacturing of theseour LICA conjugated drugsmedicines at commercially competitive prices.

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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 drug 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 specific 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
Description
(Broadly Applicable to Specific)
  
1. ●Chemically Modified Nucleosides and Oligonucleotides (target and sequence independent)
1. ●Antisense Drug Design Motifs (target and sequence independent)
2. ●Therapeutic Methods (sequence and chemistry independent)
3. ●Antisense Sequence (chemistry independent)
4. ●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,“MOE,” modified nucleosides, incorporated into many of our second generation development compounds, as well as our constrained-ethyl nucleosides, or cEt“cEt” nucleosides incorporated into our Generation 2.5 compounds.

The following are some of our patents in this category in key jurisdictions (US,(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 our cEt nucleosides and oligonucleotides containing these 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. EP1984381 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. EP2314594 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. JP5342881 6-MODIFIED BICYCLIC NUCLEIC ACID ANALOGS 2027 Covers our cEt nucleosides and oligonucleotides containing these nucleoside analogs.

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Antisense Drug Design Motifs

Other IonisWe also have patents that claim oligonucleotides comprising specific 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 RNase 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, WAYLIVRA and IONIS-TTRIONIS-HTTRx, but excluding SPINRAZA, contain this gapmer antisense drug design motif. We own a U.S. patent that covers eachall 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 LNAs.“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 patentEuropean patents EP2092065 and EP2410053 and inEP2410053. In April 2015, the claims of EP2092065 were successfully upheld in amended form. We vigorously defended EP2410053form and in January 2017, itEP2410053 was upheld with only a minor an 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 
Patent/
Application No.
 Title Expiration Description of Claims
United States 7,015,315 GAPPED OLIGONUCLEOTIDES 2023 Covers 2’-O-alkyl-O-alkyl gapmer oligonucleotides. 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, 10 to 14 nucleotides in length, with bicyclic nucleosides, which includes cEt locked nucleic acids, in the wings for the treatment of cardiovascular or metabolic disorders 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 Covers 5’-Methy BNA containing gapmer compounds 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’-MOE and bicyclic nucleosides 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 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 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. 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.

Ligand-ConjugatedLIgand-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 potency. Ourproperties. We designed our N-acetyl-galactosamine, (GalNAc)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 primary GalNAc LICA (THA)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
United States 9,127,276 CONJUGATED ANTISENSE COMPOUNDS AND THEIR USE 2034 Covers our primary THA LICA conjugate having any type of linker and 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

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Jurisdiction 
Patent/
Application No.
 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
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

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 clinical endpoints using these antisense compounds. TargetThese “Target” patents may also include claims reciting the specific nucleic acid sequences utilized by our products, independent of chemical modifications and motifs. In addition, our product 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.

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SPINRAZA and Survival Motor Neuron and SPINRAZA

SPINRAZA is protected by a suite of patents in the United States and in Europe from generic competition in the United StatesU.S. until at least 2030 and in Europe until 2026.2026 by a suite of patents. These issued patents include: (i) the Bennett patent related to methods of altering mRNA processing (i.e.(e.g., splicing)splicing, the mechanism of action of SPINRAZA) with a fully modified 2’MOE oligonucleotide, (ii) a patent 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) a joint patentpatents with Cold Spring Harbor Laboratory claiming fully modified 2’MOE compositions targeting SMN2, including the precise composition of matter of SPINRAZA. Those patents should protect SPINRAZA from generic and antisense innovator competition in the United States until at least 2030 withoutmethods of using such compositions. We have filed for patent term extension.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 the key U.S. and European issued patents protecting SPINRAZA:

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 Broad claims of altering mRNA processing with a fully modified 2’MOE oligonucleotide.
United States 8,361,977 COMPOSITIONS AND METHODS FOR MODULATION OF SMN2 SPLICING 2030 Sequence and chemistry (full 2’-MOE) of SPINRAZA 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 1910395 COMPOSITIONS AND METHODS FOR MODULATION OF SMN2 SPLICING 2026 Sequence and chemistry (full 2’-MOE) of 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 (chemistry independent)
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 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 8,980,853 COMPOSITIONS AND METHODS FOR MODULATION OF SMN2 SPLICING IN A SUBJECT 2030 Methods of administering SPINRAZA

TEGSEDI and Transthyretin

We obtained issued claims covering TEGSEDI in the U.S. The issued U.S. claims protect TEGSEDI from generic competition in the U.S. until at least 2031. We are also pursuing additional patent applications designed to protect TEGSEDI in foreign jurisdictions. The table below lists the current issued patents protecting TEGSEDIin 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 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
Japan JP5896175 MODULATION OF TRANSTHYRETIN EXPRESSION 2031 Composition of TEGSEDI
Europe EP2563920 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. drawn to the use of antisense compounds complementary to a broad active region of human Apo C-III, including the site targeted by volanesorsen. SimilarWAYLIVRA. We have secured similar claims to compounds complementary to any site on human Apo C-III have granted in Australia. We have also obtained issued patent claims to the specific antisense sequence and chemical composition of volanesorsenWAYLIVRA in the United States,U.S., Australia, Canada, Hong Kong and Europe. The issued U.S. claims should protect volanesorsenWAYLIVRA from generic competition in the United StatesU.S. until at least 2023. In addition, if volanesorsenWAYLIVRA is approved by the FDA, we plan towill seek additional patent term extension to recapture a portion of the term lost during FDA regulatory review, extending the term of this patent beyond 2023. We have allowed claims to the volanesorsen composition in Canada and are pursuing additional patent applications designed to protect volanesorsenWAYLIVRA worldwide. The table below lists the issued patents in key jurisdictions:
Jurisdiction Patent No. Title Expiration Description of Claims
United States 7,598,227 MODULATION OF APOLIPOPROTEIN C-III EXPRESSION 2023 Methods of treating hyperlipidemia, lowering cholesterol levels and lowering triglyceride levels with an antisense compound comprising an antisense oligonucleotide 15-30 linked nucleosides specifically hybridizable within a nucleotide region of apoCIII targeted by volanesorsen
United States 7,750,141 MODULATION OF APOLIPOPROTEIN C-III EXPRESSION 2023 
Antisense sequence and chemistry of volanesorsen
 
Europe EP1622597 MODULATION OF APOLIPOPROTEIN C-III EXPRESSION 2023 Antisense sequence and chemistry of 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

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Jurisdiction 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 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 EP1622597 MODULATION OF APOLIPOPROTEIN C-III EXPRESSION 2024 Antisense sequence and chemistry of WAYLIVRA
Europe EP2441449 MODULATION OF APOLIPOPROTEIN C-III EXPRESSION 2024 Antisense compound specifically hybridizable within the nucleotide region of apoCIII targeted by WAYLIVRA
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 WAYLIVRA 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
Transthyretin
IONIS-HTTRx and IONIS-TTRRxHuntingtin

We obtained issued claims covering IONIS-TTRIONIS-HTTRx in the United States.U.S.. The issued U.S. claims should protect IONIS-TTRIONIS-HTTRx from generic competition in the United StatesU.S. until at least 2031.2030. We are also pursuing additional patent applications designed to protect IONIS-TTRIONIS-HTTRx in foreign jurisdictions. The table below lists the current issued patents protecting IONIS-TTRIONIS-HTTRx in 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 IONIS-TTRRx
United States 8,697,860 DIAGNOSIS AND TREATMENT OF DISEASE 2031 
Composition of IONIS-TTRRx
United States 9,061,044 MODULATION OF TRANSTHYRETIN EXPRESSION 2031 
Sodium salt composition of IONIS-TTRRx
United States 9,399,774 MODULATION OF TRANSTHYRETIN EXPRESSION 2031 
Methods of treating transthyretin amyloidosis by administering IONIS-TTRRx
Japan JP5896175 MODULATION OF TRANSTHYRETIN EXPRESSION 2031 
Composition of IONIS-TTRRx

ApoB 100 and Kynamro
In 2008, we obtained patent claims in the United States drawn to the use of both single-stranded and double-stranded antisense drugs complementary to any site of the mRNA of human apoB, regardless of chemistry or antisense mechanism of action. The patent provides broad protection of the apoB franchise, including Kynamro and potential future follow-on compounds.  Additional claims have granted in Europe covering the use of 5-10-5 MOE gapmers targeting ApoB. We obtained issued claims to the specific antisense sequence and chemical composition of Kynamro in key jurisdictions. The issued U.S. claims covering the composition should protect Kynamro from generic competition in the United States until at least 2025. We are also pursuing additional patent applications designed to protect Kynamro worldwide. With Kastle’s acquisition of the global rights to develop and commercialize of Kynamro, we assigned our interest in these patents to Kastle. The table below lists the issued patent claims designed to protect Kynamro in key jurisdictions:
Jurisdiction Patent No. Title Expiration Description of Claims
United States 7,407,943 ANTISENSE MODULATION OF APOLIPOPROTEIN B EXPRESSION 2021 Methods of inhibiting expression of apoB, decreasing serum cholesterol, decreasing lipoprotein levels, decreasing serum triglycerides in a human with an antisense compound 12 to 30 nucleotide in length and 100% complementary to human apoB wherein the compound is not a ribozyme.
Japan 4471650 ANTISENSE MODULATION OF APOLIPOPROTEIN B EXPRESSION 2022 Use of an antisense oligonucleotide 12 to 30 nucleobases in length and 100% complementary to human apoB having one or more modifications and inhibiting expression of apoB by at least 90% in primary hepatocytes when present at a concentration of 300 nM for preparation of a medicament for decreasing serum cholesterol, and decreasing lipoprotein levels in a human
Europe EP2174945 ANTISENSE MODULATION OF APOLIPOPROTEIN B EXPRESSION 2022 Use of an antisense oligonucleotide 20 nucleobases in length and 100% complementary to human apoB having a 5-10-5 MOE motif for treating conditions associated with ApoB
United States 7,511,131 ANTISENSE MODULATION OF APOLIPOPROTEIN B EXPRESSION 2025 Antisense sequence and composition of matter of Kynamro

Europe EP1569695 ANTISENSE MODULATION OF APOLIPOPROTEIN B EXPRESSION 2023 Antisense sequence and composition of matter of Kynamro
Europe EP2336318 ANTISENSE MODULATION OF APOLIPOPROTEIN B EXPRESSION 2023 Antisense sequence and composition of matter of Kynamro
Japan 4986109 ANTISENSE MODULATION OF APOLIPOPROTEIN B EXPRESSION 2023 Antisense sequence and composition of matter of Kynamro
Europe EP2409713 ANTISENSE MODULATION OF APOLIPOPROTEIN B EXPRESSION 2025 Kynamro for use in treating a human with hypercholesterolemia, wherein the oligonucleotide is administered at 200mg once per week by subcutaneous injection

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Jurisdiction Patent No. Title Expiration Description of Claims
United States 9,273,315 MODULATION OF HUNTINGTIN EXPRESSION 2030 
Composition of IONIS-HTTRx
United States 8,906,873 MODULATION OF HUNTINGTIN EXPRESSION 2030 
Methods of treating Huntington’s disease by administering IONIS-HTTRx
Europe EP2475675 MODULATION OF HUNTINGTIN EXPRESSION 2030 
Composition of IONIS-HTTRx
Japan JP5809146 MODULATION OF HUNTINGTIN EXPRESSION 2030 
Composition of IONIS-HTTRx
United States 7,951,934 COMPOSITIONS AND THEIR USES DIRECTED TO HUNTINGTIN 2027 
Antisense sequence of IONIS-HTTRx
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 IONIS-HTTRx
Japan 5425474 COMPOSITIONS AND THEIR USES DIRECTED TO HUNTINGTIN 2027 
Antisense sequence of IONIS-HTTRx
European EP2161038 COMPOSITIONS AND THEIR USES DIRECTED TO HUNTINGTIN 2027 
Antisense sequence of IONIS-HTTRx

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.

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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 development and sale of our drugs.medicines. In particular, pharmaceutical productsour medicines are subject to nonclinical and clinical testing, as well as othera 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. VariousThe FDCA and other various federal, state and foreign statutes also govern or influence the research, testing, manufacture, safety, labeling, storage, record keeping,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 isand our CMOs are subject to periodic inspection by the FDA and other foreign equivalents to ensure that it isthey are operating in compliance with cGMP requirements. MarketingIn addition, marketing authorization for each new drug willmedicine 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 medicine before a manufacturer can market it in the 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 medicine, it will issue an approval letter authorizing commercial marketing of the medicine and may require a risk evaluation and mitigation strategy, or REMS, to help ensure the benefits of the medicine 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 medicines. In foreign jurisdictions, the drug approval process is similarly demanding.

Numerous regulatory authorities in addition to the FDA, including, in the 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. We are only allowed to use promotional communications regarding a drug that 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 drug willmedicine depend, in part, on the availability and amount of reimbursement by third party payors, including governments and private health plans. Governments may regulate coverage, reimbursement and pricing of drugs to control cost or affect use of our drugs. Private health plans may also seek to manage cost and use of our medicines by implementing coverage and reimbursement limitations. Governments may also regulate or influence coverage, reimbursement and/or pricing of our medicines 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. Governments may determine or influence reimbursement of drugs. Governments may also set prices or otherwise regulate pricing. Negotiating pricespricing with governmental authorities can delay commercialization of a drug. Thesecommercialization. Such pricing and reimbursement proceduresfactors could impact our ability, including Akcea, and that of our commercial partners’, including our wholly owned subsidiary, Akcea’s, abilitypartners to successfully commercialize our approved drugs.medicines.

In the U.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 U.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 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 foreign and state laws governing the privacy and security of health information, such as the General Data Protection Regulation, or GDPR, in the EU, and 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.

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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 and could result inas 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. 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 firms and large pharmaceutical companies acting either independently or together with biopharmaceutical companies. 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 among 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.
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Below we have included what we believe to be the competitive landscape for the following key programs:

The current key competition for our newly marketed drug SPINRAZA, our Phase 3 drugs, volanesorsen and IONIS-TTRRx, and our additional approved drug Kynamro is set forth below.
●Marketed Medicines: SPINRAZA and TEGSEDI
●Medicine under regulatory review: WAYLIVRA
●
Medicine currently in pivotal trials: IONIS-HTTRx

Marketed Medicines

SPINRAZA

We believe that the following drugsmedicines could compete with SPINRAZA:

DrugMedicineCompanyDrugMedicine DescriptionPhaseAdmin/DosingEfficacy(1)Safety(1)
AVXS-101
Zolgensma
(AVXS-101)
AveXisNovartis
Gene therapy that corrects the SMN1 gene using the
AAV9 Vector
1Under FDA ReviewInfusionAs of September 15, 2016, the 12 patients taking the proposed therapeutic dose of AVXS-101 were event freeDemonstrated an increase in survival and were a median age of 17.3 months at their last follow up appointment. Additionally, two-thirds of these patients had achieved the ability to sit unassisted, including one patient whoseimprovement in achievement of this milestone was confirmed after September 15.developmental milestones vs the natural history of SMA Type 1. Study included a small number of patients.WellGenerally well tolerated to date and the most commonly observed side effect was elevated liver enzymes. Study included a small number of patients.
RG7916Risdiplam
(RG7916)
 
PTC Therapeutics/ Roche/ SMA Foundation
 
A small molecule drug that modulates splicing of the
SMN2 gene
2OralNone reportedNone reported
LMI070Novartis
APreliminary findings from Part 1 of the FIREFISH study show that infants with Type 1 SMA are meeting developmental milestones including sitting without support.
Preliminary findings from Part 1 of the SUNFISH study show improvements in motor function in people with Type 2/3 SMA.
Studies included a small molecule drug that modulates splicingnumber of the
SMN2 genepatients.
 
1/Safe and well tolerated at all doses and had no drug-related or safety-related study withdrawals. Studies included a small number of patients.
Reldesemtiv
Cytokinetics/
Astellas
A selective, fast skeletal muscle troponin activator2OralThe Phase 2 study demonstrated dose-dependent increases in six minute walk distance in ambulatory patients as measured at both post-baseline time points, week four and week eightAdverse events were similar between groups receiving reldesemtiv and placebo. The most commonly observed adverse effects were headache, constipation and nausea
Firdapse
Catalyst/Jazz/
BioMarin
A potassium channel blocker that increases the release of acetylcholine2OralNone reportedStudy was placed on clinical hold in May 2016 due to safety findingsNone reported in animal studies. The  clinical hold was subsequently removed.

(1)Taken from public documents including respective company press releases, company presentations, and scientific presentations.

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We believe that SPINRAZA’s closest competitorZolgensma, if approved, may be the first medicine to compete with SPINRAZA. The FDA accepted Novartis’ biologics licensing application, or BLA, for Zolgensma, in December 2018 and regulatory action is AVXS-101. AVXS-101anticipated in May 2019. The filing is currentlysupported by data from the START trial, which demonstrated an increase in a Phase 1 study for infants with Type 1 SMA. AveXis announced that it will have a single-arm design for its pivotal studysurvival and improvement in achievement of developmental milestones compared to the natural history of SMA Type 1 patients and plans to use natural history as a comparator.1. The study is expected to initiate in the first half of 2017 and enroll 20START trial included 15 patients. AveXis has also announced that following a meeting with the CHMP it will have a single-arm design for its European pivotal study with natural history as a comparator. This study is expected to initiate in the second half of 2017 and enroll 30 patients. While the data released thus far on the AVXS-101 study is encouraging, it is still early in development. 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 and that they will switch to commercial GMP drug for their study in Type 2 patients. Further, no company has yet to successfully commercialize a gene therapy, which may create significant barriers for AVXS-101.

VolanesorsenTEGSEDI

We believe that the following drugsmedicines could compete with volanesorsen:TEGSEDI:

DrugMedicineCompanyDrugMedicine DescriptionPhaseAdmin/DosingEfficacy(1)Safety(1)
GlyberauniQure NVAdeno-associated Virus Gene therapyApproved in EU, not pursing in the U.S.A single treatment involving multiple injections
Showed a reduction in blood fat levels after meals in some patients. There was also a reduction in the number of pancreatitis attacks in some patients.
Common side effects include: leg pain following injection, headache, tiredness, high body temperature, bruising and potential damage to muscle tissue
Metreleptin
Novelion Therapeutics
A synthetic form of the hormone leptin3Reconstituted subcutaneous injection
44.4% mean reduction in triglycerides at four months in patients with abnormal triglyceride levels
Anti-metreleptin antibodies, hypoglycemia, hypersensitivity, risk of T-cell lymphoma
GemcabeneGemphire TherapeuticsMonocalcium salt of a dialkyl ether dicarboxylic acid2Oral, once-dailyIn a post hoc analysis (n=9) of patients with triglycerides >500 mg/dl, reductions of 59% and 60% from 150mg and 300mg doses, respectively, were observed
In a recent study, in  the gemcabene-treatment group, the
most  frequently  occurring adverse  events were headache and infection

(1)Taken from public documents including respective company press releases, company presentations, and scientific presentations.
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Glybera is approved only in the EU for a subset of FCS patients whose disease has been confirmed by genetic testing and who have detectable levels of a specific protein in their blood. UniQure NV has announced it is not pursuing marketing authorization in the U.S. Metreleptin is being tested in FPL patients who also have NASH. In December 2016, Novelion submitted a marketing authorization application to the EMA seeking approval for Metreleptin as replacement therapy to treat complications of leptin deficiency in a small subset of FPL patients and in patients with generalized lipodystrophy, or GL. An investigator-sponsored study is currently ongoing with the support of Novelion to evaluate Metreleptin in FPL patients who also have NASH. Metreleptin does not affect ApoC-III levels. ApoC-III levels have been shown to be elevated in FPL patients, and directly correlate to triglyceride levels. Gemcabene is being studied in patients 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 fourth quarter of 2017. Volanesorsen is currently in Phase 3 development to treat patients with FCS and patients with FPL. 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 patients 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.

IONIS-TTRRx

We believe that the following drugs could compete with IONIS-TTRRx:

DrugCompanyDrug DescriptionPhaseAdmin/DosingEfficacy*Safety*
PatisiranOnpattroAlnylamAn RNAi drug formulated with lipid nanoparticles to inhibit TTR mRNA3ApprovedInfusion every 3 weeks with pre-treatment with steroids~90%84.3% mean maximum reduction in TTR at 18 monthsMild flushing (25.9%
Most common AEs more frequently observed in Onpattro arm vs. placebo were peripheral edema (29.7% vs.
22.1%) and infusion-related reactions (18.5%(18.9% vs. 9.1%) in Phase 2 OLE
TafamidisPfizerA small molecule drug to stabilize TTR Protein3, ApprovedCommercially available in the EU for stage 1 hATTR amyloidosis with polyneuropathy. Under review in the U.S. for ATTR with cariodmyopathy with a PDUFA date in July 2019Daily oral capsule
In 45% of patients 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
DiflunisalAG10N/A GenericEidosA non-steroid anti-inflammatory agentApprovedDaily oral capsule/dosesImproved nerve function as shown by lower Neuropathy Impairment Score plus 7 nerve tests, or NIS+7. The NIS+7 score increased by 25.0 pointsSmall molecule that binds and stabilizes TTR in the placebo group versus 8.7 pointsblood2OralDemonstrated a statistically significant increase in the diflunisal groupserum TTR concentrations
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.
Drug well tolerated with no safety signals
TolcaponeCRX-1008SOM BiotechCorino TherapeuticsSmall molecule repurposed generic drug1/2Daily oral doseShows binding and stabilization of TTR in humansNo drug related adverse events reported
ALN-TTRsc02VutrisiranAlnylamAn RNAi drug conjugated with GalNAC to inhibit TTR mRNA in liver cells13Monthly or quarterlyIn healthy volunteers, a single dose showed mean max TTR knockdown of 97%, up to 98%Injection site reactions were reported


(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 ofTEGSEDI is a once weekly, self-administered subcutaneous medicine. TEGSEDI was approved in 2018 in the drugs that are in development or on the market, IONIS-TTRRx’s closest competitor is patisiran. Alnylam is developing patisiranU.S., EU and Canada for the treatment of polyneuropathy formcaused by hATTR in adult patients. Results from our Phase 3 NEURO-TTR study demonstrated that patients treated with TEGSEDI experienced significant benefit compared to patients treated with placebo across both co-primary endpoints: the Norfolk QoL-DN and mNIS+7 a measure of TTR amyloidosis. Patisiranneuropathic disease progression. 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. Our main competition in the U.S. market for TEGSEDI is an intravenously administered RNAi molecule that is formulated with lipid nanoparticles to enable delivery of the drug to the liver. It is administered via an infusionONPATTRO (patisiran), marketed by Alnylam Pharmaceuticals, Inc. Although ONPATTRO requires intravenous administration by a healthcare provider in a clinical setting every three weeks. Patients receiving patisiran are pretreatedweeks and pre-treatment 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 toit does not have 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. In early clinical studies, IONIS-TTRRx, patisiran and revusiran produced similar TTR reductions in treated subjects. Because we have completed target enrollment in our fifteen month study, ahead of Alnylam's eighteen month study, we believe that IONIS-TTRRx could be the first RNA-targeted drug on the market. We also believe that the overall product profile of IONIS-TTRRx. as a once weekly, subcutaneous injection with no pretreatment is superior to the drugs detailed above, however potential platelet monitoring  requirements in the commercial setting, which have yet to be determined, could impact the future competitive profile of IONIS-TTRRx.boxed warning or REMS.

Medicine Under Regulatory Review

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KynamroWAYLIVRA

Kynamro is currently approved in the U.S. and certain other countries to reduce LDL-C, apolipoprotein B, total cholesterol, and non-high density lipoprotein-cholesterol in patients with HoFH. We believe that the following drugsmedicines could compete with Kynamro:WAYLIVRA:

DrugMedicineCompanyDrug
Medicine
Description
PhaseAdmin/DosingEfficacy(1)Safety(1)
LomitapideMetreleptin
Novelion Therapeutics
A small molecule drug that inhibits microsomal triglyceride transfer protein
 
ApprovedA synthetic form of the hormone leptinTitrate up, 5-60 mg oral daily3Reconstituted subcutaneous injection
40%44.4% mean reduction in LDL-C from baseline (change from mean 336 mg/dL LDL-C to 190 mg/dL LDL-C)triglycerides at week 26four months in Phase 3 studypatients with abnormal triglyceride levels
 
Hepatic steatosis,Anti-metreleptin antibodies, hypoglycemia, hypersensitivity, risk of steatohepatitis, transaminase abnormalities, risk for drug-induced liver injury, risk for deficiencies in fat-soluble vitamins and essential fatty acidsT-cell lymphoma
EvolocumabGemcabeneAmgenGemphire TherapeuticsMonocalcium salt of a dialkyl ether dicarboxylic acid2Oral, once-daily
A monoclonal antibody drug that inhibits PCSK9 proteinIn a post hoc analysis (n=9) of patients with triglycerides >500 mg/dL, reductions of 59% and 60% from 150 mg and 300
mg doses, respectively, were observed
ApprovedMonthly sub-q
TESLA (phase 2/3In a recent study, in HOFH): 31% mean reduction in LDL-C from baselinethe gemcabene-treatment group, the
nasopharyngitis, upper respiratory tract infections, influenza, arthralgia,most frequently occurring adverse events were headache and back paininfection

(1)Taken from public documents including respective company press releases, company presentations, and scientific presentationspresentations.

The primary competitorMetreleptin is being tested in people with FPL who also have NASH. Metreleptin is currently approved for Kynamro is lomitapide, an oral small molecule that blocks the absorption of fatuse in the digestive system. In the lomitapide label, concurrent use of lomitapideU.S. and common medications for HoFH patients whoEU in generalized lipodystrophy, or GL patients. Metreleptin does not affect apoC-III levels. ApoC-III levels have cardiovascular disease, including simvastatin and warfarin, needbeen shown to be closely monitored dueelevated in people with FPL, and directly correlate to drug-drug interactionstriglyceride levels.

Gemcabene is being studied in people with potentially harmful outcomes. Kynamro has no restrictions with these medications or diet restrictions, which may be advantageous for HoFH patients who are onsevere hypertriglyceridemia, defined as triglycerides above 500 mg/dL. Gemphire announced top-line results in June 2018 that Gemcabene met its Phase 2b primary endpoint and demonstrated statistically significant lowering of triglycerides in severe hypertriglyceridemia. The initiation of a broad range of therapies due to the severity of their disease. EvolocumabPhase 3 study will not take place until the partial clinical hold, which was issued by the FDA in 2004, is lifted.

To date, WAYLIVRA has shown the highest percent of triglyceride reductions compared to existing treatments, such as fibrates, regardless of starting triglyceride levels prior to dosing with WAYLIVRA. Based on our broad Phase 2 data for the treatment of different patients including people with FCS, we believe that WAYLIVRA will work equally well as a single agent or in combination with other triglyceride-lowering medicines on the market. If regulatory authorities require us to implement platelet monitoring procedures in the HoFH patientscommercial setting, which have yet to be determined, it could impact the future competitive profile of WAYLIVRA.

Medicine Currently in Pivotal Trials

IONIS-HTTRx

We believe that do not have LDL-receptor functionthe following medicines could compete with IONIS-HTTRx:

MedicineCompanyMedicine DescriptionPhaseAdmin/DosingEfficacy(1)Safety(1)
LaquinimodActive BiotechA small molecule that activates selective aryl hydrocarbon receptor2Daily oral doseDid not meet its primary endpoint of slowing disease development, but secondary endpoint of reduction of brain atrophy was metNo drug related adverse events reported
OMS824OmerosA small molecule that targets PDE 102Daily oral doseNone reportedNone reported
SelistatAOP OrphanAn orally active, selective SIRT1 inhibitor2Daily oral doseNone reportedSafe and tolerable in Phase 1 and Phase 2 study
VX15VaccinexA monoclonal antibody that blocks the activity of SEMA4D2Monthly intravenous infusionsFavored in all brain regions examined, with median increase in FDG uptake from baseline of 8.6% vs placebo control achieving significance in the majority of frontal and parietal brain regions analyzedTo date, evaluated patients showed no safety signals
WVE-120101/ WVE-120102Wave Life Sciences Antisense drugs targeting mHTT SNP-1 and SNP-21b/2aIntrathecal administrationNone reportedNone reported

(1)Taken from public documents including respective company press releases, company presentations, and scientific presentations.

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We believe that Wave Life Sciences’ WVE-120101 and should have variable effectWVE-120102, being developed for Huntington’s Disease, could compete directly against IONIS-HTTRx. These medicines are antisense medicines administered intrathecally, targeting mHTT SNP-1 and SNP-2, respectively. Wave Life Sciences is currently conducting two simultaneous Phase 1b/2a clinical trials, enrolling adults with early manifest Huntington’s disease who carry a single nucleotide polymorphism, or SNP, at the SNP1 (study name: PRECISION HD1) and SNP2 (study name: PRECISION HD2) location, with their data readouts expected in patients that have variable levelsthe first half of LDL-receptor activity. Kynamro works in HoFH patients regardless of LDL-receptor function. Kynamro sales could be affected if Kynamro’s product profile is not advantageous when compared to these other drugs, as some patients may prefer these other drugs over Kynamro.2019.


Employees

As of February 21, 2017,20, 2019, we employed 435737 people, including 28248 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.

Executive Officers of Ionis

The following sets forth certain information regarding our executive officers as of February 21, 2017:20, 2019:

Name Age Position
Stanley T. Crooke, M.D., Ph.D. 7173 Chairman, Chief Executive Officer and President
B. Lynne Parshall, J.D.Brett P. Monia, Ph.D. 6257 Director, Chief Operating Officer
C. Frank Bennett, Ph.D. 6062 Senior Vice President, Antisense Research
Sarah BoyceDamien McDevitt, Ph.D. 4552 Chief Business Officer
Richard S. Geary, Ph.D. 5961 Senior Vice President, Development
Elizabeth L. Hougen 5557 Senior Vice President, Finance and Chief Financial Officer
Brett P. Monia, Ph.D.55Senior Vice President, Drug Discovery and Corporate Development
Patrick R. O’Neil, Esq. 4345 Senior Vice President, Legal, General Counsel, Chief Compliance Officer and Corporate Secretary

Management Transitions

In January 2020, Dr. Crooke, our founder and Chief Executive Officer, plans to transition 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. Our board has selected Dr. Monia, who has been our Chief Operating Officer for the last year and a member of our team since our founding nearly 30 years ago, to serve as our Chief Executive Officer starting in January 2020.

STANLEY T. CROOKE, M.D., Ph.D.

Chairman, Chief Executive Officer and President

Dr. Crooke is a founder of Ionis and has been Chief Executive Officer and a Director since January 1989. 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.
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BRETT P. MONIA, Ph.D.

B. LYNNE PARSHALL, J.D.
Director, Chief Operating Officer
Ms. Parshall has served as a Director of Ionis since September 2000. She has been our Chief Operating Officer since December 2007 and previouslySenior Vice President, Translational Medicine

Dr. Monia was promoted to Chief Operating Officer in January 2018 and to Senior Vice President in January 2012. From February 2009 to January 2012, Dr. Monia served as our Chief Financial OfficerVice President, Drug Discovery and Corporate Development and from June 1994October 2000 to December 2012. She alsoFebruary 2009, he served as our Corporate Secretary through 2014 and has served inVice President, Preclinical Drug Discovery. From October 1989 to October 2000 he held various executive roles since November 1991. Prior to joining Ionis, Ms. Parshall practiced law at Cooley LLP, outside counsel to Ionis, where she was a partner from 1986 to 1991. Ms. Parshall is a member of the American, California and San Diego bar associations.positions within our Molecular Pharmacology department.

C. FRANK BENNETT, Ph.D.

Senior Vice President, Antisense Research

Dr. Bennett was promoted to Senior Vice President, Antisense Research in January 2006. 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 BOYCEDAMIEN McDEVITT, Ph.D.

Chief Business Officer

Ms. Boyce
Dr. McDevitt joined Ionis in January 2015June 2018 as our Chief Business Officer. In October 2018, he was appointed to the board of directors of our majority-owned affiliate, Akcea Therapeutics, Inc. Previously, Dr. McDevitt was Senior Vice President, Corporate Development at ACADIA Pharmaceuticals. Prior to joining Ionis, Ms. BoyceACADIA, he was Vice President, Headat GSK for more than two decades. He served in various roles with increasing responsibility including vice president, head of Internationalbusiness development for R&D Extended Therapy areas, head of Worldwide Business StrategyDevelopment Asia and Operations at Forest Laboratories, Inc. from 2012 to 2014. She was Vice President, Global Head Nephrology Therapeutics Areahead 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. Prior to that, Ms. Boyce held positions at Bayer Pharmaceuticals and Roche.GSK’s R&D West Coast Innovation Center.

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RICHARD S. GEARY, Ph.D.

Senior Vice President, Development

Dr. Geary was promoted to Senior Vice President, Development in 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 to Senior Vice President, Finance and Chief Financial Officer in 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.
BRETT P. MONIA, Ph.D.
Senior Vice President, Drug Discovery and Corporate Development
Dr. Monia was promoted to Senior Vice President, Drug Discovery and Corporate Development in January 2012. 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.

PATRICK R. O’NEIL, Esq.

Senior Vice President, Legal, General Counsel, Chief Compliance Officer and Corporate Secretary

Mr. O’Neil was promoted to Senior Vice President, Legal and General Counsel in 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.

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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, volanesorsen, IONIS-TTRRxTEGSEDI and Kynamro,WAYLIVRA, we are not likely to generate revenues or become consistently profitable.

Even if our drugsmedicines are authorized for marketing, including SPINRAZA, volanesorsen, IONIS-TTRRx,TEGSEDI and Kynamro,WAYLIVRA, our success will depend upon the medical community, patients and third partythird-party payors accepting our drugsmedicines as medically useful, cost-effective and safe. 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 may sell our drugsmedicines in the future, if we cannot agree with the government 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-party payors could decrease the price received for our medicines or increase patient coinsurance to a level that makes our medicines, including SPINRAZA, TEGSEDI and WAYLIVRA, unaffordable.

The degree of market acceptance for our drugs,medicines, including SPINRAZA, volanesorsen, IONIS-TTRRxTEGSEDI and Kynamro,WAYLIVRA, 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.

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For example, the product label for TEGSEDI in the U.S. has a boxed warning for thrombocytopenia and glomerulonephritis, requires periodic blood and urine monitoring, and TEGSEDI has 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, in the clinical studies with WAYLIVRA, declines in platelet counts were observed in many patients and some patients discontinued the studies because of platelet declines. Therefore, we expect the product label for volanesorsen and IONIS-TTRRxWAYLIVRA will require periodic platelet monitoring, whichblood monitoring. In each case, these label requirements could negatively affect our ability to attract and retain patients for these drugs.  In addition, cost control initiatives by governmentsmedicines. 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 TEGSEDI and WAYLIVRA through patient-centric commercial approaches where we plan to have greater involvement with physicians and patients, if we cannot effectively maintain patients on TEGSEDI or third party payors could decrease the price received for our drugsWAYLIVRA, we may not be able to generate substantial revenue from TEGSEDI or increase patient coinsurance to a level that makes our drugs, including SPINRAZA, volanesorsen, IONIS-TTRRx and Kynamro, unaffordable.WAYLIVRA sales.

If we or our partners fail to compete effectively, our drugs,medicines, including SPINRAZA, volanesorsen, IONIS-TTRRxTEGSEDI and Kynamro,WAYLIVRA, 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, volanesorsen, IONIS-TTRRxTEGSEDI and Kynamro,WAYLIVRA, 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, volanesorsen, IONIS-TTRRxTEGSEDI and Kynamro.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, and 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.

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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, RG7800, RG7916,Zolgensma (AVXS-101), Risdiplam (RG7916), Reldesemtiv and LMI070Firdapse could compete with SPINRAZA, Glybera and metreleptinONPATTRO (approved in the U.S. and Europe for a similar indication as TEGSEDI), Tafamadis, AG10, CRX-1008 and Vutrisiran could compete with volanesorsen, patisiran, tafamadis, diflunisal, tolcaponeTEGSEDI. Also, Metreleptin and ALN-TTRsc02Gemcabene could compete with IONIS-TTRRx WAYLIVRA, while Laquinimod, OMS823, Selistat, VX15, WVE-120101 and Glybera, lomitapide and evolocumabWVE-120102 could compete with Kynamro.IONIS-HTTRx.

Following approval, our drugs,medicines, including SPINRAZA, volanesorsenTEGSEDI and IONIS-TTRRxWAYLIVRA could be subject to regulatory limitations. Kynamro is subject to regulatory limitations.

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. We or our partners may not obtain the labeling claims necessary or desirable to successfully commercialize our drug products, including SPINRAZA, volanesorsen, IONIS-TTRRxTEGSEDI and Kynamro.WAYLIVRA.

The FDA and foreign regulatory authorities have the authority to impose significant restrictions on an approved drug product through the product label and on advertising, promotional and distribution activities. For example Kynamro is subject to a Boxed Warning and is only available through a Risk Evaluation and Mitigation Strategy.example:

●
In the U.S., TEGSEDI’s label contains a boxed warning for thrombocytopenia and glomerulonephritis;
●TEGSEDI requires periodic blood and urine monitoring; and
●in the U.S. TEGSEDI is available only through a Risk Evaluation and Mitigation Strategy, or REMS, program.

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. If the results of such post-marketing studies are not satisfactory, the FDA or a foreign regulatory authority may withdraw marketing authorization or may condition continued marketing on commitments from us or our partners that may be expensive and/or time consuming to fulfill.

If we or others identify side effects after any of our drug products are on the market, or if manufacturing problems occur subsequent to regulatory approval, we or our partners may lose regulatory approval, or we or our partners may need to conduct additional clinical studies and/or change the labeling of our drug products, including SPINRAZA, volanesorsen, IONIS-TTRRx,TEGSEDI and Kynamro.WAYLIVRA.

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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 Akcea cannot optimize and maintain effective marketing and sales capabilities or enter into agreements with third parties to market and sell TEGSEDI, we may not generate significant product revenue from TEGSEDI.

To successfully commercialize TEGSEDI Akcea must successfully manage its marketing, sales and distribution capabilities or make arrangements with third parties to perform these services. Akcea may not be successful in doing so. To commercialize TEGSEDI in the initial indications Akcea is pursuing, Akcea will need to optimize and maintain a specialty sales force in each global region it expects to market TEGSEDI, supported by case managers, reimbursement specialists, partnerships with specialty pharmacies, injection training, routine blood and urine monitoring and a medical affairs team. Akcea may seek to further penetrate markets by expanding its sales force or through strategic partnerships with other pharmaceutical or biotechnology companies or third-party sales organizations.

Even though certain members of Akcea’s management team and other employees have experience commercializing drug products, Akcea has no prior experience marketing, selling or distributing drug products, and there are significant risks involved in building and managing a commercial infrastructure. It will be expensive and time consuming for Akcea to maintain its own sales force and related compliance protocols to market TEGSEDI. Akcea may never successfully optimize or manage this capability and any failure could preclude the successful commercialization of TEGSEDI. Akcea and its partners, if any, will have to compete with other companies to recruit, hire, train, manage and retain marketing and sales personnel.

Akcea incurred expenses prior to the launch of TEGSEDI to integrate and manage the associated marketing and sales infrastructure. If regulatory requirements or other factors cause the commercial launch of TEGSEDI to be less successful than expected, Akcea will have incurred expenses for having invested in these capabilities prior to realizing any significant revenue from sales of TEGSEDI. Akcea’s sales force and marketing teams may not successfully commercialize TEGSEDI.

To the extent we and Akcea decide to rely on third parties to commercialize TEGSEDI in a particular geographic market, such as the collaboration Akcea has with PTC Therapeutics to commercialize TEGSEDI in Latin America, we may receive less revenue than if Akcea commercialized TEGSEDI by itself. Further we would have less control over the sales efforts of any other third parties involved in commercializing TEGSEDI.

If Akcea cannot effectively build and manage its distribution, medical affairs, market access, marketing and sales infrastructure, or find a suitable third party to perform such functions, the commercial launch and sales of TEGSEDI may be delayed, less successful or precluded. 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, IONIS-TTRRx, volanesorsenTEGSEDI and Kynamro,WAYLIVRA, 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 patientspeople 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 products 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.

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 products exists among third-party payors. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. Further, we believe that future coverage and reimbursement will likely be subject to increased restrictions both in the United StatesU.S. and in international markets. For example, in the United States,U.S., 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 products and bring more transparency to drug pricing. Third-party coverage and reimbursement for our products or drugsmedicines may not be available or adequate in either the United StatesU.S. or international markets, which would negatively affect the potential commercial success of our products, our revenue and our profits.

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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,medicines, including volanesorsen, IONIS-TTRRx,WAYLIVRA, and additional approvals for SPINRAZA and Kynamro,TEGSEDI, we or our partners cannot sell them in the applicable markets.

We cannot guarantee that any of our drugs,medicines, including volanesorsen  and IONIS-TTRRx,WAYLIVRA, will be considered safe and effective, or will be approved for commercialization. In addition, we cannot guarantee that SPINRAZA or Kynamroand TEGSEDI will be approved in additional markets outside the United States or for additional indications. We and our partners must conduct time-consuming, extensive and costly clinical studies to show the safety and efficacy of each of our drugsmedicines before they can be approved for sale. We 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 drugsmedicines, including volanesorsen  and IONIS-TTRRxWAYLIVRA, for marketing or additional marketing authorizations for SPINRAZA or Kynamro.TEGSEDI. 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 IONIS-TTRRx,WAYLIVRA, 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, Akcea received a CRL from the FDA or foreign regulatory authorities could claim that we have not tested volanesorsen inand a sufficient numberpreliminary notice of patients to demonstrate volanesorsen is safe and effective in patients with FCS or FPL to support an applicationnoncompliance withdrawal letter from Health Canada 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, weWAYLIVRA. As result, Akcea may need to submit additional data to the FDA and Health Canada or conduct additional clinical studies before obtaining marketing authorization, which would be expensive and cause delays. The CHMP of the EMA has adopted a positive opinion recommending conditional marketing authorization of WAYLIVRA as an adjunct to diet in adult patients with genetically confirmed FCS who are at high risk for pancreatitis, in whom response to diet and triglyceride lowering therapy has been inadequate. The positive opinion will now be referred to the EC, which grants marketing authorization for medicines in the European Union, as well as to European Economic Area members Iceland, Liechtenstein and Norway, however, the EC may decide not to adopt the CHMP’s positive opinion.

Failure to receive marketing authorization for WAYLIVRA or our drugs, volanesorsen and IONIS-TTRRx,other medicines, or failure to receive additional marketing authorizations for SPINRAZA or Kynamro,TEGSEDI, 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 drugs are a relatively new approach to therapeutics. If we cannot demonstrate that our drugsmedicines are safe and effective for human use, 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 volanesorsenthe study of WAYLIVRA in patients with FPL and IONIS-TTRthe study of IONIS-HTTRx. in patients with Huntington’s disease. If any of our drugsmedicines in clinical studies, including volanesorsenWAYLIVRA and IONIS-TTRIONIS-HTTRx, 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 studies for volanesorsenstudy of WAYLIVRA in patients with FPL and IONIS-TTRthe pivotal study of IONIS-HTTRx. in patients with Huntington’s disease. 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 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;
●patientspeople 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;
●the cost of our clinical studies may be greater than we anticipate; and
●the supply or quality of our drugsmedicines or other materials necessary to conduct our clinical studies may be insufficient, inadequate or delayed.

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In addition, our current drugs,medicines, including SPINRAZA, volanesorsen, IONIS-TTRRx,TEGSEDI and Kynamro,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 drug 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 have an ongoing Phase 3 study of WAYLIVRA in patients with FPL, an ongoing open-label extension study of WAYLIVRA in patients with FCS, an ongoing open-label extension study of TEGSEDI and expanded access programs for each medicine. Adverse events or results from these studies could negatively impact our current or planned marketing approval applications for WAYLIVRA in patients with FCS or the commercial opportunity for each product.

Any failure or delay in the clinical studies, including the Phase 3 studiesstudy for volanesorsenWAYLIVRA in patients with FPL and IONIS-TTRthe pivotal study of IONIS-HTTRx, in patients with Huntington’s disease, 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 establish large-scale commercial manufacturing capabilities either on our own or through a third partythird-party manufacturer. We and Akcea will rely on third-party manufacturers to supply the drug substance and drug product for TEGSEDI and 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 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 authorization for our drugs,medicines, including authorizations for SPINRAZA, volanesorsenTEGSEDI and IONIS-TTRRx,WAYLIVRA, or result in enforcement action after authorization that could limit the commercial success of our drugs,medicines, including SPINRAZA, volanesorsen, IONIS-TTRRxTEGSEDI and Kynamro.WAYLIVRA.

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 Icon Clinical Research Limited, INC Research Toronto, Inc. and Medpace for the clinical studies for our drugs,medicines, including volanesorsenTEGSEDI and IONIS-TTRRx.WAYLIVRA. 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,medicines, including authorizations for volanesorsen and IONIS-TTRRxWAYLIVRA or additional authorizations for SPINRAZA and Kynamro.TEGSEDI.

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 generallyhistorically exceeded our revenue since we were founded in January 1989. As of December 31, 2016,2018, we had an accumulated deficit of approximately $1.2$1.0 billion and stockholders’ equity of approximately $99.6$1,187.2 million. 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 revenueincome has come from collaborative arrangements, including commercial revenue from royalties and R&D revenue, with additional revenueincome 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.

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Our ability to use our net operating loss carryovers and certain other tax attributes may be limited.

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.

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.

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. 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.
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Our corporate partners are developing and/or funding many of the drugsmedicines in our development pipeline. 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. In the past, basedFor example, as part of a reprioritization of its pipeline and strategic review of its rare disease business, GSK declined its option on the disappointing results of Phase 3 clinical studies, we had a partner discontinue its investment in one of our drugs.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 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 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 drug 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, volanesorsen, IONIS-TTRRx and Kynamro.SPINRAZA.

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 drug will enter the clinic, when we anticipate completing a clinical study, or when we anticipate filing an application for, or obtaining, marketing authorization. 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’ expectations, including milestones related to SPINRAZA, volanesorsenTEGSEDI and IONIS-TTRRxWAYLIVRA, the price of our securities could decrease.

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If we cannot protect our patents 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 and secure 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. 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.

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 sometimes need to litigate to defend our rights or assert them against others. Disputes can involve arbitration, litigation or proceedings declared by the United StatesU.S. Patent and Trademark Office 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 be resolved in our favor.

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.

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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, preclinical and/or clinical testing, marketing authorization and/or commitment of significant additional resources prior to their successful commercialization. As of December 31, 2016,2018, we had cash, cash equivalents and short-term investments equal to $665.2 million.$2.1 billion. If we do not meet our goals to successfully commercialize our drugs,medicines, including SPINRAZA, volanesorsen, IONIS-TTRRxTEGSEDI and Kynamro,WAYLIVRA, or to license our drugsmedicines and proprietary technologies, we will need additional funding in the future. Our future capital requirements will depend on many factors, such as the following:

marketing approvals and successful commercial launch for SPINRAZA;
●successful commercialization for SPINRAZA and TEGSEDI;
●marketing approvals for WAYLIVRA;
●the profile and launch timing of our medicines, including TEGSEDI and 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; and
the profile and launch timing of our drugs, including volanesorsen and IONIS-TTRRx.
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, plans to transition 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. Our board has selected Dr. Monia, who has been our Chief Operating Officer for the last year and a member of our team since our founding nearly 30 years ago, to serve as our Chief Executive Officer starting in January 2020.  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.

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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, 2016,2018, the market price of our common stock ranged from $19.59$59.81 to $62.68$39.07 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, governmental regulation, marketing authorization, changes in payors'payors’ reimbursement policies, developments in patent or other proprietary rights, public concern regarding the safety of our drugsmedicines and general market conditions.

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, volanesorsen, IONIS-TTRRx TEGSEDI and Kynamro.WAYLIVRA. 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, 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.

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:
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●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.

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 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. The facilities and the equipment we 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 our contract manufacturers may be harmed by natural or man-made disasters, including, without limitation, earthquakes, floods, fires and acts of terrorism; and if our facilities are affected by a disaster, our development and commercialization efforts would be delayed. Although we possess insurance for damage to our property and the disruption of our business from casualties, 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, IONIS-TTRRx and Kynamro could be harmed or delayed.

Provisions in our certificate of incorporation, other agreements 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.

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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.

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 10.3 million shares of our common stock upon conversion of our convertible senior notes. The addition of any of these shares into the public market may have an adverse effect on the price of our securities.
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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.

Changes in tax laws, regulations and treaties could affect our future taxable income.

A change in tax laws, treaties or regulations, or their interpretation, of any country in which we operate could materially affect us.  For example, the Tax Act represented a substantial change to tax laws in the U.S. However, it did not have a material impact on our financial statements because we maintained a valuation allowance on all of our net operating losses and other deferred tax assets as of December 31, 2017. Over the next several years we expect to utilize our net operating losses and other deferred tax assets, and any future changes in tax laws could have a material effect on our business.

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.

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We are dependent on information technology systems, infrastructure and data, which exposes us to data security risks.

We are dependent upon our own or 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/or state breach notification laws and foreign law equivalents, subject us to mandatory 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/or 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, there can be no assurance that our efforts will prevent service interruptions, or identify breaches in our systems, that could adversely affect our business and operations and/or 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.

Item 1B. Unresolved Staff Comments

Not applicable.

Item 2. Properties

As of February 21, 2017,20, 2019, we occupied the following properties, which are all leased:properties:

Property Description Location Square Footage 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 2031 Four, five-year options to extend Carlsbad, CA 176,000 Owned    
Ionis manufacturing facility Carlsbad, CA 28,700 2031 Four, five-year options to extend Carlsbad, CA 28,700 Owned    
Ionis adjacent manufacturing facility Carlsbad, CA 25,800 2021 Two, five-year options to extend
Ionis manufacturing support facility Carlsbad, CA 25,800 Leased 2021 Two, five-year options to extend
Akcea office space facility Cambridge, MA 6,100 2018 None Boston, MA 30,175 Leased 2028 One, five-year option to extend
Akcea office and Ionis storage space facility Carlsbad, CA 18,700 Leased 2023 One, five-year option to extend
   236,600       279,375      

Under our lease agreements for our 176,000 and 28,700 square foot facilities, we have the option to purchase the facilities, independent of each other each year from 2017 through 2020, and at the end of 2026 and 2031. 

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, including for the Phase 3 clinical trials for volanesorsen and IONIS-TTRRx. We produced the launch quantities for SPINRAZA and now Biogen is responsible for further manufacturing.

Item 3. Legal Proceedings

Gilead Litigation
 
In August 2013, Gilead Sciences Inc. filed a suit in the United StatesU.S. District Court of Northern District of California related to United StatesU.S. Patent Nos. 7,105,499 and 8,481,712, which are jointly owned by Merck Sharp & Dohme Corp. and Ionis Pharmaceuticals, Inc. In the suit Gilead asked the court to determine that Gilead'sGilead’s activities do not infringe any valid claim of the named patents and that the patents are not valid. We and Merck Sharp & Dohme Corp. filed our answer denying Gilead'sGilead’s noninfringement and invalidity contentions, contending that Gilead'sGilead’s commercial sale and offer for sale of sofosbuvir prior to the expiration of the '499‘499 and '712‘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 allten 10 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.decision to the Court of Appeals for the Federal Circuit. Gilead cross-appealed on the issue of validity. The appeal is pending beforeIn April 2018, the Court of Appeals issued its ruling affirming the District Court’s finding of unenforceability based on unclean hands. Having upheld the ruling that the patents are unenforceable against Gilead, the court did not reach the question of validity. In September 2018, we filed a petition requesting a hearing before the Supreme Court, asserting that it was improper for the Federal Circuit.trial court to overturn the jury verdict on the basis of the equitable defense of unclean hands. In January 2019, the Supreme Court denied our petition. Under our agreement with Merck, Merck is responsible for the costs of this suit.

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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

Our common stock is traded publicly through The Nasdaq Global Select Market under the symbol “IONS.” Prior to our name change in December 2015, we traded under the symbol “ISIS.” 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 
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 
2015        
First Quarter $77.80  $57.60 
Second Quarter $71.50  $55.62 
Third Quarter $58.73  $37.38 
Fourth Quarter $65.34  $38.30 


As of February 21, 2017,20, 2019, there were approximately 587541 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.

Set forth below is a table and chart comparing the total return on an indexed basis of $100 invested on December 31, 20102013 in our common stock, the NASDAQNasdaq Composite Index (total return) and the NASDAQNasdaq Biotechnology Index. The total return assumes reinvestment of dividends.
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Performance Graph (1)


*$100  $100 invested on December 31, 20102013 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 NASDAQNasdaq Composite Index,
and the NASDAQNasdaq Biotechnology Index
 
  Dec-11  Dec-12  Dec-13  Dec-14  Dec-15  Dec-16 
Ionis Pharmaceuticals, Inc. $100.00  $144.80  $552.57  $856.31  $858.95  $663.38 
NASDAQ Composite Index $100.00  $116.41  $165.47  $188.69  $200.32  $216.54 
NASDAQ Biotechnology Index $100.00  $134.68  $232.37  $307.67  $328.76  $262.08 
  Dec-13  Dec-14  Dec-15  Dec-16  Dec-17  Dec-18 
Ionis Pharmaceuticals, Inc. $100.00  $154.97  $155.45  $120.06  $126.26  $135.69 
Nasdaq Composite Index $100.00  $114.62  $122.81  $133.19  $172.11  $165.84 
Nasdaq Biotechnology Index $100.00  $131.71  $140.56  $112.25  $133.67  $121.24 


(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.

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Item 6. Selected Financial Data

Set forth below areThis selected financial data should be read in conjunction with our selectedaudited consolidated financial data (in thousands, except per share amounts):

 Years Ended December 31, 
 2016 2015 2014 2013 2012 
Consolidated Statement of Operations Data:          
Revenue $346,620  $283,703  $214,161  $147,285  $102,049 
Research, development and patent expenses $344,320  $322,292  $241,751  $184,033  $158,458 
Net loss attributable to Ionis Pharmaceuticals, Inc. common stockholders $(86,556) $(88,278) $(38,984) $(60,644) $(65,478)
Basic and diluted net loss per share attributable to Ionis Pharmaceuticals, Inc. common stockholders $(0.72) $(0.74) $(0.33) $(0.55) $(0.65)
Shares used in computing basic and diluted net loss per share  120,933   119,719   117,691   110,502   100,576 

  As of December 31, 
  2016  2015  2014  2013  2012 
Consolidated Balance Sheet:               
Cash, cash equivalents and short-term investments $665,223  $779,183  $728,832  $656,761  $374,446 
Working capital $664,148  $688,127  $721,265  $637,698  $349,116 
Investment in Regulus Therapeutics Inc. $2,414  $24,792  $81,881  $52,096  $33,622 
Total assets $912,467  $947,900  $946,471  $843,267  $541,382 
Long-term debt and other obligations, less current portion $679,118  $598,234  $588,896  $367,065  $284,294 
Accumulated deficit $(1,181,428) $(1,094,872) $(1,006,594) $(967,610) $(906,966)
Stockholders’ equity $99,565  $200,790  $257,780  $378,390  $182,766 
                     

Item 7.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 millions, except per share amounts):

49

  Years Ended December 31, 
  2018  2017 (1)  2016 (1)  2015  2014 
Consolidated Statement of Operations Data:               
Revenue $599.7  $514.2  $372.8  $283.7  $214.2 
Research, development and patent expenses $414.6  $374.6  $344.3  $322.3  $241.8 
Selling, general and administrative expenses $244.6  $108.5  $48.6  $37.2  $20.1 
Net income (loss) attributable to Ionis Pharmaceuticals, Inc. common stockholders $273.7  $0.3  $(60.4) $(88.3) $(39.0)
Basic net income (loss) per share attributable to Ionis Pharmaceuticals, Inc. common stockholders $2.09  $0.15  $(0.50) $(0.74) $(0.33)
Diluted net income (loss) per share attributable to Ionis Pharmaceuticals, Inc. common stockholders $2.07  $0.15  $(0.50) $(0.74) $(0.33)
Shares used in computing basic net income (loss) per share  132.3   124.0   120.9   119.7   117.7 
Shares used in computing diluted net income (loss) per share  134.1   126.1   120.9   119.7   117.7 

  As of December 31, 
  2018  2017 (1)  2016  2015  2014 
Consolidated Balance Sheet Data:               
Cash, cash equivalents and short-term investments $2,084.1  $1,022.7  $665.2  $779.2  $728.8 
Working capital $1,927.6  $925.1  $664.1  $688.1  $721.3 
Total assets $2,667.8  $1,322.8  $912.5  $947.9  $946.5 
Long-term debt and other obligations, less current portion $1,200.3  $713.9  $679.1  $598.2  $588.9 
Accumulated deficit $(967.3) $(1,241.0) $(1,181.4) $(1,094.9) $(1,006.6)
Stockholders’ equity $1,187.2  $365.3  $99.6  $200.8  $257.8 

(1)
Reflects the impact of our adoption of the new revenue recognition accounting standard in 2018 (Topic 606). For additional details about our adoption of Topic 606, see Note 1, Organization and Significant Accounting Policies, in the Notes to the Consolidated Financial Statements. This change is not reflected in our consolidated statement of operations data for 2015 or 2014 or in our consolidated balance sheet data for 2016, 2015, or 2014.

Item 7. Management’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, 2018, and our financial condition at December 31, 2018. Except for the historical information contained herein, the following discussion contains forward-looking statements that 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.therapeutics with sustained and growing revenues. We have created an efficient and broadly applicable drug discovery platform. Using this platform leveraging our expertise in antisense oligonucleotide therapeutics that we have developed abelieve has fundamentally changed medicine and transformed the lives of people with devastating and often deadly diseases. Our large, diverse and advanced pipeline of potentiallyover 40 first-in-class and/or best-in-class drugsmedicines addresses diseases across a broad range of therapeutic areas, targeting small, medium and large patient populations.

We have two commercial medicines approved in major markets around the world, SPINRAZA and TEGSEDI. We have at least four medicines that have entered pivotal studies or have the potential to begin pivotal studies this year, and another six medicines that could start pivotal studies in 2020. These medicines, along with the more than 30 additional medicines in our pipeline, represent multiple potential drivers of value for years to come. We believe our efficient drug discovery platform, coupled with our innovation-centric business model, provides us with the flexibility to determine the optimal development and commercialization strategy to maximize the commercial opportunity for each of our medicines and ensure that we continue to produce transformative medicines for patients who need them. We believe can provide highwe are positioned to drive substantial value for patients with significant unmet medical needs.and shareholders.

As of January 2019, SPINRAZA was approved in over 40 countries around the world, and our partner Biogen, who is responsible for global SPINRAZA commercial activities, reported that more than 6,600 patients are now on SPINRAZA therapy. In this way, we believe we are fundamentally changing medicine with the goaladdition, Biogen plans to transform the lives of those suffering from severe, often life-threatening, diseases. The recent U.S. approvalcontinue to pursue regulatory filings in additional countries. Biogen reported 2018 annual sales of SPINRAZA for pediatricof more than $1.7 billion, and adult patients with SMA highlights our progress toward this goal. Our pipeline also contains two near-term potentially transformative medicines for two different severe and rare diseases, each with significantwe earned $238 million in commercial potential. We plan to report datarevenues from our Phase 3 studyroyalties on sales of volanesorsen in patients with familial chylomicronemia, or FCS in the first quarter of 2017. We also plan to report data from our Phase 3 study of IONIS-TTRRx in patients with FAP in the second quarter of 2017.

With FDA approval in December 2016,SPINRAZA. SPINRAZA injection becameis the first and only approved drug  to treat pediatric and adult patientsmedicine for the treatment of SMA. SPINRAZA is the established standard-of-care for all people with SMA. SMA is a leading genetic cause of death in infants and toddlers that is marked bythis progressive, debilitating muscle weakness. Biogen has filedand often fatal genetic disease. In November 2018, SPINRAZA was recognized with the 2018 International Prix Galien award as Best Biotechnology Product. This prestigious honor marks the seventh Prix Galien award for marketing authorizationSPINRAZA.

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TEGSEDI, a once weekly, self-administered subcutaneous medicine, was approved in the EU, Japan, Australia and Canada, and plans to file in other countries this year. The European Medicines Agency, or EMA, is reviewing the SPINRAZA marketing application under accelerated assessment. Biogen estimates that there are approximately 20,000 patients with SMA2018 in the U.S., EU and Japan, withCanada for the treatment of polyneuropathy caused by hATTR in adult patients. hATTR is a large percentage in the United States.

debilitating, progressive, and fatal disease. Akcea, Therapeutics, Inc. is our wholly owned subsidiarymajority-owned affiliate focused on developing and commercializing volanesorsenmedicines to treat patients with rare and three other clinical-stage drugs for serious cardiometabolic diseases, caused by lipid disorders, AKCEA-APO(a)-LRx, AKCEA-ANGPTL3-LRx and AKCEA-APOCIII-LRx. Eachlaunched TEGSEDI globally in late 2018. In the fourth quarter of these four drugs could potentially treat multiple patient populations. Moving these drugs into a company that2018, we own allows us to retain substantial value from them and ensures our core focus remains on innovation.earned more than $2 million in TEGSEDI product sales. Akcea is assembling the global infrastructure to continue developing the drugs in its pipeline,has an exclusive license agreement with PTC to commercialize themTEGSEDI in Latin America. In January 2019, PTC filed an application for regulatory approval in Brazil with a focus on lipid specialists asANVISA, the primary call point and to provide the specialized patient and physician support required to address rare disease patient populations.Brazilian regulatory authority. ANVISA granted priority review for TEGSEDI.

We and Akcea are preparing to commercialize WAYLIVRA in the EU. The CHMP of the EMA adopted a positive opinion recommending conditional marketing authorization for WAYLIVRA as an adjunct to diet in adult patients with genetically confirmed  FCS who are at high risk for pancreatitis, in whom response to diet and triglyceride lowering therapy has been inadequate. The positive opinion will now be referred to the EC which grants marketing authorization for medicines in the EU, as well as to European Economic Area members Iceland, Liechtenstein and Norway. With this positive opinion, and, pending adoption of the positive opinion by the EC, Akcea plans to leverage its existing commercial infrastructure in Europe to market WAYLIVRA. Akcea is continuing to conduct open-label extension and early access programs. We are also focused on regulatory discussions in the U.S. We are developing volanesorsenWAYLIVRA to treat twoFPL a second severe and rare, genetically defined diseases, FCS and familial partial lipodystrophy, or FPL.disease. 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. The clinical development program for volanesorsen consists of three Phase 3 studies called APPROACH, BROADEN and COMPASS. The APPROACH study, in patients with FCS, is fully enrolled and we plan to report data from it in the first quarter of 2017. We plan to file for marketing authorization in the U.S., Europe and Canada in 2017 if the data are positive. We also recently completed the COMPASS study in patients with triglycerides above 500 mg/dL to expand the exposure database for volanesorsen to support global regulatory filings. In December 2016, we reported that the COMPASS study met its primary endpoint of a statistically significant 71% mean reduction in triglycerides in volanesorsen-treated patients. Safety in this study was supportive of continuing development. We estimate that FCS and FPL each affect 3,000 to 5,000 patients globally. If approved, we plan to commercialize volanesorsen for both FCS and FPL through Akcea.
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IONIS-TTRIn addition to commercializing TEGSEDI and preparing to commercialize WAYLIVRA, Akcea is developing four other clinical-stage medicines: AKCEA-APO(a)-LRx (TQJ230), AKCEA-ANGPTL3-LRx is potentially a first-in-class, AKCEA-APOCIII-LRx and best-in-class drug for the treatment of all forms of transthyretin, or TTR, amyloidosis, a debilitating, progressive, fatal disease in which patients experience a progressive buildup of amyloid plaque deposits in tissues throughout the body. We are evaluating IONIS-TTRRx in an ongoing Phase 3 study, NEURO-TTR, in patients with FAP. More than half of these patients also have TTR amyloid cardiomyopathy. As part of our Phase 3 study, we are evaluating cardiomyopathy in this subset of patients by cardiac imaging and biomarkers which will provide data on cardiovascular endpoints.Togetherthe polyneuropathy and cardiomyopathy forms of TTR amyloidosis represent a large commercial opportunity for IONIS-TTRRx. We plan to have data from the NEURO-TTR study in the second quarter of 2017. We and GSK, our partner for IONIS-TTRAKCEA-TTR-LRx, are preparingeach of which could potentially treat multiple patient populations. Moving these drugs into Akcea allows us to file for marketing authorization ifretain substantial value from these data are positive. GSK is preparing to commercialize IONIS-TTRmedicines and ensures our core focus remains on innovation. As of February 2019, we owned approximately 75 percent of Akcea.Rx.

In additionWe are continuously advancing our technology and pipeline to our Phase 3 programs, weprovide the most value to patients. We have a pipeline of drugsover 40 medicines that, like SPINRAZA and TEGSEDI, have the potential to transform the treatment of diseases with no adequate treatment today. These medicines range from treatments for rare diseases with small patient populations to more common diseases afflicting millions of patients. Our pipeline covers a broad spectrum of therapeutic areas, such as cardiometabolic diseases, neurodegenerative diseases, cancer, severe and rare diseases and others. We believe our large and diverse pipeline contains many near-, mid- and longer-term growth drivers for the company.

Our pipeline includes at least 10 potentially transformative medicines anticipated to enter pivotal clinical studies in the next two years. We anticipate at least four of these medicines will enter pivotal studies this year including: AKCEA-APO(a)-LRx, AKCEA-TTR-LRx, IONIS-HTTRx (RG6042) and IONIS-SOD1Rx. Roche recently initiated a Phase 3 study of IONIS-HTTRx for HD. We believe each of these medicines is a first-in-class and/or best-in-class medicine with the potential to be first-in-class and/or best-in-class drugsdeliver significant value to treat patients with diseasesand shareholders. We anticipate that have inadequate treatment options. We are addressing a broad spectrum of diseasesthe data from common diseases affecting millions, such as cardiovascular disease, clotting disorders, Alzheimer’s and Parkinson’s disease, to rare diseases, such as amyotrophic lateral sclerosis and Huntington’s disease. Our pipeline has over a dozen drugs in Phase 2 development, many of which we believe have the potential to be significant commercial opportunities. In particular, IONIS-FXIRx and AKCEA-APO(a)-LRx represent the value we have created. IONIS-FXIRx is the first antithrombotic in development that has shown it can decrease the risk of blood vessel obstruction caused by a blood clot without increasing bleeding risk. AKCEA-APO(a)-LRx is the first and only drug in clinical development designed to selectively and robustly lower Lp(a), a key driver of cardiovascular disease. We believe that addressing Lp(a) is the next important horizon in lipid-focused cardiovascular disease treatment.these pivotal studies, if positive, will support global regulatory filings for each medicine.

The depth of our knowledge and expertise with antisense technology together with our strong financial position provides us the flexibility to determinepartner our medicines at what we believe is the optimal development and commercialization strategytime to maximize the near-near-term, mid-term and longer-termlong-term value of our drugs. medicines. We have a distinct partnering strategies that we employstrategy based on theeach specific drug, therapeutic areamedicine and the expertise and resources we and our potential partners may bring to thea collaboration. We may develop and commercialize some medicines through affiliates. In general, these are medicines, like TEGSEDI, that can benefit from our internal expertise and infrastructure, have establishedmanageable development costs and have the potential for initial rare disease indications. For other medicines, we may establish collaborations to advance the medicine. We have alliances with a cadre of leading global pharmaceutical companies that are working alongside us in developing our drugs,medicines, advancing our technology, and preparing to commercialize our products.medicines and selling our medicines. Our partners include the following companies, among others: AstraZeneca, Bayer, Biogen, GSK, Janssen, Novartis and Roche. 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 for which our partners can provide expertise, tools and resources to complement our drug discovery efforts. 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 each partnership. We also form early stage research and development partnerships that allow us to expand the application of our technology to new therapeutic areas. Lastly, 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 partnerships, we have created a broad and sustaining base of potential 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. We have the potential to earn nearly $13over $20 billion in future milestone payments and licensing fees from our currentexisting partnerships. We also have the potential to share in the future commercial success of our inventions and drugs resulting from our partnerships through earn out or royalty arrangements. With the approval of SPINRAZA in the U.S., we are 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 if Biogen achieves marking authorization in additional countries. We also have the potential to further increase our commercial revenue with volanesorsen product sales and IONIS-TTRRx royalties. We believe we have the key elements in place to achieve sustained long-term financial growth, including multiple drivers of revenue; a mature, broad and rapidly-advancing clinical pipeline; a partnership strategy that leverages partner resources; and an innovative drug technology that we continue to deploy across a range of therapeutic areas to address both rare and large patient populations.
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Financial Highlights

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

 Years Ended December 31, 
 2018  2017  2016 
 2016  2015  2014     (as revised) 
Total revenue $346,620  $283,703  $214,161  $599,674  $514,179  $372,776 
Total operating expenses $392,936  $359,465  $261,891  $661,046  $483,132  $392,936 
Loss from operations $(46,316) $(75,762) $(47,730)
Net loss $(86,556) $(88,278) $(38,984)
Income (loss) from operations $(61,372) $31,047  $(20,160)
Net income (loss) $214,985  $(10,783) $(60,400)
Net income (loss) attributable to Ionis Pharmaceuticals, Inc. common stockholders $273,741  $346  $(60,400)
Cash, cash equivalents and short-term investments $665,223  $779,183  $728,832  $2,084,072  $1,022,715  $665,223 

Our revenue for 2018 was $599.7 million and increased significantly compared to 2017 and 2016, primarily from increased commercial revenue from SPINRAZA royalties.

During 2016 we increased our revenue by 22 percent over 2015. Further, our R&D revenue has consistently grown year over year since 2011.Our operating expenses for 2018 were $661.0 million and continued to increase year-over-year. The substantial increase in 2016 revenueoperating expenses was primarily due to higher SG&A expenses as we prepared to commercialize TEGSEDI and WAYLIVRA. Our SG&A expenses also increased because of fees we owed under our in-licensing agreements related to SPINRAZA. We earn tiered royalties on annual SPINRAZA sales and pay nominal fixed third-party royalties that are not tiered. R&D expenses accounted for a smaller portion of the license of SPINRAZA by Biogenincrease in operating expenses.

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The increase in 2018 net income attributable to Ionis’ common stockholders was primarily due to increases in revenue and its subsequent approval by the FDA. With the approval of SPINRAZAincome tax benefit we recognized in the U.S.,fourth quarter of 2018. Our tax benefit increased significantly in 2018 primarily due to a one-time non-cash tax benefit related to Ionis’ stand-alone deferred federal income tax assets. In the fourth quarter of 2018, we are adding commercial revenue from SPINRAZA royaltiesreleased a large portion of our valuation allowance associated with our deferred tax assets. As a result of our strong financial performance over the past few years and our outlook regarding the continued growth of our business, we determined that it was more likely than not that we would be able to realize most of our broad base of R&D revenue. In addition, in 2016deferred income tax assets we continuedhave accumulated to advance our pipeline of drugs to treat both rare and more prevalent diseases across multiple therapeutic areas. offset future taxable income.

During each of the years above, we were conducting several Phase 3 studies for SPINRAZA, volanesorsen and IONIS-TTRRx along with advancing numerous earlier-stage drugs. During 2016,2018 we received more than $190 million$1.5 billion in payments from our partners, reflecting the successes ofincluding $1 billion from Biogen for our partnered programs2018 strategic neurology collaboration. This is compared to $580 million received in 2017 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.$190 million received in 2016. We believe our strong financial position willshould enable us to continue to execute on our corporate goals throughout 2017.
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2019 and beyond.

Business Segments

In 2015, we began reportingWe have two operating segments, our financial results in two reportable segments, Ionis Core segment and Akcea Therapeutics, our wholly owned subsidiary. Segment loss from operations includes revenue less operating expenses attributablemajority-owned affiliate. Akcea is a biopharmaceutical company focused on developing and commercializing medicines to each segment.

Intreat patients with rare and serious diseases. We provide segment financial information and results for 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. OurAkcea 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 and general and administrative expenses to Akcea for work Ionis Core segment generates revenue from a multifaceted partnering strategy.performs on behalf of Akcea.

We formed Akcea to develop and commercialize novel drugs to treat patients with serious cardiometabolic diseases caused by lipid disorders. Akcea’s goal is to become the premier company offering treatments for inadequately treated lipid disorders. Moving our lipid drugs into a company that we own ensures that our core focus at Ionis remains on innovation while allowing us to maintain control over and retain more value from our lipid drugs.

Critical Accounting Policies

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 policies and we caution that future events rarely develop exactly as one may expect, and that best estimates may require adjustment.

The following are our significant accounting policies, 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;
●
Valuing premiums received under our collaborations;
●Determining the proper valuation of investments in marketable securities and other equity investments;securities;
●Determining the appropriate cost estimates for unbilled preclinical studies and clinical development activities; and
●Estimating our net deferred income tax asset valuation allowance; and
ncome taxes.
Determining the fair value of convertible debt without the conversion feature.

Descriptions of these critical accounting policies follow.

Revenue Recognition

Adoption of New Revenue Recognition Accounting Standard (Topic 606)

In May 2014, the FASB issued accounting guidance on the recognition of revenue from customers. This guidance supersedes the revenue recognition requirements we previously followed in Accounting Standards Codification, or ASC, Topic 605, Revenue Recognition, or Topic 605, and created a new Topic 606, Revenue from Contracts with Customers, or Topic 606. Under Topic 606, 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. We adopted Topic 606 on January 1, 2018 under the full retrospective approach, which required us to revise our prior period revenue. Under Topic 606, we were required to review all of our ongoing collaboration agreements in which we recognized revenue after January 1, 2016. We were required to assess what our revenue would have been for the period from January 1, 2016 to December 31, 2017 under Topic 606. As a result of this analysis, we determined that the cumulative revenue we would have recognized under Topic 606 decreased by $86.1 million. We recorded this amount as a cumulative adjustment to our accumulated deficit as of January 1, 2016 on our revised statement of stockholders’ equity. We have labeled our prior period financial statements “as revised” to indicate the change required under the accounting rules.

The following tables summarize the adjustments we were required to make to amounts we originally reported in 2017 and 2016 to adopt Topic 606 (in thousands, except per share amounts):

Consolidated Balance Sheet

  At December 31, 2017 
  
As Previously
Reported under
Topic 605
  
Topic 606
Adjustment
  As Revised 
Current portion of deferred contract revenue $106,465  $18,871  $125,336 
Long-term portion of deferred contract revenue $72,708  $35,318  $108,026 
Accumulated deficit $(1,187,398) $(53,636) $(1,241,034)
   Noncontrolling interest in Akcea Therapeutics, Inc. $87,847  $(3,580) $84,267 
Total stockholders’ equity $418,719  $(53,439) $365,280 

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Consolidated Statements of Operations

  Year Ended December 31, 2017 
  
As Previously
Reported under
Topic 605
  
Topic 606
Adjustment
  As Revised 
Revenue:         
Commercial revenue:         
SPINRAZA royalties $112,540  $—  $112,540 
Licensing and other royalty revenue  9,519   (2,045)  7,474 
Total commercial revenue  122,059   (2,045)  120,014 
Research and development revenue under collaborative agreements  385,607   8,558   394,165 
Total revenue $507,666  $6,513  $514,179 
Income from operations $24,534  $6,513  $31,047 
Net income (loss) $(17,296) $6,513  $(10,783)
Net income (loss) attributable to Ionis Pharmaceuticals, Inc. common stockholders $(5,970) $6,316  $346 
Net income per share, basic and diluted $0.08  $0.07  $0.15 

  Year Ended December 31, 2016 
  
As Previously
Reported under
Topic 605
  
Topic 606
Adjustment
  As Revised 
Revenue:         
Commercial revenue:         
SPINRAZA royalties $883  $—  $883 
Licensing and other royalty revenue  19,839   2,045   21,884 
Total commercial revenue  20,722   2,045   22,767 
Research and development revenue under collaborative agreements  325,898   24,111   350,009 
Total revenue $346,620  $26,156  $372,776 
Income (loss) from operations $(46,316) $26,156  $(20,160)
Net income (loss) $(86,556) $26,156  $(60,400)
Net income (loss) attributable to Ionis Pharmaceuticals, Inc. common stockholders $(86,556) $26,156  $(60,400)
Net income (loss) per share, basic and diluted $(0.72) $0.22  $(0.50)

Consolidated Statements of Cash Flows

  Year Ended December 31, 2017 
  
As Previously
Reported under
Topic 605
  
Topic 606
Adjustment
  As Revised 
Net income (loss) $(17,296) $6,513  $(10,783)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:            
Deferred contract revenue $36,695  $(6,513) $30,182 
Cash and cash equivalents at beginning of period $84,685  $—  $84,685 
Cash and cash equivalents at end of period $129,630  $—  $129,630 

  Year Ended December 31, 2016 
  
As Previously
Reported under
Topic 605
  
Topic 606
Adjustment
  As Revised 
Net income (loss) $(86,556) $26,156  $(60,400)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:            
Deferred contract revenue $(59,150) $(26,156) $(85,306)
Cash and cash equivalents at beginning of period $128,797  $—  $128,797 
Cash and cash equivalents at end of period $84,685  $—  $84,685 

Under Topic 606, compared to Topic 605, our total revenue increased $6.5 million for 2017 and $26.2 million for 2016. The change in our revenue was primarily due to:

●
A change in how we recognize milestone payments: Topic 606 requires us to amortize more of the milestone payments we achieve, rather than recognizing the milestone payments in full in the period in which we achieved the milestone event as we did under Topic 605. This change resulted in an increase in R&D revenue recognized for 2017 and 2016 of $23.6 million and $24.1 million, respectively.

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●
A change in how we calculate revenue for payments we are recognizing into revenue over time: Under Topic 605, we amortized payments into revenue evenly over the period of our obligations. When we made a change to our estimated completion period, we recognized that change on a prospective basis. Under Topic 606, we use an input method to determine the amount we amortize each reporting period. Each period, we review our “inputs” such as our level of effort expended, including the time we estimate it will take us to complete the activities, or costs incurred relative to the total expected inputs to satisfy the performance obligation. For certain collaborations, such as Bayer, Janssen and Novartis, the input method resulted in a change to the revenue we had previously recognized using a straight-line amortization method. This change resulted in a decrease in our R&D revenue of $15.1 million for 2017. This change did not result in an impact to our 2016 R&D revenue.

Our updated revenue recognition policy reflecting Topic 606 is as follows:

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.

Arrangements with multiple deliverablesCommercial 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: TEGSEDI product sales, net

We began adding product sales from TEGSEDI to our commercial revenue in the fourth quarter of 2018. In the U.S., TEGSEDI is distributed 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 Germany, TEGSEDI is distributed through a non-exclusive distribution model with a 3PL that takes title to TEGSEDI. The 3PL is our sole customer in Germany. The 3PL in Germany then distributes TEGSEDI to hospitals and pharmacies.

Research and development revenue under collaborative agreements

We often enter into collaboration agreements to license and sell our technology on an exclusive or non-exclusive basis. Our collaboration agreements typically contain multiple elements, or 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 certainNote 6, Collaborative Arrangements and Licensing Agreements. Under each collaboration note we discuss 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 amount of revenue we should recognize and when we should recognize it. The five step process is as follows:

1.Identify the contract

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

●We and our partner approved the contract and we are both committed to perform our obligations;
●We have identified our rights, our partner’s rights and the payment terms;
●We have concluded that the contract has commercial substance, meaning that the risk, timing, or amount of our future cash flows is expected to change as a result of the contract; and
●We believe collectability 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 one performance obligation at the inception of a contract, which is to perform R&D services.

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Often times we enter into a collaboration agreement in which we provide our partner with an option to license a medicine in the future. We may also provide our partner with an option to request that we provide additional goods or services in the future, such as active pharmaceutical ingredient, or API. We evaluate whether these options are material rights at the inception of the agreement. If we determine an option is a material right, we will consider the option a separate performance obligation. Historically, we have concluded that the options we grant to license a medicine in the future or to provide additional goods and services as requested by our partner are not material rights. 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, manufacturing services,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 performance obligations related to the license after delivery, then we consider the license to be a separate performance obligation.

3.Determine the transaction price

We then determine the transaction price by reviewing the amount of consideration we are eligible to earn under the collaboration agreement, including any variable consideration. Under our collaboration agreements, consideration typically includes fixed consideration in the form of an upfront payment and variable consideration in the form of potential milestone payments, license fees and royalties. At the start of an agreement, our transaction price usually consists of only the upfront payment. We do not typically include any payments we may receive in the future in our initial transaction price because the payments are not probable. We reassess the total transaction price at each reporting period to determine if we should include additional payments in the transaction 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 determine the likelihood of earning the milestone payment. We include a milestone payment in the transaction price once it is probable we will achieve the milestone event. Most often, we do not consider our milestone payments probable until we or our partner achieve the milestone event because the majority of our milestone payments are contingent upon events that are not within our control and are usually based on scientific progress. For example, in January 2019 we earned a $35 million milestone payment from Roche when it dosed the first patient in the Phase 3 study of IONIS-HTTRx.  At December 31, 2018, we determined it was not probable that we could earn this milestone payment. As such, we did not recognize any revenue associated with it in 2018.

4.Allocate the transaction price

Next, we allocate the considerationtransaction price to each unit of accountingour performance obligations. When we have to allocate the transaction price to more than one performance obligation, we make estimates of the relative stand-alone selling price of each performance obligation because we do not typically sell our goods or services on a stand-alone basis. We then allocate the transaction price to each performance obligation based on the relative stand-alone selling price of each deliverable.

Identifying deliverables and units of accountingprice.

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

●Estimated future product sales;
●Estimated royalties on future product sales;
●Contractual milestone payments;
●Expenses we expect to incur;
●Income taxes; and
●A discount rate.

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

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

We do not reallocate the transaction price after the start of an agreement to reflect subsequent changes in stand-alone selling prices.

5.Recognize revenue

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

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

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

Commercial Revenue: SPINRAZA royalties and Licensing and other royalty revenue

We recognize royalty revenue in the period in which the counterparty sells the related product, which in certain cases may require us to estimate our royalty revenue. We recognize royalties from SPINRAZA sales in the period Biogen records the sale of SPINRAZA. Our accounting for SPINRAZA royalties did not change as a result of adopting Topic 606.

Commercial Revenue: TEGSEDI Product Sales, net

We recognize TEGSEDI product sales in the period when our customer obtains control of TEGSEDI, 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 TEGSEDI Product Sales

We record TEGSEDI 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 reductions of accounts receivable when the amount is payable to our customer or a current liability when the amount is payable to a party other than our customer in our consolidated balance sheet. In certain cases, our estimates include a 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 TEGSEDI product sales in the respective period.

The following are the components of variable consideration related to TEGSEDI 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 record reserves for these chargebacks related to TEGSEDI product sales to our U.S. customer during the reporting period. We also estimate the amount of product remaining in the distribution channel inventory at the end of the reporting period that we expect our customer to sell to wholesalers in future periods.

Government rebates: We are subject to discount obligations under government programs, including Medicaid programs and Medicare in the U.S. 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 TEGSEDI product sales in the same period we recognize the related sale. For Medicare rebates, 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. In Germany, pharmaceutical companies must grant a specified rebate percentage to the German government. We include this rebate in the same period we recognize the related TEGSEDI product sales, resulting in a reduction of product sales.

Trade discounts and allowances: We provide customary invoice discounts on TEGSEDI product sales to our U.S. customer for prompt payment. We record this discount as a reduction of TEGSEDI product sales in the period in which we recognize the related product revenue. In addition, we receive and pay for various distribution services from our U.S. customer and wholesalers in our U.S. distribution channel. For services we receive that are either not distinct from the sale of TEGSEDI or for which we cannot reasonably estimate the fair value, we classify such fees as a reduction of TEGSEDI product sales.

Product Returns: Our U.S. customer has return rights and the wholesalers have limited return rights primarily related to the expiration date of the TEGSEDI product. We estimate the amount of TEGSEDI 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 TEGSEDI product sales, in the same period we recognize the related sale. Based on our distribution model for TEGSEDI, contractual inventory limits with our customer and wholesalers and the price of TEGSEDI, we believe we will have minimal returns. Our customer in Germany only takes title to the product once it receives an order from a hospital or pharmacy and therefore does not maintain any inventory of TEGSEDI, as such we do not estimate returns in Germany.

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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 TEGSEDI 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 TEGSEDI product sales, in the same period we recognize the related sale.

Research and development revenue under collaboration agreementsagreements:

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 new 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. Refer to Note 6, Collaborative Arrangements and Licensing Agreements, for further discussion. Under Topic 605, we amortized upfront payments evenly over the period of our obligation.

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 under our collaboration agreements. 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 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 third quarter of 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. Under Topic 606, we added this payment to the transaction price and allocated it to our R&D services performance obligation. We are recognizing revenue from this milestone payment over our estimated period of performance. Under Topic 605, this milestone payment was recognized in full in the third quarter of 2017, which was the period in which we achieved the milestone event.

Conversely, we recognize in full those milestone payments that we earn based on our partners’ activities when our partner achieves the milestone event. For example, in the third quarter of 2018, we recognized a $10 million milestone payment when AstraZeneca initiated a Phase 1 study of IONIS-AZ4-2.5-LRx. We concluded that the milestone payment was not related to our R&D services performance obligation. Therefore, we recognized this milestone payment in full in the third quarter of 2018 because we do not have any performance obligations related to this milestone payment. Our revenue recognition of milestone payments we earn based on our partners’ activities did not change as a result of adopting Topic 606.

License Fees

We generally recognize as revenue the total amount we determine to be the 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 2018, we earned a $35 million license fee when Biogen licensed IONIS-SOD1Rx from us. Our recognition of license fees did not change as a result of adopting Topic 606.

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 whether they meet the criteria to be accountedaccounting for as separate units of accounting the amendment:

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

If we conclude the goods and/or whether they should be combined with other deliverablesservices in the amendment are distinct from the performance obligations in the original agreement and accounted for asat a single unit of accounting. When the delivered items in an arrangement have "stand-alone value" to our customer,stand-alone selling price, we account for the deliverablesamendment as a separate units of accounting. Delivered itemsagreement. 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 stand-alone value if theyalready 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 sold separately bynot distinct from what we have already provided, we update the transaction price for our single performance obligation and recognize any vendor or the customer could resell the delivered items onchange in our estimated revenue as a stand-alone basis. cumulative adjustment.

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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 paymentpayment. 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 second quarter of 2015.2017 amendment, Bayer paid us $75 million. We are also eligible to receive milestone payments and tiered royalties on gross margins of IONIS-FXIRx. At the onset of the agreement, we were responsible for completing the development services for IONIS-FXI and IONIS-FXI-LRx. Under the 2017 amendment, we concluded we had a new agreement with three performance obligations. These performance obligations were to deliver the license of IONIS-FXI-LRx, to provide R&D services and for providing an initial supply of active pharmaceutical ingredient, orto deliver API. SinceWe allocated the agreement had multiple elements, we evaluated the deliverables in this arrangement when we entered into the agreement and determined that certain deliverables have stand-alone value. In February 2017, we expanded our collaboration with Bayer, refer$75 million transaction price to these performance obligations. Refer to Note 6, Collaborative Arrangements and Licensing Agreements, in the Notes to the Consolidated Financial Statements for further information.
discussion 49of our accounting treatment for our Bayer collaboration.

Below is a listOur allocation of the three units of accounting under our original agreement:

The exclusive license we granted to Bayer to develop and commercialize IONIS-FXIRx for the treatment of thrombosis;
The development services we agreed to perform for IONIS-FXIRx; and 
The initial supply of API.

We determined that each of these three units of accounting have stand-alone value. The licenseconsideration we granted to Bayer has stand-alone value because it gives Bayer the exclusive right to develop IONIS-FXIRx or to sublicense its rights. The development services and the initial 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 on the relative 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, 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 considerationreceived for the Bayer collaboration was $100 million and we allocated it based on the relative BESP of each unit of accounting. We engaged a third party, independent valuation expert to assist us with determining BESP. We estimated the selling price of the license granted for IONIS-FXIRx by using the relief from royalty method. Under this method, we estimated the amount of income, net of taxes, for IONIS-FXIRx. 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;
Income taxes; and
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 drug product we will use.

We determine the selling price of our API consistently for all of our partnerships. On an annual basis, we calculate our fully absorbed cost to manufacture API. We then determine the unit price we will charge our partners by dividing our fully absorbed costs by the quantity of API we expect to produce during the year.

For purposes of determining BESP of the services we performed and the API we delivered in our Bayer transaction, accounting guidance required us to include a markup for a reasonable profit margin.

Based on the units of accounting under the agreement, we allocated the $100 million upfront payment from Bayer as follows:

$91.2 million to the IONIS-FXIRx exclusive license;
$4.3 million for development services; and
$4.5 million for the delivery of 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-FXIRx license, we determined that the revenue we would have allocated to the IONIS-FXIRx license would change by approximately one percent, or $0.9 million, from the amount we recorded.

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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-FXIRx in the second quarter of 2015 because that was when we delivered the license. We also recognize revenue over time. 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 must estimate our period of performance when the agreements we enter into doamendment did not clearly define such information. We estimate the period of time over which we will complete the activities for which we are responsible and use that period of time as our period of performance for purposes of revenue recognition. We then recognize revenue ratably over such period. We have made estimates of our continuing obligations under numerous agreements and in certain instances the timing of satisfying these obligations change as a result of adopting Topic 606. However, the development plans for our drugs progress. Accordingly, our estimates may changemethod in the future. 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.

The following are the periods over which we are recognizing revenue for each ofrelated to our units of accountingR&D services performance obligation did change. We are amortizing revenue related to our R&D services performance obligation using the input method under our Bayer agreement:Topic 606.

We recognized the portion of the consideration attributed to the IONIS-FXIRx license immediately in the second quarter of 2015 because we delivered the license and earned the revenue; 

We recognized the amount attributed to the development services for IONIS-FXIRx over the period of time we  performed the services; and
We are recognizing the amount attributed to the API supply as we deliver it to Bayer.

Multiple agreementsAgreements

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 2012 and 2013,the second quarter of 2018, we entered into several collaboration agreements with Biogen:

In January 2012, we entered into a collaboration agreement with Biogen to develop and commercialize SPINRAZA (nusinersen) for SMA. As part of the collaboration, we received a $29 million upfront payment and were responsible for global development of SPINRAZA through completion of Phase 2/3 clinical trials.

In June 2012, we entered into a second andtwo separate collaboration agreement with Biogen to develop and commercialize a novel antisense drug targeting DMPK. As part of the collaboration, we received a $12 million upfront payment and we are responsible for global development of the drug through the completion of a Phase 2 clinical trial.

In December 2012, we entered into a third and separate collaboration agreement with Biogen to discover and develop antisense drugs against three targets to treat neurological or neuromuscular disorders. As part of the collaboration, we received a $30 million upfront payment and we are responsible for the discovery of a lead antisense drug for each of three targets.

In September 2013, we entered into a fourth and separate collaboration agreement with Biogen to leverage antisense technology to advance the treatment of neurodegenerative diseases. We granted Biogen exclusive rights to the use of our antisense technology to develop therapies for neurological diseases as part of this broad collaboration. We received a $100 million upfront payment and we are responsible for discovery and early development through the completion of a Phase 2 clinical trial for each antisense drug identified during the six-year term of this collaboration, while Biogen is responsible for the creation and development of small molecule treatments and biologics.

Under our collaboration agreement, in July 2016, Biogen exercised its option to license SPINRAZA. Our other collaboration agreements with Biogen give Biogenat the option to license one or more drugs resulting from the specific collaboration. Similar to oursame time: a new strategic neurology collaboration agreement for SPINRAZA, if Biogen exercises an option, it will pay usand a license fee and will assume future global development, regulatory and commercialization responsibilities for the licensed drug. We are also eligible to receive milestone payments associated with the research and/or development of the drugs prior to licensing, milestone payments if Biogen achieves pre-specified regulatory milestones, and royalties on any product sales from any drugs resulting from these collaborations.

SPA. We evaluated all of the Biogen agreements to determine whether we should account for them as separate agreements.treat the agreements separately or combine them. We determinedconsidered that the agreements were negotiated concurrently and in contemplation of one another. Based on these facts and circumstances, we concluded that we should account forevaluate the provisions of the agreements separately because we conducted the negotiations independently of one another, each agreement focuses on different drugs, there are no interrelated or interdependent deliverables, there are no provisions in any of these agreements that are essentiala combined basis. Refer to the other agreement, and the payment terms and fees under each agreement are independent of each other.

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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 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 Phase 1 clinical trials 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 scale studies in patients with the primary intent of determining the efficacy 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. The Phase 3 studies typically involve large numbers of patients and can take up to several years to complete. If the data gathered during the 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 a drug achieves marketing authorization, it moves into the commercialization stage, during which our partner will market and sell the drug to patients. Although our partner will ultimately be responsible for marketing and selling the 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 sold 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.
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.

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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 existing 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 for further discussion of the accounting treatment for the 2018 strategic neurology collaboration with Biogen.

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.

The following table summarizes the adjustments we were required to make to our deferred revenue amounts to adopt Topic 606 (in thousands):

  At December 31, 2017 
  
As Previously
Reported under
Topic 605
  
Topic 606
Adjustment
  As Revised 
Current portion of deferred revenue $106,465  $18,871  $125,336 
Long-term portion of deferred revenue  72,708   35,318   108,026 
Total deferred revenue $179,173  $54,189  $233,362 

Our deferred revenue balance increased $54.2 million at December 31, 2017 under Topic 606, compared to Topic 605. The increase was primarily related to the change in the accounting for certain milestone payments and the way in which we amortize payments. Under Topic 605, we previously recognized the majority of the milestone payments we earned in the period we achieved the milestone event, which did not impact our deferred revenue balance. Under Topic 606 we are now amortizing more milestone payments over the period of our performance obligation, which adds to our deferred revenue balance. Additionally, under Topic 605 we amortized payments evenly over the period of our obligation. Under Topic 606, we use an input method to determine the amount we amortize each reporting period. The increase in deferred revenue relates to agreements with the following partners:

●$24.2 million from Biogen;
●$15.9 million from AstraZeneca;
●$11.8 million from Novartis; and
●$ 2.3 million from other partners.

Valuation of Premiums under our Collaborations

In conjunction with our collaboration agreements we have sold stock at a premium to our partners, including under our 2018 strategic neurology collaboration with Biogen and with Novartis in 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.

Option to license
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Biogen Premium

In severalthe second quarter of 2018, we received $1 billion from Biogen, comprised of $625 million to purchase our stock at a 25 percent cash premium and $375 million in an upfront payment. At the commencement of this collaboration, we identified one performance obligation, which was to perform R&D services for Biogen. We determined the 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 collaboration agreements,common stock. We determined the fair value of the premium we providereceived by using the stated premium in the SPA and applying a lack of marketability discount. We included a lack of marketability discount in our partnervaluation of the premium because Biogen received restricted shares.

Novartis Premiums

During the first quarter of 2017, we valued the premiums under the SPA agreement with an optionNovartis. These premiums included the premium Novartis paid us related to obtain a license to one or moreits $100 million purchase of our drugs.  Whenstock 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 multiple element arrangement that includescritical 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 option to obtain a license, we evaluate if the option is a deliverable atAkcea IPO. 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 collaborative 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 2016, we earned license fee revenue when three of our partners, AstraZeneca, Biogen and Janssen, exercised their option to license three of our drugs, which under the respective agreements, we concludedcalculated 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 be substantive options at inception. As a result, in 2016 we recognized $98 million in research and development revenue under collaborative agreementsus if an Akcea IPO did not occur. We wrote off the amount to other expenses on our consolidated statement of operations as these amounts relate to drugs in development under research and development collaboration arrangements.

Licensing and royalty revenue

We often enter into agreements to license or sell our proprietary patent rights on an exclusive or non-exclusive basis in exchange for upfront fees, milestone payments and/or royalties. We generally recognize as revenue immediately those payments for which we have no significant future performance obligations and for which we are reasonably assuredduring the third quarter of collecting the resulting receivable.2017.

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 investmentsinvestment 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. Our Level 3 investments include investments inWe classify the equity securities of publicly held biotechnology companies for which we calculated a lack of marketability discount because there were restrictions on when we could trade the securities. Historically, we have determined the lack of marketability discount by using a Black-Scholes model to value a hypothetical put option to approximate the cost of hedging the stock until the restriction ended. The majority of our securities have been classified 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.

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We have equity investments in privately and publicly held biotechnology companies that we have received as part of a technology license or collaboration agreement. We account for our equity investments in publicly held companies at fair value and record unrealized gains and losses related to temporary increases and decreases in the stock price of these publicly held companies as a separate component of comprehensive income (loss). At December 31, 2016, we held investments in two publicly traded companies, Antisense Therapeutics Limited and Regulus. We account for equity investments in privately held companies under the cost method of accounting because we own less than 20 percent and do not have significant influence over their operations. We hold cost method investments in three companies, Kastle Therapeutics, Atlantic Pharmaceuticals Limited and Dynacure, SAS. Realization of our equity position in these companies is 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.

During 2015 and 2014, we realized a net gain on investments of $20.3 million, and $21.2 million, respectively. Our net gain for 2015 and 2014 was primarily from the $20.2 million and $19.9 million gain we realized when we sold a portion of our stock in Regulus, respectively. We have reflected this gain in a separate line called “Gain on investment in Regulus Therapeutics Inc.” on our Consolidated Statements of Operations. See further discussion about our investment in Regulus in Note 2, Investments, in the Notes to the Consolidated Financial Statements.

Estimated Liability for Clinical Development Costs

We record accrued liabilities related to expenses for which service providers have not yet billed us. These liabilities are for products or services that we have received, specifically related to ongoing preclinical studies and clinical trials. These costs primarily relate to third-party clinical management costs, laboratory and analysis costs, toxicology studies and investigator grants. We have numerous drugsmedicines in concurrent preclinical studies and clinical trials at several clinical sites throughout the world. In order to ensure that we have adequately provided for ongoing preclinical and clinical development costs during the period in which we incur such costs, we maintain an accrual to cover these costs. We update 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.

Valuation Allowance for Net Deferred Tax Assets
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Income Taxes

We record a valuation allowance to offset any netaccount 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 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 based upon 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.

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 recognize somebe 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 allthe 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. ExceptIn assessing the need for 2009, we have had net losses since inception, and as a result, we have established a 100 percent valuation allowance, forwe 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 asset. Ifassets to the amount we determine thatbelieve is more-likely-than-not to be realized. 

For U.S. federal income tax purposes we are ablerequired to realizefile 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 initial public offering. As a result, we are required to assess 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 orof our valuation allowance for those jurisdictions on a consolidated basis.

We have historically recorded a valuation allowance against all of theseour 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. Given our current stand-alone Ionis pre-tax income, and assuming we maintain this current level of Ionis stand-alone pre-tax income, we expect to generate income before taxes in the U.S. in future we will record an adjustmentperiods at a level that would result in us fully utilizing our U.S. federal net operating loss carryforwards and most of our existing Research and Development and Orphan Drug tax credit carryforwards over the next three years.

We continue to maintain a full valuation allowance of $234.2 million against all of Akcea’s net deferred tax assets and the net state deferred tax assets of Ionis at December 31, 2018 due to uncertainties related to our ability to realize the tax benefits associated with these assets.

We evaluate our deferred tax assets regularly to determine whether adjustments to the valuation allowance.

Convertible Debtallowance 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 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 accountdo not provide for our convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) by separating thea U.S. income tax liability and equity componentsforeign withholding taxes on undistributed foreign earnings of the instruments in a manner that reflects our nonconvertible debt borrowing rate. We determine the carrying amount 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 value 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.foreign subsidiaries.

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. At January 1, 2016, we adopted the amended accounting guidance to simplify the presentation of debt issuance costs. As a result of this amended guidance, we reclassed our debt issuance costs in all periods presented from other assets to the net carrying amount of the related debt liability on our consolidated balance sheet. 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.

Results of Operations

Whenever we refer to prior period results, they reflect the impact of Topic 606, which we adopted in the first quarter of 2018.

Years Ended December 31, 20162018 and December 31, 20152017

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Revenue

Total revenue for 20162018 was $346.6$599.7 million, compared to $283.7$514.2 million for 2015. See below for our discussionin 2017 and was comprised of the changesfollowing (amounts in thousands):

  
Year Ended
December 31,
 
  2018  2017 
Revenue:    (as revised) 
Commercial revenue:      
SPINRAZA royalties $237,930  $112,540 
TEGSEDI product sales, net  2,237   — 
Licensing and other royalty revenue  14,755   7,474 
Total commercial revenue  254,922   120,014 
R&D revenue:        
Amortization from upfront payments  124,695   97,646 
Milestone payments  82,771   152,008 
License fees  102,053   116,095 
Other services  35,233   28,416 
Total R&D revenue  344,752   394,165 
Total revenue $599,674  $514,179 

The increase in revenue in 2018 compared to 2017 was primarily due to increasing commercial revenue from SPINRAZA royalties, which more than doubled. We added TEGSEDI product sales in the fourth quarter of 2018. Additionally, we more than doubled our revenue.licensing and royalty revenue in 2018 compared to 2017, primarily from the license fee we earned from PTC Therapeutics to commercialize TEGSEDI and WAYLIVRA in Latin America.

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Our revenue for 2016 consisted of the following:

$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;
$15 million from Kastle Therapeutics for acquiring Kynamro;
$7.5 million from Biogen for advancing IONIS-SOD1Rx. IONIS-BIIB4Rx and IONIS-BIIB6Rx;
$61 million from the amortization of upfront fees; and
$25.1 million primarily from the manufacturing services Ionis performed for its partners.

Our revenue fluctuates based on the nature and timing of payments under agreements with our partners and consists primarily ofR&D revenue from the amortization of upfront fees, milestone payments and license fees.

Research and Development Revenue Under Collaborative Agreements

Research and development revenue under collaborative agreements for 2016 was $325.9increased over $25 million in 2018 compared to $281.4 million for 2015.

Licensing and Royalty Revenue

Our revenue from licensing activities and royalties for 20162017. The increase in amortization was $20.7 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.

Operating Expenses

Operating expenses for 2016 were $392.9 million, and increased compared to $359.5 million for 2015 as a result of the following:

During 2016, we were conducting five Phase 3 studies and three open-label extension studies for SPINRAZA, IONIS-TTRRx 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 

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 is not indicative of our operating results or cash flows from our operations. Further, we internally evaluate the performance of our operations excluding it.

Research, Development and Patent Expenses

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

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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 $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, our total research, development and patent expenses were $289.2 million, compared to $278.7 million for 2015, and were slightly higher primarily due to the progression of our drugs 2018 strategic neurology collaboration with Biogen. Additionally, we added amortization revenue from our new collaboration with Roche to develop IONIS-FB-LRx in Phase 3 development. All amounts exclude non-cash compensation expense related2018. Our R&D revenue from milestone payments, license fees and other services continued to equity awards.make a significant contribution to our financial results.

Antisense Drug Discovery

Already in the first quarter of 2019, we have earned $185 million. We use our proprietary antisense technology to generate information aboutearned $150 million from Novartis when it licensed AKCEA-APO(a)-LRx and $35 million from Roche when it dosed the function of genes and to determinefirst patient in 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.

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:

 
Year Ended
December 31,
 
 2016 2015 
Antisense drug discovery expenses $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 
IONIS-TTRRx
  22,939   19,560 
Other antisense development projects  42,999   60,028 
Development overhead expenses  42,966   36,117 
Total antisense drug development, excluding non-cash compensation expense related to equity awards  179,057   172,217 
Non-cash compensation expense related to equity awards  21,380   16,208 
Total antisense drug development expenses $200,437  $188,425 

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Antisense drug development expenses were $179.1 million for 2016 compared to $172.2 million for 2015. Expenses for 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 are 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  46,639   35,125 
Non-cash compensation expense related to equity awards  21,380   16,208 
Total antisense drug development expenses $200,437  $188,425 

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 products 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. Although we may characterize a product as "in Phase 1" or "in Phase 2," it does not mean that we are conducting a single, well-defined study with dedicated resources. Instead, we allocate our internal resources on a shared basis across numerous products based on each product's particular needs at that time. This means we are constantly shifting resources among products. Therefore, what we spend on each product during a particular period is usually a function of what is required to keep the products progressing in clinical development, not what products 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 product to another and cannot be used to accurately predict future costs for each product. And, because we always have numerous drugs in preclinical and early stage clinical research, the fluctuations in expenses from drug to drug, in large part, offset one another. If we partner a drug, it may affect the size of a trial, its timing, its total cost and the timing of the related costs.

Manufacturing and Operations

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

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

 
Year Ended
December 31,
 
 2016 2015 
Manufacturing and operations expenses $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 were $30.1 million for 2016 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 

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R&D Support

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

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

  
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

General and administrative expenses include corporate costs required to support our company, our employees and our stockholders. These costs include personnel and outside costs in the areas of legal, human resources, investor relations, and finance. Additionally, we include in 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.

The following table sets forth information on general and administrative expenses (in thousands):

 
Year Ended
December 31,
 
 2016 2015 
General and administrative expenses $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 were $31.6 million for 2016 and increased compared to $21.5 million for 2015  primarily due to Akcea continuing to build its organization. Expenses for Akcea will increase as it continues to build the commercial infrastructure and advance the pre-commercialization activities necessary for the commercial launch of volanesorsen.  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 

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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 

Operating expenses for Akcea 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 volanesorsenIONIS-HTTRx in patients 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.Huntington’s disease.

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. We expect that these costs will continue to increase in 2017. 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 was $5.4 million compared to $4.3 million for 2015. Investment income increased primarily due to an improvement in the market conditions during 2016 compared to 2015.

Interest Expense

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 for our primary facility and other miscellaneous debt.

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

  
Year Ended
December 31,
 
  2016  2015 
2¾ percent notes:      
Non-cash amortization of the debt discount and debt issuance costs $2,761  $2,530 
Interest expense payable in cash  1,684   1,684 
1 percent notes:        
Non-cash amortization of the debt discount and debt issuance costs  22,354   20,678 
Interest expense payable in cash  5,000   4,999 
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 for 2015. In December 2016, we issued an additional $185.5 million of 1 percent convertible senior notes in exchange for the redemption of $61.1 million of our 2¾ percent convertible senior notes. As a result of this exchange, we expect cash interest expense in 2017 to be essentially flat compared to 2016 because we increased the principal outstanding on our debt but significantly lowered our interest rate.

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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 share-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. In 2014, we recorded a net tax benefit of $15.4 million, of which $12.8 million related to our application of the intraperiod tax allocation rules that required us to record a tax benefit in continuing operations to offset the tax provision we recorded directly to other comprehensive income primarily related to the unrealized gains on our equity investment in Regulus.

Net Loss and Net Loss per Share

Net loss for 2016 was $86.6 million, compared to $88.3 million for 2015. Basic and diluted net loss per share for 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 earned in 2016 compared to 2015.

Net Operating Loss Carryforward

At December 31, 2016, we had federal and California tax net operating loss carryforwards of approximately $679.8 million and $973.1 million, respectively. Our federal tax loss carryforwards begin to expire in 2024. A portion of our California tax loss carryforwards continued to expire in 2016. At December 31, 2016, we also had federal and California research and development tax credit carryforwards of approximately $189.6 million and $48.0 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.

Years Ended December 31, 2015 and December 31, 2014

Revenue

Total revenue for 2015 was $283.7 million compared to $214.2 million for 2014.

Research and Development Revenue Under Collaborative Agreements

Research and development revenue under collaborative agreements for 2015 was $281.4 million compared to $202.5 million for 2014. We earned $115.7 million in milestone payments and $91.2 million when Bayer licensed IONIS-FXIRx during 2015 compared to milestone payments of $135.0 million in 2014. Our revenue in 2015 was primarily comprised of:

$91.2 million from Bayer in connection with our exclusive license agreement for IONIS-FXIRx;
$72.6 million from Biogen for advancing the Phase 3 program for SPINRAZA, advancing IONIS-DMPK-2.5Rx and IONIS-BIIB4Rx, and validating three new targets for neurological disorders;
$22 million from Roche for initiating a Phase 1/2 study of IONIS-HTTRx;
$20 million from GSK for advancing the Phase 3 study of IONIS-TTRRx and initiating a Phase 1 study of IONIS-GSK4-LRx; and
$75.6 million primarily from the amortization of upfront fees and manufacturing services we performed for our partners.

Licensing and Royalty Revenue

Our revenue from licensing activities and royalties for 2015 was $2.3 million, compared to $11.6 million for 2014. The decrease in 2015 was primarily a result of the $9.5 million in revenue we earned in 2014 from Alnylam related to its license of our technology to one of its partners.
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Operating Expenses

Operating expenses for 20152018 were $359.5$661.0 million, and increased compared to $261.9$483.1 million for 2014. The expected2017. Our operating expenses increased year over year principally due to higher SG&A expenses as we prepared to commercialize TEGSEDI and WAYLIVRA. Our SG&A expenses also increased year over year because of fees we owed under our in-licensing agreements related to SPINRAZA. We earn tiered royalties on annual SPINRAZA sales and pay nominal fixed third-party royalties that are not tiered. R&D expenses accounted for a smaller portion of the increase in operating expenses. R&D expenses wasfor 2018 increased compared to 2017 primarily due:

●
We incurred higher costs associated with our Phase 3 programs for SPINRAZA, volanesorsen and IONIS-TTRRx,
●Akcea’s operating expenses increased as it began building its commercial infrastructure and advanced the
pre-commercialization activities necessarydue to successfully launch volanesorsen, if approved for marketing;increases in drug development costs related to several medicines, including AKCEA-APOCIII-LRx, as we, with Akcea, advanced these programs in development. These increases reflect the investment we are making in advancing and
●Our stock compensation expense increased due to the increase in our stock price in January 2015 compared to January 2014 since we grant the majority of our stock options in January.
expanding our pipeline.

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

 
Year Ended
December 31,
  
Year Ended
December 31,
 
 2015  2014  2018  2017 
Ionis Core $256,674  $208,811  $293,175  $305,352 
Akcea Therapeutics  46,252   21,697   251,408   146,332 
Elimination of intercompany activity  (2,775)  —   (14,849)  (54,527)
Subtotal  300,151   230,508   529,734   397,157 
Non-cash compensation expense related to equity awards  59,314   31,383   131,312   85,975 
Total operating expenses $359,465  $261,891  $661,046  $483,132 

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 is not indicative of our operating results or cash flows from our operations. Further, we internally evaluate the performance of our operations excluding it.

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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, certain associated period costs. We not expect our fixed costs will increase in direct correlation to TEGSEDI product sales. We expensed a significant portion of the cost of producing TEGSEDI that Akcea is using in the commercial launch as R&D expense prior to the regulatory approval of TEGSEDI. 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,
 
  2018 
Ionis Core $— 
Akcea Therapeutics  11,573 
Elimination of intercompany activity  (9,913)
Subtotal  1,660 
Non-cash compensation expense related to equity awards  160 
Total cost of products sold $1,820 

For 2018, our cost of products sold was $1.7 million. We began recognizing cost of products sold in 2018 when TEGSEDI was approved. We previously recognized $0.1 million of costs to produce TEGSEDI related to the TEGSEDI commercial revenue we recognized in 2018 because we incurred these costs before we obtained regulatory approval. We did not have cost of products sold in 2017. Akcea includes the amortization for milestone payments it made to us related to the U.S. and European approvals of TEGSEDI in its cost of products sold. Akcea is recognizing this amortization over TEGSEDI’s remaining estimated patent life. This amortization is eliminated in our consolidated results. All amounts exclude non-cash compensation expense related to equity awards.

Research, Development and Patent Expenses

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

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

Year Ended
December 31,
  
Year Ended
December 31,
 
2015 2014  2018  2017 
Research, development and patent expenses $278,654  $215,908 
Research, development and patent expenses, excluding non-cash compensation expense related to equity awards $338,047  $310,123 
Non-cash compensation expense related to equity awards  43,638   25,843   76,557   64,521 
Total research, development and patent expenses $322,292  $241,751  $414,604  $374,644 

For 2018, our research, development and patent expenses were $338.0 million, compared to $310.1 million for 2017. The increase in our R&D expenses for 2018, compared to 2017 was driven primarily by increases in drug development costs related to several medicines including AKCEA-APOCIII-LRx and AKCEA-ANGPTL3-LRx, as we advanced these programs in development. 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,
 
 2015  2014  2018  2017 
Ionis Core $240,061  $195,007  $222,528  $246,390 
Akcea Therapeutics  41,368   20,901   120,905   118,260 
Elimination of intercompany activity  (2,775)  —   (5,386)  (54,527)
Subtotal  278,654   215,908   338,047   310,123 
Non-cash compensation expense related to equity awards  43,638   25,843   76,557   64,521 
Total research, development and patent expenses $322,292  $241,751  $414,604  $374,644 

For 2015, total research, development and patent expenses were $278.7 million compared to $215.9 million for 2014, and were higher primarily due to the progression of our drugs we had in Phase 3 trials. All amounts exclude non-cash compensation expense related to equity awards.

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.

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As we continue to advance our antisense technology, we are investing in our drug discovery programs to expand our and our partners’ drug pipelines. Our antisense drug discovery expenses are part of our Ionis Core business segment.

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

 
Year Ended
December 31,
 
 2015 2014 
Antisense drug discovery expenses $49,331  $43,620 
Non-cash compensation expense related to equity awards  11,914   7,290 
Total antisense drug discovery expenses $61,245  $50,910 

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Year Ended
December 31,
 
  2018  2017 
Antisense drug discovery expenses, excluding non-cash compensation expense related to equity awards $61,387  $56,160 
Non-cash compensation expense related to equity awards  17,530   15,203 
Total antisense drug discovery expenses $78,917  $71,363 

Antisense drug discovery expenses for 2018 were $49.3$61.4 million for 2015 and were slightly higher compared to $43.6$56.2 million for 2014, because2017 due to an increase in expenses we conducted moreincurred in 2018 related to our expanding early stage research activities to support our partnerships in 2015 compared to 2014.programs. All amounts exclude non-cash compensation expense related to equity awards.

Antisense Drug Development

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

 
Year Ended
December 31,
  
Year Ended
December 31,
 
 2015  2014  2018  2017 
SPINRAZA $35,164  $19,064  $—  $10,996 
Volanesorsen  21,348   9,337 
IONIS-TTRRx
  19,560   10,927 
Other antisense development products  60,028   50,272 
WAYLIVRA  19,397   22,524 
TEGSEDI  19,204   24,880 
Other antisense development projects  116,936   79,106 
Development overhead expenses  36,117   31,318   48,754   43,784 
Total antisense drug development, excluding non-cash compensation expense related to equity awards  172,217   120,918   204,291   181,290 
Non-cash compensation expense related to equity awards  16,208   9,640   34,845   28,325 
Total antisense drug development expenses $188,425  $130,558  $239,136  $209,615 

Antisense drug development expendituresexpenses were $172.2$204.3 million for 20152018 and increased compared to $120.9$181.3 million for 2014. Expenses in 2015 were higher2017. During 2018, our development expenses for AKCEA-APOCIII-LRx and AKCEA-ANGPTL3-LRx increased compared to 2014 primarily due2017. We completed enrollment of the Phase 2 clinical study of AKCEA-APO(a)-LRx during the first quarter of 2018 and reported positive Phase 2 data in the third quarter of 2018. We also initiated a Phase 2 clinical study of AKCEA-APOCIII-LRx in patients with hypertriglyceridemia and established cardiovascular disease in the first quarter of 2018. Slightly offsetting these increases were decreased expenses for SPINRAZA, TEGSEDI and WAYLIVRA. Specifically, we have transitioned all further development of SPINRAZA to the progression ofBiogen. In early 2017, we completed our three drugs we had in Phase 3 trials.WAYLIVRA trial in patients with FCS and our Phase 3 TEGSEDI trial in patients with hATTR with polyneuropathy. 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,
 
 2015  2014  2018  2017 
Ionis Core $137,092  $102,862  $100,090  $123,934 
Akcea Therapeutics  35,125   18,056   104,201   105,751 
Elimination of intercompany activity  —   (48,395)
Subtotal  204,291   181,290 
Non-cash compensation expense related to equity awards  16,208   9,640   34,845   28,325 
Total antisense drug development expenses $188,425  $130,558  $239,136  $209,615 

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 products 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. Although we may characterize a product as “in Phase 1” or “in Phase 2,” it does not mean that we are conducting a single, well-defined study with dedicated resources. Instead, we allocate our internal resources on a shared basis across numerous products based on each product’s particular needs at that time. This means we are constantly shifting resources among products. Therefore, what we spend on each product during a particular period is usually a function of what is required to keep the products progressing in clinical development, not what products 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 product to another and cannot be used to accurately predict future costs for each product. And, because we always have numerous medicines in preclinical and early stage clinical research, the fluctuations in expenses from drug to drug, in large part, offset one another. If we partner a drug, it may affect the size of a trial, its timing, its total cost and the timing of the related costs.

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Manufacturing and Operations

Expenditures in our manufacturing and operations function consist primarily of personnel costs, specialized chemicals for oligonucleotide manufacturing, laboratory supplies and outside services. Our manufacturing and operations 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 operations expenses were as follows (in thousands):

Year Ended
December 31,
  
Year Ended
December 31,
 
2015 2014  2018  2017 
Manufacturing and operations expenses $28,588  $24,763 
Manufacturing and operations expenses, excluding non-cash compensation expense related to equity awards $39,806  $43,526 
Non-cash compensation expense related to equity awards  4,563   2,934   9,036   6,904 
Total manufacturing and operations expenses $33,151  $27,697  $48,842  $50,430 

Manufacturing and operations expenses were $39.8 million for 2018 and declined slightly compared to $43.5 million for 2017. 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,
 
  2015  2014 
Ionis Core $25,632  $22,425 
Akcea Therapeutics  5,611   2,338 
Elimination of intercompany activity  (2,655)  — 
Subtotal  28,588   24,763 
Non-cash compensation expense related to equity awards  4,563   2,934 
Total manufacturing and operations expenses $33,151  $27,697 
Manufacturing and operations expenses for 2015 were $28.6 million and increased compared to $24.8 million for 2014. The increase in manufacturing and operations expenses was primarily related to the manufacturing activities needed to support the increase in our drug development activities. All amounts exclude non-cash compensation expense related to equity awards.
  
Year Ended
December 31,
 
  2018  2017 
Ionis Core $32,277  $39,098 
Akcea Therapeutics  12,758   10,440 
Elimination of intercompany activity  (5,229)  (6,012)
Subtotal  39,806   43,526 
Non-cash compensation expense related to equity awards  9,036   6,904 
Total manufacturing and operations expenses $48,842  $50,430 

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R&D Support

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

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

 
Year Ended
December 31,
  
Year Ended
December 31,
 
 2015  2014  2018  2017 
Personnel costs $10,210  $9,875  $12,968  $11,432 
Occupancy  7,854   7,357   8,567   8,236 
Patent expenses  2,785   2,933   2,744   2,095 
Depreciation and amortization  2,911   2,243   439   249 
Insurance  1,320   1,197   1,622   1,735 
Other  3,438   3,002   6,223   5,400 
Total R&D support expenses, excluding non-cash compensation expense related to equity awards  28,518   26,607   32,563   29,147 
Non-cash compensation expense related to equity awards  10,953   5,979   15,146   14,089 
Total R&D support expenses $39,471  $32,586  $47,709  $43,236 

R&D support expenses for 20152018 were $28.5$32.6 million compared to $29.1 million for 2017. R&D support expenses increased slightly primarily related to costs associated with the expansion of our business. All amounts exclude non-cash compensation expense related to equity awards.

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

  
Year Ended
December 31,
 
  2018  2017 
Ionis Core $28,774  $27,198 
Akcea Therapeutics  3,946   2,069 
Elimination of intercompany activity  (157)  (120)
Subtotal  32,563   29,147 
Non-cash compensation expense related to equity awards  15,146   14,089 
Total R&D support expenses $47,709  $43,236 

Selling, General and Administrative Expenses

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

The following table sets forth information on selling, general and administrative expenses (in thousands):

  
Year Ended
December 31,
 
  2018  2017 
Selling, general and administrative expenses, excluding non-cash compensation expense related to equity awards $190,027  $87,034 
Non-cash compensation expense related to equity awards  54,595   21,454 
Total selling, general and administrative expenses $244,622  $108,488 

Selling, general and administrative expenses were $190.0 million for 2018 and significantly increased compared to $87.0 million for 2017. The increase in SG&A expenses was principally due to the cost of preparing to commercialize TEGSEDI and WAYLIVRA, and an increase in the fees we owed under our in-licensing agreements related to SPINRAZA. We project our expenses will increase as we continue to launch TEGSEDI. 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,
 
  2018  2017 
Ionis Core $70,647  $58,962 
Akcea Therapeutics  118,930   28,072 
Elimination of intercompany activity  450   — 
Subtotal  190,027   87,034 
Non-cash compensation expense related to equity awards  54,595   21,454 
Total selling general and administrative expenses $244,622  $108,488 

Akcea Therapeutics, Inc.

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

  
Year Ended
December 31,
 
  2018  2017 
Cost of products sold $11,573  $— 
Development and patent expenses  120,905   118,260 
Selling, general and administrative expenses  118,930   28,072 
Total operating expenses, excluding non-cash compensation expense related to equity awards  251,408   146,332 
Non-cash compensation expense related to equity awards  44,275   17,539 
Total Akcea Therapeutics operating expenses $295,683  $163,871 

Operating expenses for Akcea were $251.4 million for 2018 and increased compared to $146.3 million for 2017.

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In the third quarter of 2018, Akcea began recognizing cost of products sold expenses after the approval of TEGSEDI.

In 2017, $48.4 million of development and patent expenses was for one-time sublicensing expenses related to the Novartis collaboration recorded in the first quarter of 2017. $33.4 million of these expenses were non-cash and the remaining $15 million was paid to us. Excluding the $48.4 million of one-time expenses, Akcea’s development and patent expenses increased $51.0 million in 2018 compared to 2017 as Akcea made investments in advancing its pipeline, including AKCEA-APO(a)-LRx, and AKCEA-APOCIII-LRx. 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 SG&A expenses increased in 2018 compared to 2017, primarily because Akcea was building its commercial infrastructure and advancing the pre-commercialization activities necessary to successfully launch TEGSEDI and WAYLIVRA. 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.

Investment Income

Investment income for 2018 was $30.2 million compared to $8.2 million for 2017. Investment income increased primarily due to a significantly higher average cash balance and to a lesser extent an improvement in the market conditions during 2018 compared to 2017.

Interest Expense

Interest expense was $44.8 million for both 2018 and 2017. The following table sets forth information on interest expense (in thousands):

  
Year Ended
December 31,
 
  2018  2017 
Convertible notes:      
Non-cash amortization of the debt discount and debt issuance costs $35,173  $32,536 
Interest expense payable in cash  6,855   7,090 
Non-cash interest expense for long-term financing liability  —   3,352 
Interest on mortgage for primary R&D and manufacturing facilities  2,409   1,103 
Other  352   671 
Total interest expense $44,789  $44,752 

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.

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.

Other Expenses

Other expenses were $0.2 million in 2018 and $3.5 million for 2017. Our 2017 other expenses primarily consisted of the previously capitalized fair value of the potential premium we would have received from Novartis if Akcea had not completed its IPO. This expense was non-cash and nonrecurring.

Income Tax Benefit

We had an income tax benefit of $291.1 million for 2018, compared to $6.0 million for 2017. Our tax benefit increased significantly in 2018 primarily due to a one-time, non-cash tax benefit related to the reversal of the valuation allowance previously recorded against Ionis’ stand-alone U.S. federal net deferred tax assets of $332.1 million. Because of Ionis’ strong financial performance, on a stand-alone basis, over the past few years and our outlook regarding the continued growth of our business, we determined that it is more likely than not that we will utilize most of our deferred federal income tax assets primarily net operating loss carryforwards and research and development and orphan drug credit carryforwards. We continue to maintain a valuation allowance against certain Ionis and Akcea federal and state net deferred tax assets at December 31, 2018 due to uncertainties related to our ability to realize the tax benefits associated with these assets.

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Net Income (Loss)

We had income of $215.0 million for 2018, compared to a net loss of $10.8 million for 2017. The increase in our net income in 2018, compared to 2017 was primarily due to our increasing revenues and income tax benefit.

Net Operating Loss and Tax Credit Carryforwards

At December 31, 2018, we had federal and California tax net operating loss carryforwards of $284.6 million and $808.7 million, respectively. Our federal tax loss carryforwards begin to expire in 2033. A portion of our California tax loss carryforwards continued to expire in 2018. At December 31, 2018, we also had federal and California research and development tax credit carryforwards of $288.9 million and $68.4 million, respectively. Our Federal research and development tax credit carryforwards began to expire in 2018. Our California research and development tax credit carryforwards are available indefinitely.

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

At December 31, 2018, we owned approximately 75 percent of Akcea. The shares of Akcea 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 our voting interest, we reflect the assets, liabilities and results of operations of Akcea in our consolidated financial statements. We reflect the noncontrolling interest attributable to other owners of Akcea's common stock in a separate line called “Net loss attributable to noncontrolling interest in Akcea” on our statement of operations. Our noncontrolling interest in Akcea on our statement of operations for 2018 was $58.8 million, compared to $11.1 million for 2017. 

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

We had net income attributable to our common stockholders of $273.7 million for 2018, compared $0.3 million in 2017. Basic and diluted net income per share for 2018 was $2.09 and $2.07, respectively compared to $0.15 for 2017. The increase in our net income attributable to our common stockholders in 2018, compared to 2017, was primarily due to our increasing revenues and income tax benefit, slightly offset by an increase in the net loss related to the portion of Akcea we own.

Years Ended December 31, 2017 and December 31, 2016

Revenue

Total revenue for 2017 was $514.2 million compared to $372.8 million for 2016 and was comprised of the following (amounts in thousands):

  
Year Ended
December 31,
 
  2017  2016 
Revenue: (as revised) 
Commercial revenue:      
SPINRAZA royalties $112,540  $883 
Licensing and other royalty revenue  7,474   21,884 
Total commercial revenue  120,014   22,767 
R&D revenue:        
Amortization from upfront payments  97,646   62,415 
Milestone payments  152,008   152,325 
License fees  116,095   98,000 
Other services  28,416   37,269 
Total R&D revenue  394,165   350,009 
Total revenue $514,179  $372,776 

The increase in revenue in 2017 compared to 2016 was primarily due to increasing commercial revenue from SPINRAZA royalties. SPINRAZA was approved by the FDA in December 2016, making 2017 the first full year we earned commercial revenue from SPINRAZA.

Our revenue from licensing and other royalties was higher in 2016 primarily from $15 million we earned from Kastle when it acquired the global rights to develop and commercialize Kynamro.

R&D revenue from the amortization of upfront payments increased $35 million in 2017, compared to 2016, primarily due to the amortization of the upfront payment from our collaboration with Novartis which began in the first quarter of 2017.

In 2017, R&D revenue from milestone payments included over $120 million of milestone payments from Biogen, including the milestone payments for SPINRAZA approval in the EU and Japan. In 2016, R&D revenue from milestone payments included over $115 million of milestone payments from Biogen, including a $60 million milestone payment for the approval of SPINRAZA in the U.S.

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In 2017, we earned $65 million from Bayer for the license of IONIS-FXI-LRx and $45 million from Roche for the license of IONIS-HTTRx. In 2016 we earned $91.2 million when Bayer licensed IONIS-FXIRx.

Operating Expenses

Operating expenses for 2017 were $483.1 million, and increased slightly compared to $26.6$392.9 million for 2014.2016. Our operating expenses increased year over year principally due to higher SG&A expenses as we prepared to commercialize TEGSEDI and WAYLIVRA. Our SG&A expenses also increased in 2017 compared to 2016 because of fees we owed under our in-licensing agreements related to SPINRAZA.

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

  
Year Ended
December 31,
 
  2017  2016 
Ionis Core $305,352  $260,233 
Akcea Therapeutics  146,332   73,363 
Elimination of intercompany activity  (54,527)  (12,768)
Subtotal  397,157   320,828 
Non-cash compensation expense related to equity awards  85,975   72,108 
Total operating expenses $483,132  $392,936 

Research, Development and Patent Expenses

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

  
Year Ended
December 31,
 
  2017  2016 
Research, development and patent expenses, excluding non-cash compensation expense related to equity awards $310,123  $289,221 
Non-cash compensation expense related to equity awards  64,521   55,099 
Total research, development and patent expenses $374,644  $344,320 
For 2017, total 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 other activities in support of TEGSEDI and WAYLIVRA. If you exclude these expenses, our research, development and patent expenses decreased year-over-year. 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,
 
  2017  2016 
Ionis Core $246,390  $238,106 
Akcea Therapeutics  118,260   63,883 
Elimination of intercompany activity  (54,527)  (12,768)
Subtotal  310,123   289,221 
Non-cash compensation expense related to equity awards  64,521   55,099 
Total research, development and patent expenses $374,644  $344,320 

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,
 
  2017  2016 
Antisense drug discovery expenses, excluding non-cash compensation expense related to equity awards $56,160  $51,028 
Non-cash compensation expense related to equity awards  15,203   13,589 
Total antisense drug discovery expenses $71,363  $64,617 

Antisense drug discovery expenses for 2017 were $56.2 million and were slightly higher compared to $51.0 million for 2016, due to expenses we incurred related to advancing our early stage research programs. All amounts exclude non-cash compensation expense related to equity awards.

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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,
 
  2017  2016 
SPINRAZA $10,996  $43,868 
WAYLIVRA  22,524   26,285 
TEGSEDI  24,880   22,939 
Other antisense development products  79,106   42,999 
Development overhead expenses  43,784   42,966 
Total antisense drug development, excluding non-cash compensation expense related to equity awards  181,290   179,057 
Non-cash compensation expense related to equity awards  28,325   21,380 
Total antisense drug development expenses $209,615  $200,437 

Antisense drug development expenditures were $181.3 million for 2017 compared to $179.1 million for 2016. The expenses for SPINRAZA and WAYLIVRA declined in 2017. Specifically, we transitioned all further development of SPINRAZA to Biogen and we were completing our Phase 3 WAYLIVRA trial in patients with FCS. Additionally, we completed our Phase 3 TEGSEDI trial in patients with hATTR with polyneuropathy in 2017. Our 2017 expenses included $4.8 million of expenses related to regulatory filing activities for TEGSEDI and WAYLIVRA. Additionally, during 2017, we made investments in our other antisense development projects, including AKCEA-APO(a)-LRx and IONIS-FXIRx. 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,
 
  2017  2016 
Ionis Core $123,934  $132,418 
Akcea Therapeutics  105,751   46,639 
Elimination of intercompany activity  (48,395)  — 
Subtotal  181,290   179,057 
Non-cash compensation expense related to equity awards  28,325   21,380 
Total antisense drug development expenses $209,615  $200,437 

Manufacturing and Operations

Our manufacturing and operations 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 

Manufacturing and operations expenses for 2017 were $43.5 million and were higher compared to $30.1 million for 2016. All amounts exclude non-cash compensation expense related to equity awards. $11 million of the increase in manufacturing expenses was related to TEGSEDI and WAYLIVRA to prepare for the planned launches. 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,
 
  2017  2016 
Ionis Core $39,098  $27,341 
Akcea Therapeutics  10,440   15,455 
Elimination of intercompany activity  (6,012)  (12,648)
Subtotal  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 
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R&D Support

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

  
Year Ended
December 31,
 
  2017  2016 
Personnel costs $11,432  $11,560 
Occupancy  8,236   7,891 
Patent expenses  2,095   3,945 
Depreciation and amortization  249   245 
Insurance  1,735   1,344 
Other  5,400   4,003 
Total R&D support expenses, excluding non-cash compensation expense related to equity awards  29,147   28,988 
Non-cash compensation expense related to equity awards  14,089   14,017 
Total R&D support expenses $43,236  $43,005 

R&D support expenses for 2017 were $29.1 million, and were essentially flat compared to $29.0 million for 2016. 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,
 
 2015  2014  2017  2016 
Ionis Core $28,005  $26,100  $27,198  $27,319 
Akcea Therapeutics  633   507   2,069   1,789 
Elimination of intercompany activity  (120)  —   (120)  (120)
Subtotal  28,518   26,607   29,147   28,988 
Non-cash compensation expense related to equity awards  10,953   5,979   14,089   14,017 
Total R&D support expenses $39,471  $32,586  $43,236  $43,005 

Selling, General and Administrative Expenses

The following table sets forth information on selling, general and administrative expenses (in thousands):

 
Year Ended
December 31,
 
 2015 2014 
General and administrative expenses $21,497  $14,600 
Non-cash compensation expense related to equity awards  15,676   5,540 
Total general and administrative expenses $37,173  $20,140 
  
Year Ended
December 31,
 
  2017  2016 
Selling, general and administrative expenses, excluding non-cash compensation expense related to equity awards $87,034  $31,607 
Non-cash compensation expense related to equity awards  21,454   17,009 
Total selling, general and administrative expenses $108,488  $48,616 

GeneralSelling, general and administrative expenses for 20152017 were $21.5$87.0 million and increased compared to $14.6$31.6 million for 2014 primarily2016. The increase in SG&A expenses was principally due to the additioncost of Akceapreparing to commercialize TEGSEDI and an increase in personnel costs.WAYLIVRA and from fees we owed under our in-licensing agreements related to SPINRAZA. 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,
 
 2015  2014  2017  2016 
Ionis Core $16,613  $13,804  $58,962  $22,127 
Akcea Therapeutics  4,884   796   28,072   9,480 
Non-cash compensation expense related to equity awards  15,676   5,540   21,454   17,009 
Total general and administrative expenses $37,173  $20,140 
Total selling, general and administrative expenses $108,488  $48,616 

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Akcea Therapeutics, Inc.

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

  
Year Ended
December 31,
 
  2015  2014 
Development and patent expenses $41,368  $20,901 
General and administrative expenses  4,884   796 
Total operating expenses, excluding non-cash compensation expense related to equity awards  46,252   21,697 
Non-cash compensation expense related to equity awards  6,496   — 
Total Akcea Therapeutics operating expenses $52,748  $21,697 

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Year Ended
December 31,
 
  2017  2016 
Development and patent expenses $118,260  $63,883 
General and administrative expenses  28,072   9,480 
Total operating expenses, excluding non-cash compensation expense related to equity awards  146,332   73,363 
Non-cash compensation expense related to equity awards  17,539   10,149 
Total Akcea Therapeutics operating expenses $163,871  $83,512 

Akcea’s operating expenses were $46.3$146.3 million for 20152017 and increased compared to $21.7$73.4 million for 2014. The2016.

$48.4 million of the increase in Akcea’s development and patent expenses was primarily duefor one-time sublicensing expenses related to Akcea’s Phase 3 program for volanesorsen, which continued to advance,the Novartis collaboration recorded in the first quarter of 2017. $33.4 million of these expenses were non-cash and the progression of its other drugs, including AKCEA-APO(a)-LRx and AKCEA-ANGPTL3Rx. Also, starting in 2015, Akcea incurred additional general and administrative costs necessaryremaining $15 million was paid to operate, including costs to begin to build the commercial infrastructure and advance the pre-commercialization activities necessary to successfully launch volanesorsen, if approved for marketing.us. For 2015 and 2014,each period presented, we allocated a portion of Ionis'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 G&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 WAYLIVRA. For 2015 and 2014,each period presented, we also allocated a portion of Ionis' general and administrativeIonis’ G&A expenses, which arewere included in general and administrativeAkcea’s G&A expenses in the table above, to Akcea for work we performed on behalf of Akcea. Akcea’s behalf.

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

Investment Income

Investment income for 20152017 totaled $4.3$8.2 million compared to $2.7$5.5 million for 2014. The increase in investment2016. Investment income wasincreased primarily due to a higher average cash balance and an improvement in the market conditions during 20152017 compared to 2014.2016.

Interest Expense

Interest expense included non-cash amortization of the debt discount and debt issuance costs plus interest expense payable in cash for our 1 percent and 2¾ percent convertible notes, non-cash interest expense related to the long-term financing liability for our primary facility and other miscellaneous debt.

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

 
Year Ended,
December 31
  
Year Ended
December 31,
 
 2015  2014  2017  2016 
2¾ percent notes:      
Non-cash amortization of the debt discount and debt issuance costs $2,530  $7,210 
Interest expense payable in cash  1,684   5,074 
1 percent notes:        
Convertible notes:      
Non-cash amortization of the debt discount and debt issuance costs  20,678   2,364  $32,536  $25,115 
Interest expense payable in cash  4,999   597   7,090   6,684 
Non-cash interest expense for long-term financing liability  6,665   6,622   3,352   6,693 
Interest on mortgage for primary R&D and manufacturing facilities  1,103   — 
Other  176   342   671   303 
Total interest expense $36,732  $22,209  $44,752  $38,795 

Interest expenseLoss on Extinguishment of Financing Liability for 2015 was $36.7 million compared to $22.2 million in 2014. The increase in interest expense was primarily due to the increase in non-cash amortization of the debt discount and debt issuance costs for our 1 percent notes we issued in November 2014. In 2015 we had more debt outstanding but our interest expense payable in cash only modestly increased because our 1 percent notes have a lower interest rate than our 2¾ percent notes.Leased Facility

GainWe recognized a loss on Investmentextinguishment of the financing liability for leased facility of $7.7 million in Regulus Therapeutics Inc.

In 2015,2017. The loss represents the difference between the amount we realizedpreviously recorded as a gain onfinancing liability for the leased facility and the purchase price we paid for our investmentprimary R&D facility in Regulus of $20.2 million compared to a gain of $19.9 million for 2014 related to our sale of a portion of our Regulus common stock in each year.July 2017. This loss was non-cash and nonrecurring.

Early Retirement of Debt

In 2014,As a result of the debt exchange we completed in December 2016, we recorded a $8.3$4.0 million non-cash loss on early retirement of debt, reflecting the early retirement of a large portionthe majority of our remaining 2¾ percent convertible notes in November 2014. We didDecember 2016.

Other Expenses

Other expenses were $3.5 million for 2017 and primarily consisted of the previously capitalized fair value of the potential premium we would have received from Novartis if Akcea had not recognize any loss on early retirement of debt in 2015.completed its IPO. This expense was non-cash and nonrecurring.

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Income Tax Expense (Benefit)

In 2015,2017, we recorded a net income tax benefit of $6.0 million, compared to income tax expense of $0.4$2.9 million in 2016. Our tax expense flipped from an expense position in 2016 to a benefit position in 2017 primarily due to excess tax benefits related to share-based compensation. In 2014, we recorded a net tax benefit of $15.4$7.7 million of which $12.8 million related toreduction in our applicationvaluation allowance. As a result of the intraperiod tax allocation rules that required usTax Act, we reduced our valuation allowance because we are entitled to record a tax benefit in continuing operations to offset the tax provision we recorded directly to other comprehensive income primarily related to the unrealized gains on our equity investment in Regulus. In addition, $4.3 million of the tax benefit we recorded in 2014 related toreceive a tax refund we received in 2015 from the State of California Franchise Tax Board relatedfor our cumulative prior year alternative minimum tax credit carryforwards.

Net Loss

Net loss for 2017 was $10.8 million compared $60.4 million for 2016. Our net loss improved for 2017 compared to 2016 primarily due to the California franchise taxes we paid for the tax year ended December 31, 2009.addition of commercial revenue from SPINRAZA royalties and increased R&D revenue.

Net Loss and Net Loss Per ShareAttributable to Noncontrolling Interest in Akcea Therapeutics, Inc.

As a result of Akcea’s IPO, beginning in July 2017, we no longer own 100 percent of Akcea. From the closing of Akcea’s IPO on July 19, 2017 through the end of 2017, we owned approximately 68 percent of Akcea. As a result, we adjusted our financial statements to reflect the portion of Akcea we no longer own, which was 32 percent at December 31, 2017. Accordingly, our consolidated statement of operations now includes a new line called “Net loss attributable to noncontrolling interests in Akcea”; our noncontrolling interest in Akcea for 2017 was $11.1 million. We also added a corresponding account to our consolidated balance sheet called “Noncontrolling interest in Akcea Therapeutics, Inc.”

Net loss for 2015 was $88.3 million compared $39.0Income (Loss) Attributable to Ionis Pharmaceuticals, Inc. Common Stockholders and Net Income (Loss) per Share

We had net income attributable to our common stockholders of $0.3 million for 2014.2017, compared to a net loss of $60.4 million in 2016. Basic and diluted net income per share for 2017 was $0.15 compared to basic and dilutive net loss per share of $0.50 for the year ended December 31, 2015 was $0.74 compared to $0.33 for 2014. We had a higher net loss in 2015 compared to 2014 primarily due to the increase in expenses related to our drugs we had in Phase 3 studies.2016.

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Liquidity and Capital Resources

We have financed our operations with revenue primarily from research and development collaborative agreements. Additionally,Beginning in December 2016 we earnedadded commercial revenue from the sale or licensing ofSPINRAZA royalties. From our intellectual property.inception through December 31, 2018, we had earned approximately $3.2 billion in revenue. We have also financed our operations through the sale of our equity securities and the issuance of long-term debt. From our inception through December 31, 2016, we have earned approximately $2.1 billion in revenue from contract research and development and the sale and licensing of our intellectual property. From the time we were founded through December 31, 2016,2018, we havehad raised net proceeds of approximately $1.1$1.7 billion from the sale of our equity securities, andnot including the $182.4 million Akcea received in net proceeds from its IPO in July 2017. Additionally, we have borrowed approximately $1.3$1.4 billion under long-term debt arrangements to finance a portion of our operations.operations over the same time period.

At December 31, 2016,2018, we had cash, cash equivalents and short-term investments of $665.2 million$2.1 billion and stockholders’ equity of $99.6$1,187.2 million. In comparison, we had cash, cash equivalents and short-term investments of $779.2 million$1.0 billion and stockholders’ equity of $200.8$365.3 million at December 31, 2015. During 2016,2017. Our cash, cash equivalents and short-term investments increased in 2018 primarily from the $1 billion payment we received $192 million in cash from Biogen for our partners in 2016.2018 strategic neurology collaboration.

Already in 2017, we have generated more than $250 million, including $175 million from Novartis and $75 million from Bayer.

At December 31, 2016,2018, we had consolidated working capital of $664.1 million$1.9 billion compared to $688.1$925.1 million at December 31, 2015. During the fourth quarter of 2016, we sold 1.8 million shares of Regulus’ stock for total proceeds of $4.5 million.

2017. As of December 31, 2016,2018, our debt and other obligations totaled $774.1$764.0 million compared to $644.8$759.8 million at December 31, 2015. The increase was primarily due to the additional 1 percent senior convertible notes we issued in December 2016 in exchange for $61.1 million principal amount of our 2¾ percent notes. As a result of the exchange, we kept our cash interest expense essentially flat, reduced the potential dilution from our convertible notes and extended the maturity to November 2021. See Note 3, Long-Term Obligations and Commitments2017., in the Notes to the Consolidated Financial Statements for additional information on this transaction.

The following table summarizes our contractual obligations as of December 31, 2016.2018. 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
 
1 percent convertible senior notes (principal and interest payable) $719.8  $6.9  $13.7  $699.2  $— 
Convertible senior notes (principal and interest payable) $706.1  $6.9  $699.2  $—  $— 
Building mortgage payments $80.7  $2.4  $4.8  $6.2  $67.3 
Financing arrangements (principal and interest payable) $13.4  $0.3  $13.1  $—  $—  $12.7  $12.7  $—  $—  $— 
Facility rent payments $119.0  $6.5  $13.9  $14.7  $83.9 
Other obligations (principal and interest payable) $1.2  $0.1  $0.1  $0.1  $0.9  $1.0  $0.1  $0.1  $0.1  $0.7 
Operating leases $22.9  $2.1  $3.2  $2.9  $14.7  $25.7  $3.1  $5.7  $5.0  $11.9 
Total $876.3  $15.9  $44.0  $716.9  $99.5  $826.2  $25.2  $709.8  $11.3  $79.9 

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 $68.3 million of gross unrecognized tax benefits from our contractual obligations table above.

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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 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, we issued an additional $185.5 million of 1 percent convertible senior notes in exchange for the redemption of $61.1 million of our 2¾ percent convertible senior notes. At December 31, 2016,2018, we had a nominal amount of our 2¾ percent convertible senior notes outstanding. At December 31, 20162018, we had the following 1 percent convertible senior notes outstanding (amounts in millions except price per share data):

  
1 Percent Convertible
Senior Notes
 
Outstanding principal balance $685.5 
Original issue date ($500 million of principal) November 2014 
Additional issue date ($185.5 million of principal) December 2016 
Maturity date November 2021 
Interest rate 1 percent 
Conversion price per share $66.81 
Total shares of common stock subject to conversion  10.3 

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Interest is payable semi-annually for the 1 percent notes. The notes are convertible under certain conditions, at the option of the note holders. We 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 notes prior to maturity, and no sinking fund is provided for them. Holders of the 1 percent 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, at a purchase price equal to 100 percent of the principal amount of the notes to be purchased, plus accrued and unpaid interest.

Financing Arrangements

In June 2015, we entered into a five-year revolving line of credit agreement with Morgan Stanley Private Bank, National Association, or Morgan Stanley. We amended the credit agreement in February 2016 to increase the amount available for us to borrow. Under the amended credit agreement, Morgan Stanley will provide a maximum of $30 million of revolving credit for general working capital purposes. Any loans under the credit agreement have interest payable monthly in arrears 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 unused under the credit facility. As of December 31, 20162018 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 werewe used to fund our capital equipment needs and is consistent with our historical practice to finance these costs.needs.

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 Facility Lease Obligationand Manufacturing Facilities

In March 2010, July 2017, we entered into a lease agreementpurchased 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. We financed the purchase of our primary R&D facility and manufacturing facility, with an affiliatemortgage debt of BioMed Realty, L.P. Under the lease, BioMed constructed our$51.3 million and $9.1 million, respectively. Our primary R&D facility in Carlsbad, California. The leasemortgage has an initial terminterest rate of 203.88 percent. Our manufacturing facility mortgage has an interest rate of 4.20 percent. During the first five years with an optionof both mortgages we are only required to extend the lease for up to four five-year periods. Our rent under this lease is based on a percentage of the total construction costs spent by BioMed to acquire the land and build the facility. Accounting rules required us to record the cost of the facility as a fixed asset with a corresponding liability. We are depreciating the building over its economic life and we apply our rent payments, which began on January 1, 2012, against the liability over the term of the lease.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, 20162018 for the purchase of services, capital equipment and materials as part of our normal course of business.

We plan to continue to enter into collaborations with partners to 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.

As part of Akcea’s formation, we made an initial cash investment of $100 million in the company to fund Akcea’s operations and in January 2017, we provided Akcea with a convertible line of credit for up to $150 million. As Akcea continues to progress we may seek additional capital to fund Akcea’s future operating needs. As such, we may pursue various financing alternatives, like issuing shares of Ionis’ or Akcea’s stock in private or public financings, issuing Ionis or Akcea debt instruments, or securing lines of credit. We may also consider entering into collaborations specific to Akcea’s pipeline with partners to provide for additional operating cash. For example in January 2017, we and Akcea initiated a collaboration with Novartis and we will receive a $75 million upfront payment.
74

Off-Balance Sheet Arrangements

We have not entered into, nor do we currently have, any off-balance sheet arrangements (as defined under SEC rules).


66

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 and securities issued by states of the United States and political subdivisions of the states 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

There have been no reported disagreements on any matter of accounting principles or procedures or financial statement disclosure in 2015 with our Independent Registered Public Accounting Firm.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, 2016.2018.

Management’sManagement’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, 2016,2018, 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, 2016.

Attestation Report of the Registered Public Accounting Firm2018.

Ernst & Young LLP, an independent registered public accounting firm, audited the effectiveness of our internal control over financial reporting as of December 31, 2016,2018, 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.

6775



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The To the Stockholders and Board of Directors and Stockholders of Ionis Pharmaceuticals, Inc.

We have audited Ionis Pharmaceuticals, Inc.’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Ionis Pharmaceuticals, Inc.’s management is responsible for maintaining
Opinion on Internal Control over Financial Reporting
We have audited Ionis Pharmaceuticals, Inc.’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 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, 2018, 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. as of December 31, 2018 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 conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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.

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.

In our opinion, Ionis Pharmaceuticals, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Ionis Pharmaceuticals, Inc. as of December 31, 2016 and 2015, 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, 2016 of Ionis Pharmaceuticals, Inc. and our report dated March 1, 2017, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and our report dated March 1, 2019 expressed an unqualified opinion thereon.
 
/s/ ERNST
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. 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 & YOUNGYoung LLP
 
San Diego, California 
March 1, 20172019 

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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, (the “Proxy Statement”), which we will file on or about April 15, 2016 with the Securities and Exchange Commission in connection withwithin 120 days after the solicitationend of proxies for our 2017 Annual Meeting of Stockholders to be held on May 27, 2017.the fiscal year ended December 31, 2018 (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.

Section 16(a) Beneficial Ownership Reporting Compliance

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 Securities Exchange Act of 1934, as amended, 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, 2016.2018.
 
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)  9,177,979  $40.48   4,434,959 (b)  11,311,944  $47.85   4,578,854 (b)
                       
Total  9,177,979  $40.48   4,434,959    11,311,944  $47.85   4,578,854  
 ________________
(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, 585,713774,816 remained available for purchase under the ESPP as of December 31, 2016.2018. The ESPP incorporates an evergreen formula pursuant to which on January 1 of each year on the first nine anniversaries of the plan, we automatically increase the aggregate number of shares reserved for issuance under the plan by 150,000 shares.

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.

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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

See Index to Exhibits beginning on page 72.
(b) Exhibits
We listed the exhibits required by this Item under Item 15(a)(3).
(c) Financial Statement Schedules
None.
7078
INDEX TO EXHIBITS

Exhibit NumberDescription of Document
3.1
Amended and Restated Certificate of Incorporation filed June 19, 1991, 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.
3.2
Certificate of Amendment to Restated Certificate of Incorporation, filed June 17, 2014. - Filed as an exhibit to the Registrant’s Notice of Annual Meeting and Proxy Statement, for the 2014 Annual Meeting of Stockholders, filed with the SEC on April 25, 2014, and incorporated herein by reference.
3.3
Certificate of Amendment to Restated Certificate of Incorporation, filed December 18, 2015. - Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed December 18, 2015 and incorporated herein by reference.
3.4
Amended and Restated Bylaws, 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
Certificate of Designation of the Series C Junior Participating Preferred Stock, filed as an exhibit to Registrant’s Report on Form 8-K dated filed December 13, 2000 and incorporated herein by reference.
4.2
Specimen Common Stock Certificate, 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.
4.3
Indenture, dated as of August 13, 2012, between the Registrant and Wells Fargo Bank, National Association, as trustee, including Form of 2¾ percent Convertible Senior Note due 2019, filed as an exhibit to the Registrant’s Report on Form 8-K filed August 13, 2012 and incorporated herein by reference.
4.4
Indenture, dated as of November 17, 2014, between the Registrant and Wells Fargo Bank, National Association, as trustee, including Form of 1.00 percent Convertible Senior Note due 2021, filed as an exhibit to the Registrant’s Current Report on Form 8-K filed November 21, 2014 and incorporated herein by reference.
10.1
Form of Indemnity Agreement entered into between the Registrant and its Directors and Officers with related schedule, filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 and incorporated herein by reference.
10.2*
Registrant’s 1989 Stock Option Plan, as amended, 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*
Registrant’s Amended and Restated 2000 Employee Stock Purchase Plan, filed as an exhibit to Registrant’s Notice of Annual Meeting and Proxy Statement for the 2009 Annual Meeting of Stockholders, filed with the SEC on April 20, 2009, and incorporated herein by reference.
10.4
Form of Employee Confidential Information and Inventions Agreement, 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.
10.5
Collaboration and License Agreement between the Registrant and Hybridon, Inc., dated May 24, 2001, 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.
10.6
Amendment #1 to the Research, Development and License Agreement dated May 11, 2011 by and between the Registrant and Glaxo Group Limited, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 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.
10.7
Amended and Restated Collaboration and License Agreement between the Registrant and Antisense Therapeutics Ltd dated February 8, 2008, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.
10.8
Amended and Restated License Agreement between the Registrant and Atlantic Pharmaceuticals Limited dated November 30, 2009, filed as an exhibit to the Registrant’s Annual Report as Form 10-K for the year ended December 31, 2009 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.
79

10.9
Stock Purchase Agreement among the Registrant, Akcea Therapeutics, Inc. and Novartis Pharma AG dated January 5, 2017, 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.
10.10
Amendment #1 between the Registrant and Bayer AG dated February 10, 2017, 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.
10.11
Registrant’s Amended and Restated 10b5-1 Trading Plan dated September 12, 2013, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 and incorporated herein by reference.
10.12*
Registrant’s Amended and Restated 2002 Non-Employee Directors’ Stock Option Plan, as amended, filed as an exhibit to the Registrant’s Notice of Annual Meeting and Proxy Statement, for the 2014 Annual Meeting of Stockholders, filed with the SEC on April 25, 2014, and incorporated herein by reference.

10.13*
Form of Restricted Stock Unit Agreement for Restricted Stock Units granted under the Ionis Pharmaceuticals, Inc. Amended and Restated 2002 Non-Employee Directors’ Stock Option Plan, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 and incorporated herein by reference.
10.14
Research Collaboration, Option and License Agreement between the Registrant and Biogen MA Inc. dated December 19, 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.
10.15*
Ionis Pharmaceuticals, Inc. 2011 Equity Incentive Plan, filed as an exhibit to the Registrant’s Notice of 2011 Annual Meeting of Stockholders and Proxy Statement filed with the SEC on April 28, 2011, and incorporated herein by reference.
10.16*
Form of Option Agreement under the 2011 Equity Incentive Plan, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 and incorporated herein by reference.
10.17*
Form of Restricted Stock Unit Agreement for Restricted Stock Units granted under the 2011 Equity Incentive Plan, filed as an exhibit to the Registrant’s Registration Statement on Form S-8 filed with the SEC on August 8, 2011, and incorporated herein by reference.
10.18
Loan Agreement between Ionis Gazelle, LLC and UBS AG dated July 18, 2017, filed as an exhibit to the Registrant’s Current Report on Form 8-K filed July 21, 2017 and incorporated herein by reference.
10.19*
Form of Option Agreement under the 1989 Stock Option Plan, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 and incorporated herein by reference.
10.20*
Form of Option Agreement for Options Granted after March 8, 2005 under the 2002 Non-Employee Director’s Stock Option Plan, filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2004 and incorporated herein by reference.
10.21
Research, Development and License Agreement between the Registrant and Glaxo Group Limited dated March 30, 2010, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.
10.22
Loan Agreement between Ionis Faraday, LLC and UBS AG dated July 18, 2017, filed as an exhibit to the Registrant’s Current Report on Form 8-K filed July 21, 2017 and incorporated herein by reference.
10.23
Research Agreement dated August 10, 2011 between the Registrant and CHDI Foundation, Inc, 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.
10.24
Guaranty between the Registrant and UBS AG dated July 18, 2017, filed as an exhibit to the Registrant’s Current Report on Form 8-K filed July 21, 2017 and incorporated herein by reference.
10.25
Development, Option and License Agreement between the Registrant and Biogen Idec International Holding Ltd. dated January 3, 2012, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.
80

10.26
DMPK Research, Development, Option and License Agreement between the Registrant and Biogen Idec MA Inc. dated June 27, 2012, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.
10.27
Amendment #2 to Research, Development and License Agreement between the Registrant and Glaxo Group Limited dated October 30, 2012, filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.
10.28
Collaboration, License and Development Agreement between the Registrant and AstraZeneca AB dated December 7, 2012, filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.

10.29
Neurology Drug Discovery and Development Collaboration, Option and License Agreement between the Registrant and Biogen Idec MA Inc. dated December 10, 2012, filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.
10.30
HTT Research, Development, Option and License Agreement among the Registrant, F. Hoffmann-La Roche Ltd and Hoffman-La Roche Inc. dated April 8, 2013, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.
10.31
Letter Agreement between the Registrant and CHDI Foundation, Inc. dated April 8, 2013, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.
10.32
Amendment #1 to Collaboration, License and Development Agreement between the Registrant and AstraZeneca AB dated August 13, 2013, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.

10.33
Letter Agreement Amendment between the Registrant and Biogen Idec International Holding Ltd dated January 27, 2014, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.
10.34
Amendment No. 3 to the Research, Development and License Agreement between the Registrant and Glaxo Group Limited dated July 10, 2013, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.
10.35
Amendment #4 to the Research, Development and License Agreement between the Registrant and Glaxo Group Limited dated April 10, 2014, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.
10.36
Amendment #5 to the Research, Development and License Agreement among the Registrant, Glaxo Group Limited and GlaxoSmithKline Intellectual Property Development Limited dated June 27, 2014, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.
10.37
Exclusive License Agreement between the Registrant and the University of Massachusetts dated January 14, 2010, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.
10.38
Amended and Restated Collaboration and License Agreement between the Registrant and Cold Spring Harbor Laboratory dated October 26, 2011, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.
10.39
Amendment to Amended and Restated Collaboration and License Agreement between the Registrant and Cold Spring Harbor Laboratory dated March 14, 2014, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.
81

10.40
Amendment #1 to the Development, Option and License Agreement between the Registrant and Biogen Idec International Holding Ltd. dated December 15, 2014, filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.
10.41
Research Collaboration, Option and License Agreement between the Registrant and Janssen Biotech Inc. dated December 22, 2014, filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.
10.42
Amendment No.2 to the Collaboration, License and Development Agreement between the Registrant and AstraZeneca AB dated October 15, 2014, filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.
10.43
Strategic Collaboration Agreement between the Registrant and AstraZeneca AB dated July 31, 2015, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.
10.44
Amendment #6 to Research, Development and License Agreement between the Registrant, Glaxo Group Limited and GlaxoSmithKline Intellectual Property Development Limited dated September 2, 2015, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.
10.45
Amendment Number One to the Second Amended and Restated Strategic Collaboration and License Agreement between the Registrant and Alnylam Pharmaceuticals, Inc. dated July 13, 2015, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.
10.46
License Agreement between the Registrant and Bayer Pharma AG dated May 1, 2015. Portions of this exhibit have been omitted and separately filed with the SEC, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 and incorporated herein by reference.

10.47
Line of Credit Agreement between the Registrant and Morgan Stanley Private Bank, National Association dated June 16, 2015, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 and incorporated herein by reference.
10.48
Second Amended and Restated Strategic Collaboration and License Agreement between the Registrant and Alnylam Pharmaceuticals, Inc. dated January 8, 2015, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.
10.49
Amendment #1 to HTT Research, Development, Option and License Agreement between the Registrant, F. Hoffmann-La Roche Ltd and Hoffmann-La Roche Inc. dated January 9, 2015, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.
10.50
Amendment No.1 to Loan Documents between the Registrant and Morgan Stanley Private Bank, National Association dated December 30, 2015, filed as an exhibit to the Registrant’s Current Report on Form 8-K filed January 5, 2016 and incorporated herein by reference.
10.51
Amendment No.2 to Line of Credit Agreement between the Registrant and Morgan Stanley Private Bank, National Association dated February 24, 2016, filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015 and incorporated herein by reference.
10.52
Amendment No.3 to the Collaboration, License and Development Agreement between the Registrant and AstraZeneca AB dated January 18, 2016, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.
10.53
Amendment #7 to the Research, Development and License Agreement among the Registrant, Glaxo Group Limited and GlaxoSmithKline Intellectual Property Development Limited dated March 4, 2016, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.
82

10.54
First Amendment to Research Collaboration, Option and License Agreement between the Registrant and Janssen Biotech Inc. dated December 21, 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 with a request for confidential treatment.
10.55
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 with a request for confidential treatment.
10.56
Guaranty between the Registrant and UBS AG dated July 18, 2017, filed as an exhibit to the Registrant’s Current Report on Form 8-K filed July 21, 2017 and incorporated herein by reference.
10.57
Environmental Indemnity Agreement among the Registrant, Ionis Gazelle, LLC and UBS AG dated July 18, 2017, filed as an exhibit to the Registrant’s Current Report on Form 8-K filed July 21, 2017 and incorporated herein by reference.
10.58
Environmental Indemnity Agreement among the Registrant, Ionis Faraday, LLC and UBS AG dated July 18, 2017, filed as an exhibit to the Registrant’s Current Report on Form 8-K filed July 21, 2017 and incorporated herein by reference.
10.59*
Amendment to Ionis Pharmaceuticals, Inc. 2011 Equity Incentive Plan, filed as an exhibit to the Registrant’s Notice of Annual Meeting and Proxy Statement, for the 2017 Annual Meeting of Stockholders, filed with the SEC on April 10, 2017, and incorporated herein by reference.
10.60*
Registrant’s Severance Benefit Plan and Summary Plan Description dated October 18, 2018, - filed as an exhibit to the Registrant’s Current Report on form 8-K filed October 18, 2018 and incorporated herein by reference.
10.61
Strategic Advisory Services Agreement by and between the Registrant and B. Lynne Parshall, dated January 15, 2018, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 and incorporated herein by reference.
10.62
Development, Commercialization, Collaboration, and License Agreement by and between the Registrant and Akcea Therapeutics, Inc., dated March 14, 2018, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 and incorporated herein by reference.
10.63
Amended and Restated Services Agreement by and between the Registrant and Akcea Therapeutics, Inc., dated March 14, 2018, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 and incorporated herein by reference.
10.64
New Strategic Neurology Drug Discovery and Development Collaboration, Option and License Agreement by and between the Registrant and Biogen MA Inc., dated April 19, 2018, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.
10.65
Stock Purchase Agreement by and between the Registrant and Biogen MA Inc., dated April 19, 2018, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 and incorporated herein by reference.
10.66
Second Amendment to Research, Collaboration, Option and License Agreement by and between the Registrant and Janssen Biotech Inc., dated August 7, 2018, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.
10.67
Factor B Development Collaboration, Option and License Agreement by and between the Registrant, F. Hoffmann-La Roche Ltd and Hoffmann-La Roche Inc., dated October 9, 2018. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.
10.68
Second Amended and Restated Strategic Neurology Drug Discovery and Development Collaboration, Option and License Agreement by and between the Registrant and Biogen MA Inc, dated October 17, 2018. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.
10.69
Amendment #1 to the Strategic Collaboration Agreement by and between the Registrant and AstraZeneca AB, dated October 18, 2018. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.
10.70
Amendment #4 to the Collaboration, License and Development Agreement by and between the Registrant and AstraZeneca AB, dated October 18, 2018. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment.
21.1
List of Subsidiaries for the Registrant.
83

23.1
Consent of Independent Registered Public Accounting Firm.
24.1Power of Attorney – Included on the signature page of this Annual Report on Form 10-K.
31.1
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.
31.2
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.
101The following financial statements from the Ionis Pharmaceuticals, Inc. Annual Report on Form 10-K for the year ended December 31, 2018, 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, (v) consolidated statements of cash flows, and (vi) notes to consolidated financial statements (detail tagged).

*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.

84
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 1st day of March, 2017.2019.
 
 IONIS PHARMACEUTICALS, INC.
   
 By:/s/ STANLEY T. CROOKE
  Stanley T. Crooke, M.D., 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. Crooke 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. CROOKE Chairman of the Board, President, and Chief Executive Officer March 1, 20172019
Stanley T. Crooke, M.D., Ph.D. (Principal executive officer)
/s/ B. LYNNE PARSHALLDirector, Chief Operating Officer and SecretaryMarch 1, 2017
B. Lynne Parshall, J.D.  
     
/s/ ELIZABETH L. HOUGEN Senior Vice President, Finance and Chief Financial Officer March 1, 20172019
Elizabeth L. Hougen (Principal financial and accounting officer)  
     
/s/ B. LYNNE PARSHALLDirector and Senior Strategic AdvisorMarch 1, 2019
B. Lynne Parshall, J.D.
/s/ SPENCER R. BERTHELSEN Director March 1, 20172019
Spencer R. Berthelsen, M.D.    
     
/s/ BREAUX CASTLEMAN Director March 1, 20172019
Breaux Castleman
/s/ MICHAEL HAYDEN DirectorMarch 1, 2019
Michael Hayden, CM OBC MB ChB PhD FRCP(C) FRSC     
     
/s/ JOSEPH KLEIN Director March 1, 20172019
Joseph Klein, III    
     
/s/ JOSEPH LOSCALZO Director March 1, 20172019
Joseph Loscalzo, M.D., Ph.D.    
     
/s/ FREDERICK T. MUTO Director March 1, 20172019
Frederick T. Muto, Esq.
/s/ PETER N. REIKESDirectorMarch 1, 2019
Peter N. Reikes     
     
/s/ JOSEPH H. WENDER Director March 1, 20172019
Joseph H. Wender    


7185

INDEX TO EXHIBITS
Exhibit
Number
Description of Document
3.1Amended and Restated Certificate of Incorporation filed June 19, 1991. - Filed as an exhibit to the Registrant’s Registration Statement on Form S-1 (No. 33-39640) or amendments thereto and incorporated herein by reference.
3.2Certificate of Amendment to Restated Certificate of Incorporation filed June 17, 2014. - Filed as an exhibit to the Registrant’s Notice of Annual Meeting and Proxy Statement, for the 2014 Annual Meeting of Stockholders, filed with the SEC on April 25, 2014, and incorporated herein by reference.
3.3Certificate of Amendment to Restated Certificate of Incorporation filed December 18, 2015. - Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed December 18, 2015 and incorporated herein by reference.
3.4Amended and Restated Bylaws. - Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed December 18, 2015 and incorporated herein by reference.
4.1Certificate of Designation of the Series C Junior Participating Preferred Stock. - Filed as an exhibit to Registrant’s Report on Form 8-K dated filed December 13, 2000 and incorporated herein by reference.
4.2Specimen Common Stock Certificate. - Filed as an exhibit to the Registrant’s Registration Statement on Form S-1 (No. 33-39640) or amendments thereto and incorporated herein by reference.
4.3Indenture, dated as of August 13, 2012, between the Registrant and Wells Fargo Bank, National Association, as trustee, including Form of 2¾ percent Convertible Senior Note due 2019. - Filed as an exhibit to the Registrant’s Report on Form 8-K filed August 13, 2012 and incorporated herein by reference.
4.4Indenture, dated as of November 17, 2014, between the Registrant and Wells Fargo Bank, National Association, as trustee, including Form of 1.00 percent Convertible Senior Note due 2021. - Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed November 21, 2014 and incorporated herein by reference.
10.1Form of Indemnity Agreement entered into between the Registrant and its Directors and Officers with related schedule. - Filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 and incorporated herein by reference.
10.2*Registrant’s 1989 Stock Option Plan, as amended. - 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*Registrant’s Amended and Restated 2000 Employee Stock Purchase Plan. - Filed as an exhibit to Registrant’s Notice of Annual Meeting and Proxy Statement for the 2009 Annual Meeting of Stockholders, filed with the SEC on April 20, 2009, and incorporated herein by reference.
10.4Form of Employee Assignment of Patent Rights. - Filed as an exhibit to the Registrant’s Registration Statement on Form S-1 (No. 33-39640) or amendments thereto and incorporated herein by reference.
10.5Patent Rights Purchase Agreement between the Registrant and Gilead Sciences, Inc., dated December 18, 1998. 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 Annual Report on Form 10-K for the year ended December 31, 1998 and incorporated herein by reference.
10.6Collaboration 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.
10.7Amendment #1 to the Research, Development and License Agreement dated May 11, 2011 by and between the Registrant and Glaxo Group Limited. 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 June 30, 2011 and incorporated herein by reference.
10.8Amended and Restated Collaboration and License Agreement between the Registrant and Antisense Therapeutics Ltd dated February 8, 2008. 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, 2008 and incorporated herein by reference.
72

10.9Amended and Restated License Agreement between the Registrant and Atlantic Pharmaceuticals Limited dated November 30, 2009. 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 Annual Report as Form 10-K for the year ended December 31, 2009 and incorporated herein by reference.
10.10Amended and Restated License Agreement dated July 2, 2008 between the Registrant and OncoGenex Technologies 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, 2008 and incorporated herein by reference.
10.11Lease Agreement between the Registrant and BMR-Gazelle Court LLC dated March 30, 2010. 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, 2010 and incorporated herein by reference.
10.12Second Amendment to Lease Agreement dated May 15, 2011 between the Registrant and BMR-Gazelle Court LLC, with First Amendment to Lease Agreement included. - Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 and incorporated herein by reference.
10.13Registrant’s Amended and Restated 10b5-1 Trading Plan dated September 12, 2013. - Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 and incorporated herein by reference.
10.14*Registrant’s Amended and Restated 2002 Non-Employee Directors’ Stock Option Plan, as amended. - Filed as an exhibit to the Registrant’s Notice of Annual Meeting and Proxy Statement, for the 2014 Annual Meeting of Stockholders, filed with the SEC on April 25, 2014, and incorporated herein by reference.
10.15*Registrant’s Form of 2002 Non-Employee Directors’ Stock Option Agreement. - Filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001 and incorporated herein by reference.

10.16*Form of Restricted Stock Unit Agreement for Restricted Stock Units granted under the Ionis Pharmaceuticals, Inc. Amended and Restated 2002 Non-Employee Directors’ Stock Option Plan. - Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 and incorporated herein by reference.
10.17*Amended and Restated Severance Agreement dated December 3, 2008 between the Registrant and Stanley T. Crooke. - Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed December 5, 2008 and incorporated herein by reference.
10.18*Amended and Restated Severance Agreement dated December 3, 2008 between the Registrant and B. Lynne Parshall. - Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed December 5, 2008 and incorporated herein by reference.
10.19*Ionis Pharmaceuticals, Inc. 2011 Equity Incentive Plan - Filed as an exhibit to the Registrant’s Notice of 2011 Annual Meeting of Stockholders and Proxy Statement filed with the SEC on April 28, 2011, and incorporated herein by reference.
10.20*Form of Option Agreement under the 2011 Equity Incentive Plan. - Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 and incorporated herein by reference.
10.21*Form of Restricted Stock Unit Agreement for Restricted Stock Units granted under the 2011 Equity Incentive Plan. - Filed as an exhibit to the Registrant’s Registration Statement on Form S-8 filed with the SEC on August 8, 2011, and incorporated herein by reference.
10.22Second Amendment to Lease Agreement between the Registrant and BMR-2282 Faraday Avenue LLC dated March 30, 2010. 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, 2010 and incorporated herein by reference.
10.23*Form of Option Agreement under the 1989 Stock Option Plan. - Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 and incorporated herein by reference.
10.24*Form of Option Agreement for Options Granted after March 8, 2005 under the 2002 Non-Employee Director’s Stock Option Plan. - Filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2004 and incorporated herein by reference.
73

10.25Research, Development and License Agreement between the Registrant and Glaxo Group Limited dated March 30, 2010. 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, 2010 and incorporated herein by reference.
10.26Lease Agreement dated September 6, 2005 between the Registrant and BMR-2282 Faraday Avenue LLC. - Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 and incorporated herein by reference.
10.27Stock Purchase Agreement dated December 17, 2008, among the Registrant, Ibis Biosciences, Inc. and Abbott Molecular 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 Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference.
10.28Research 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.
10.29Amendment No. 1 to Amended and Restated License Agreement between the Registrant and OncoGenex Technologies Inc. dated December 18, 2009. - Filed as an exhibit to the Registrant’s Annual Report as Form 10-K for the year ended December 31, 2009 and incorporated herein by reference.
10.30Development, Option and License Agreement between the Registrant and Biogen Idec International Holding Ltd. dated January 3, 2012. 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, 2012 and incorporated herein by reference.
10.31DMPK Research, Development, Option and License Agreement between the Registrant and Biogen Idec MA Inc. dated June 27, 2012. 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 June 30, 2012 and incorporated herein by reference.
10.32Amendment #2 to Research, Development and License Agreement between the Registrant and Glaxo Group Limited dated October 30, 2012. 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 Annual Report on Form 10-K for the year ended December 31, 2012 and incorporated herein by reference.
10.33Collaboration, License and Development Agreement between the Registrant and AstraZeneca AB dated December 7, 2012. 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 Annual Report on Form 10-K for the year ended December 31, 2012 and incorporated herein by reference.

10.34Neurology Drug Discovery and Development Collaboration, Option and License Agreement between the Registrant and Biogen Idec MA Inc. dated December 10, 2012. 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 Annual Report on Form 10-K for the year ended December 31, 2012 and incorporated herein by reference.
10.35HTT Research, Development, Option and License Agreement among the Registrant, F. Hoffmann-La Roche Ltd and Hoffman-La Roche Inc. dated April 8, 2013. 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 June 30, 2013 and incorporated herein by reference.
10.36Letter Agreement between the Registrant and CHDI Foundation, Inc. dated April 8, 2013. 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 June 30, 2013 and incorporated herein by reference.
10.37Strategic Neurology Drug Discovery and Development Collaboration, Option and License Agreement between the Registrant and Biogen Idec MA Inc. dated September 5, 2013. 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, 2013 and incorporated herein by reference.
10.38Amendment #1 to Collaboration, License and Development Agreement between the Registrant and AstraZeneca AB dated August 13, 2013. 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, 2013 and incorporated herein by reference.
74

10.39Letter Agreement Amendment between the Registrant and Biogen Idec International Holding Ltd dated January 27, 2014. 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, 2014 and incorporated herein by reference.
10.40Amendment No. 3 to the Research, Development and License Agreement between the Registrant and Glaxo Group Limited dated July 10, 2013. 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 June 30, 2014 and incorporated herein by reference.
10.41Amendment #4 to the Research, Development and License Agreement between the Registrant and Glaxo Group Limited dated April 10, 2014. 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 June 30, 2014 and incorporated herein by reference.
10.42Amendment #5 to the Research, Development and License Agreement among the Registrant, Glaxo Group Limited and GlaxoSmithKline Intellectual Property Development Limited dated June 27, 2014. 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 June 30, 2014 and incorporated herein by reference.
10.43Exclusive License Agreement between the Registrant and the University of Massachusetts dated January 14, 2010. 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, 2014 and incorporated herein by reference.
10.44Amended and Restated Collaboration and License Agreement between the Registrant and Cold Spring Harbor Laboratory dated October 26, 2011. 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, 2014 and incorporated herein by reference.
10.45Amendment to Amended and Restated Collaboration and License Agreement between the Registrant and Cold Spring Harbor Laboratory dated March 14, 2014. 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, 2014 and incorporated herein by reference.
10.46Amendment #1 to the Development, Option and License Agreement between the Registrant and Biogen Idec International Holding Ltd. dated December 15, 2014. 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 Annual Report on Form 10-K for the year ended December 31, 2014 and incorporated herein by reference.
10.47Research Collaboration, Option and License Agreement between the Registrant and Janssen Biotech Inc. dated December 22, 2014. Portions of this exhibit have been omitted and separately filed with the SEC. - Filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014 and incorporated herein by reference.
10.48Amendment No.2 to the Collaboration, License and Development Agreement between the Registrant and AstraZeneca AB dated October 15, 2014. 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 Annual Report on Form 10-K for the year ended December 31, 2014 and incorporated herein by reference.
10.49Strategic Collaboration Agreement between the Registrant and AstraZeneca AB dated July 31, 2015. Portions of this exhibit have been omitted and separately filed with the SEC. - Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 and incorporated herein by reference.
10.50Amendment #6 to Research, Development and License Agreement between the Registrant, Glaxo Group Limited and GlaxoSmithKline Intellectual Property Development Limited dated September 2, 2015. Portions of this exhibit have been omitted and separately filed with the SEC. - Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 and incorporated herein by reference.
10.51Amendment Number One to the Second Amended and Restated Strategic Collaboration and License Agreement between the Registrant and Alnylam Pharmaceuticals, Inc. dated July 13, 2015. Portions of this exhibit have been omitted and separately filed with the SEC. - Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 and incorporated herein by reference.
75

10.52License Agreement between the Registrant and Bayer Pharma AG dated May 1, 2015. Portions of this exhibit have been omitted and separately filed with the SEC. - Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 and incorporated herein by reference.

10.53Line of Credit Agreement between the Registrant and Morgan Stanley Private Bank, National Association dated June 16, 2015. - Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 and incorporated herein by reference.
10.54Second Amended and Restated Strategic Collaboration and License Agreement between the Registrant and Alnylam Pharmaceuticals, Inc. dated January 8, 2015. Portions of this exhibit have been omitted and separately filed with the SEC. - Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 and incorporated herein by reference.
10.55Amendment #1 to HTT Research, Development, Option and License Agreement between the Registrant, F. Hoffmann-La Roche Ltd and Hoffmann-La Roche Inc. dated January 9, 2015. Portions of this exhibit have been omitted and separately filed with the SEC. - Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 and incorporated herein by reference.
10.56
Amendment No.1 to Loan Documents between the Registrant and Morgan Stanley Private Bank, National Association dated December 30, 2015. - Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed January 5, 2016 and incorporated herein by reference.
10.57Amendment No.2 to Line of Credit Agreement between the Registrant and Morgan Stanley Private Bank, National Association dated February 24, 2016. Filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015 and incorporated herein by reference.
10.58Amendment No.3 to the Collaboration, License and Development Agreement between the Registrant and AstraZeneca AB dated January 18, 2016. Portions of this exhibit have been omitted and separately filed with the SEC. - Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 and incorporated herein by reference.
10.59Amendment #7 to the Research, Development and License Agreement among the Registrant, Glaxo Group Limited and GlaxoSmithKline Intellectual Property Development Limited dated March 4, 2016. Portions of this exhibit have been omitted and separately filed with the SEC. - Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 and incorporated herein by reference.
10.60First Amendment to Research Collaboration, Option and License Agreement between the Registrant and Janssen Biotech Inc. dated December 21, 2016. Portions of this exhibit have been omitted and separately filed with the SEC.
10.61Letter Agreement between the Registrant and Biogen MA Inc. dated October 28, 2016. Portions of this exhibit have been omitted and separately filed with the SEC. Portions of this exhibit have been omitted and separately filed with the SEC.
14.1Registrant’s Code of Ethics and Business Conduct.
21.1List of Subsidiaries for the Registrant.
23.1Consent of Independent Registered Public Accounting Firm.
24.1Power of Attorney - Filed as part of the Annual Report on Form 10-K for the year ended December 31, 2013, and incorporated herein by reference.
31.1Certification 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.
31.2Certification 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.
32.1Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101The following financial statements from the Ionis Pharmaceuticals, Inc. Annual Report on Form 10-K for the year ended December 31, 2016, formatted in Extensive Business Reporting Language (XBRL): (i) consolidated balance sheets, (ii) consolidated statements of operations, (iii) consolidated statements of stockholders’ equity, (iv) consolidated statements of cash flows, and (v) notes to consolidated financial statements (detail tagged).
*
Indicates management compensatory plans and arrangements as required to be filed as exhibits to this Report pursuant to Item 14(c).


76

IONIS PHARMACEUTICALS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Page
Report of Independent Registered Public Accounting FirmF-2
Consolidated Balance Sheets at December 31, 20162018 and 20152017 (as revised)F-3
Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and 2016 2015 and 2014(as revised)F-4
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2018, 2017 and 2016 2015 and 2014(as revised)F-5
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2018, 2017 and 2016 2015 and 2014(as revised)F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016 2015 and 2014(as revised)F-7
Notes to Consolidated Financial StatementsF-9


F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
The
To 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) as of December 31, 20162018 and 2015, and2017, 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, 2016. These2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements arepresent fairly, in all material respects, the responsibilityfinancial position of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.Company at December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.

We conducted our auditsalso have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework), and our report dated March 1, 2019 expressed an unqualified opinion thereon.

Adoption of ASU No. 2014-09, Revenue Recognition
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for revenue for all years presented, 2016 through 2018, due to the adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).

Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the 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. An audit includesmisstatement, 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 included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ionis Pharmaceuticals, Inc. at December 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP

We also have audited, in accordance withserved as the standards of the Public Company Accounting Oversight Board (United States), Ionis Pharmaceuticals, Inc.’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 1, 2017 expressed an unqualified opinion thereon.Company’s auditor since 1989
/s/ ERNST & YOUNG LLP

San Diego, California
March 1, 20172019

F-2

IONIS PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

 December 31,  December 31, 
 2016  2015  2018  2017 
ASSETS          (as revised*) 
Current assets:            
Cash and cash equivalents $84,685  $128,797  $278,820  $129,630 
Short-term investments  580,538   650,386   1,805,252   893,085 
Contracts receivable  108,043   11,356   12,759   62,955 
Inventories  7,489   6,899   8,582   9,982 
Investment in Regulus Therapeutics Inc.  2,414   24,792 
Other current assets  14,763   14,773   102,473   73,082 
Total current assets  797,932   837,003   2,207,886   1,168,734 
Property, plant and equipment, net  92,845   90,233   132,160   121,907 
Patents, net  20,365   19,316   24,032   22,004 
Long-term deferred tax assets  290,796   — 
Deposits and other assets  1,325   1,348   12,910   10,129 
Total assets $912,467  $947,900  $2,667,784  $1,322,774 
LIABILITIES AND STOCKHOLDERS’ EQUITY        
LIABILITIES AND STOCKHOLDERS’ EQUITY
        
Current liabilities:                
Accounts payable $21,120  $28,355  $28,660  $24,886 
Accrued compensation  24,186   16,065   29,268   25,151 
Accrued liabilities  36,013   28,105   48,361   66,618 
Current portion of long-term obligations  1,185   9,029   13,749   1,621 
Current portion of deferred contract revenue  51,280   67,322   160,256   125,336 
Total current liabilities  133,784   148,876   280,294   243,612 
Long-term deferred contract revenue  91,198   134,306   567,359   108,026 
1 percent convertible senior notes  500,511   339,847   568,215   533,111 
2¾ percent convertible senior notes  124   49,523 
Long-term obligations, less current portion  14,926   2,341   4,914   12,974 
Long-term financing liability for leased facility  72,359   72,217 
Long-term mortgage debt  59,842   59,771 
Total liabilities  812,902   747,110   1,480,624   957,494 
Stockholders’ equity:                
Common stock, $0.001 par value; 300,000,000 shares authorized, 121,636,273 and 120,351,480 shares issued and outstanding at December 31, 2016 and December 31, 2015, respectively  122   120 
Common stock, $0.001 par value; 300,000,000 shares authorized, 137,928,828 and 124,976,373 shares issued and outstanding at December 31, 2018 and December 31, 2017, respectively  138   125 
Additional paid-in capital  1,311,229   1,309,107   2,047,250   1,553,681 
Accumulated other comprehensive income (loss)  (30,358)  (13,565)
Accumulated other comprehensive loss  (32,016)  (31,759)
Accumulated deficit  (1,181,428)  (1,094,872)  (967,293)  (1,241,034)
Total Ionis stockholders’ equity  1,048,079   281,013 
Noncontrolling interest in Akcea Therapeutics, Inc.  139,081   84,267 
Total stockholders’ equity  99,565   200,790   1,187,160   365,280 
Total liabilities and stockholders’ equity $912,467  $947,900  $2,667,784  $1,322,774 

*
Our 2017 amounts are revised to reflect the new revenue recognition accounting guidance, which we adopted retrospectively in the first quarter of 2018. Refer to Note 1, Organization and Significant Accounting Policies, for further information.

See accompanying notes.

F-3

IONIS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share amounts)

  Years Ended December 31, 
  2016  2015  2014 
Revenue:         
Research and development revenue under collaborative agreements $325,898  $281,360  $202,514 
Licensing and royalty revenue  20,722   2,343   11,647 
Total revenue  346,620   283,703   214,161 
             
Expenses:            
Research, development and patent expenses  344,320   322,292   241,751 
General and administrative  48,616   37,173   20,140 
Total operating expenses  392,936   359,465   261,891 
             
Loss from operations  (46,316)  (75,762)  (47,730)
             
Other income (expense):            
Investment income  5,416   4,302   2,682 
Interest expense  (38,795)  (36,732)  (22,209)
Gain on investments, net  56   75   1,256 
Gain on investment in Regulus Therapeutics Inc.  —   20,211   19,902 
Loss on early retirement of debt  (3,983)  —   (8,292)
             
Loss before income tax (expense) benefit  (83,622)  (87,906)  (54,391)
             
Income tax (expense) benefit  (2,934)  (372)  15,407 
             
Net loss $(86,556) $(88,278) $(38,984)
             
Basic and diluted net loss per share $(0.72) $(0.74) $(0.33)
Shares used in computing basic and diluted net loss per share  120,933   119,719   117,691 
  Years Ended December 31, 
  2018  2017  2016 
Revenue:    (as revised*) 
Commercial revenue:         
SPINRAZA royalties $237,930  $112,540  $883 
TEGSEDI product sales, net  2,237   —   — 
Licensing and other royalty revenue  14,755   7,474   21,884 
Total commercial revenue  254,922   120,014   22,767 
Research and development revenue under collaborative agreements  344,752   394,165   350,009 
Total revenue  599,674   514,179   372,776 
             
Expenses:            
Cost of products sold  1,820   —   — 
Research, development and patent  414,604   374,644   344,320 
Selling, general and administrative  244,622   108,488   48,616 
Total operating expenses  661,046   483,132   392,936 
             
Income (loss) from operations  (61,372)  31,047   (20,160)
             
Other income (expense):            
Investment income  30,187   8,179   5,472 
Interest expense  (44,789)  (44,752)  (38,795)
Loss on extinguishment of financing liability for leased facility  —   (7,689)  — 
Loss on early retirement of debt  —   —   (3,983)
Other expenses  (182)  (3,548)  — 
             
Loss before income tax benefit (expense)  (76,156)  (16,763)  (57,466)
             
Income tax benefit (expense)  291,141   5,980   (2,934)
             
Net income (loss)  214,985   (10,783)  (60,400)
             
Net loss attributable to noncontrolling interest in Akcea Therapeutics, Inc.  58,756   11,129   — 
             
Net income (loss) attributable to Ionis Pharmaceuticals, Inc. common stockholders $273,741  $346  $(60,400)
Basic net income (loss) per share $2.09  $0.15  $(0.50)
Shares used in computing basic net income (loss) per share  132,320   124,016   120,933 
Diluted net income (loss) per share $2.07  $0.15  $(0.50)
Shares used in computing diluted net income (loss) per share  134,056   126,098   120,933 

*
Our 2017 and 2016 amounts are revised to reflect the new revenue recognition accounting guidance, which we adopted retrospectively in the first quarter of 2018. Refer to Note 1, Organization and Significant Accounting Policies, for further information.

See accompanying notes.

F-4

IONIS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSINCOME (LOSS)
(In thousands)

  Years Ended December 31, 
  2016  2015  2014 
          
Net loss $(86,556) $(88,278) $(38,984)
Unrealized (losses) gains on investments, net of tax  (17,219)  (33,101)  40,079 
 Reclassification adjustment for realized gains (losses) included in net loss  447   (20,211)  (21,412)
Currency translation adjustment  (21)  —   — 
             
Comprehensive loss $(103,349) $(141,590) $(20,317)
  Years Ended December 31, 
  2018  2017  2016 
     (as revised*) 
Net income (loss) $214,985  $(10,783) $(60,400)
Unrealized losses on investments, net of tax  (280)  (960)  (17,219)
Reclassification adjustment for realized (gains) losses included in net loss  —   (374)  447 
Currency translation adjustment  23   (67)  (21)
             
Comprehensive income (loss)  214,728   (12,184)  (77,193)
Comprehensive loss attributable to noncontrolling interest in Akcea Therapeutics, Inc.  (58,781)  (11,224)  — 
Comprehensive income (loss) attributable to Ionis Pharmaceuticals, Inc. common stockholders $273,509  $(960) $(77,193)

*
Our 2017 and 2016 amounts are revised to reflect the new revenue recognition accounting guidance, which we adopted retrospectively in the first quarter of 2018. Refer to Note 1, Organization and Significant Accounting Policies, for further information.

See accompanying notes.

F-5

IONIS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’STOCKHOLDERS’ EQUITY
Years Ended December 31, 2018, 2017 (*as revised) and 2016 2015 and 2014(*as revised)
(In thousands)

 Common Stock            Common Stock  Additional Paid in  
Accumulated
Other
Comprehensive
  Accumulated  
Total Ionis
Stockholders’
  
Noncontrolling
Interest in Akcea
  
Total
Stockholders’
 
Description Shares  Amount  
Additional
Paid In
Capital
  
Accumulated
Other
Comprehensive
Income (Loss)
  
Accumulated
Deficit
  
Total
Stockholders’
Equity
  Shares  Amount  Capital  Loss  Deficit  Equity  Therapeutics, Inc.  Equity 
Balance at December 31, 2013  116,471  $116  $1,324,804  $21,080  $(967,610) $378,390 
Net loss  —   —   —   —   (38,984)  (38,984)
Change in unrealized gains (losses), net of tax  —   —   —   18,667   —   18,667 
Issuance of common stock in connection with employee stock plans  1,972   2   23,071   —   —   23,073 
2¾ percent convertible senior notes redemption, equity portion  —   —   (326,444)  —   —   (326,444)
1 percent convertible senior notes, equity portion, net of issuance costs  —   —   170,232   —   —   170,232 
Share-based compensation expense  —   —   31,383   —   —   31,383 
Excess tax benefits from share-based compensation awards  —   —   1,463   —   —   1,463 
Balance at December 31, 2014  118,443  $118  $1,224,509  $39,747  $(1,006,594) $257,780 
Net loss  —   —   —   —   (88,278)  (88,278)
Change in unrealized gains (losses), net of tax  —   —   —   (53,312)  —   (53,312)
Issuance of common stock in connection with employee stock plans  1,908   2   24,888   —   —   24,890 
Share-based compensation expense  —   —   59,314   —   —   59,314 
Excess tax benefits from share-based compensation awards  —   —   396   —   —   396 
Balance at December 31, 2015  120,351  $120  $1,309,107  $(13,565) $(1,094,872) $200,790   120,351  $120  $1,309,107  $(13,565) $(1,094,872) $200,790  $—  $200,790 
Cumulative adjustment related to adopting Topic 606 revenue recognition guidance  —   —   —   —   (86,108)  (86,108)  —   (86,108)
Net loss  —   —   —   —   (86,556)  (86,556)  —   —   —   —   (60,400)  (60,400)  —   (60,400)
Change in unrealized gains (losses), net of tax  —   —   —   (16,772)  —   (16,772)  —   —   —   (16,772)  —   (16,772)  —   (16,772)
Foreign currency translation  —   —   —   (21)  —   (21)  —   —   —   (21)  —   (21)  —   (21)
Issuance of common stock in connection with employee stock plans  1,285   2   13,706   —   —   13,708   1,285   2   13,706   —   —   13,708   —   13,708 
2¾ percent convertible senior notes redemption, equity portion  —   —   (128,888)  —   —   (128,888)  —   —   (128,888)  —   —   (128,888)  —   (128,888)
1 percent convertible senior notes, equity portion, net of issuance costs  —   —   43,335   —   —   43,335   —   —   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) $(1,241,380) $39,613  $—  $39,613 
Net income  —   —   —   —   346   346   —   346 
Change in unrealized gains (losses), net of tax  —   —   —   (1,334)  —   (1,334)  —   (1,334)
Foreign currency translation  —   —   —   (67)  —   (67)  —   (67)
Novartis stock purchase  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 
Stock-based compensation expense  —   —   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 
Noncontrolling interest in Akcea Therapeutics, Inc. in conjunction with initial public offering  —   —   (90,351)  —   —   (90,351)  90,381   30 
Noncontrolling interest in Akcea Therapeutics, Inc.  —   —   (5,110)  —   —   (5,110)  (6,114)  (11,224)
Balance at December 31, 2017  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 gains (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 
Share-based compensation expense  —   —   72,108   —   —   72,108   —   —   131,312   —   —   131,312   —   131,312 
Excess tax benefits from share-based compensation awards  —   —   1,861   —   —   1,861 
Balance at December 31, 2016  121,636   122   1,311,229   (30,358)  (1,181,428)  99,565 
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 

*
Our 2017 and 2016 amounts are revised to reflect the new revenue recognition accounting guidance, which we adopted retrospectively in the first quarter of 2018. Refer to Note 1, Organization and Significant Accounting Policies, for further information.

See accompanying notes.

F-6

IONIS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

 Years Ended December 31, 
 Years Ended December 31,  2018  2017  2016 
 2016  2015  2014     (as revised*) 
Operating activities:                  
Net loss $(86,556) $(88,278) $(38,984)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:            
Net income (loss) $214,985  $(10,783) $(60,400)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:            
Depreciation  7,481   6,984   6,380   10,706   6,708   7,481 
Amortization of patents  1,552   1,381   1,142   1,822   1,641   1,552 
Amortization of licenses  —   1,873   1,882 
Amortization of premium on investments, net  6,813   7,812   7,470 
Amortization of premium (discount) on investments, net  (1,013)  6,752   6,813 
Amortization of debt issuance costs  1,225   1,133   595   1,810   1,616   1,225 
Amortization of 2¾ convertible senior notes discount  2,564   2,347   6,723 
Amortization of 1 percent convertible senior notes discount  21,326   19,728   2,256 
Amortization of convertible senior notes discount  33,363   30,920   23,890 
Amortization of long-term financing liability for leased facility  6,693   6,665   6,622   —   3,659   6,693 
Share-based compensation expense  72,108   59,314   31,383 
Stock-based compensation expense  131,312   85,975   72,108 
Gain on investment in Regulus Therapeutics Inc.  —   (20,211)  (19,902)  —   (374)  — 
Loss on extinguishment of financing liability for leased facility  —   7,689   — 
Loss on early retirement of debt  3,983   —   8,292   —   —   3,983 
Gain on investments, net  (56)  (75)  (1,256)
Non-cash losses related to patents, licensing and property, plant and equipment  2,297   1,881   1,305 
Tax benefit from other unrealized gains on securities  —   —   (12,835)
Deferred income taxes (including benefit from valuation allowance release)  (290,516)  —   — 
Non-cash losses related to patents, licensing, property, plant and equipment and strategic investments  1,012   3,302   2,297 
Changes in operating assets and liabilities:                        
Contracts receivable  (96,687)  (7,453)  7,199   47,595   45,088   (96,687)
Inventories  (590)  (609)  1,743   1,400   (2,493)  (590)
Other current and long-term assets  1,659   (4,319)  (1,750)  (29,348)  (58,367)  1,603 
Long-term income tax receivable  (223)  (9,114)  — 
Accounts payable  (10,677)  9,211   4,824   (655)  1,784   (10,677)
Income taxes  1,069   —   (4,034)  (710)  435   1,069 
Accrued compensation  8,121   3,763   134   4,117   965   8,121 
Deferred rent  125   205   153 
Accrued liabilities  4,595   (2,345)  8,358 
Accrued liabilities and deferred rent  (17,023)  28,564   4,720 
Deferred contract revenue  (59,150)  22,118   (11,415)  494,254   30,182   (85,306)
Net cash provided by (used in) operating activities  (112,105)  21,125   6,285   602,888   174,149   (112,105)
Investing activities:                        
Purchases of short-term investments  (300,912)  (493,467)  (391,883)  (1,794,735)  (877,810)  (300,912)
Proceeds from the sale of short-term investments  364,572   419,584   294,727   882,824   557,369   364,572 
Purchases of property, plant and equipment  (7,107)  (7,692)  (7,518)  (13,608)  (34,764)  (7,107)
Acquisition of licenses and other assets, net  (4,421)  (4,056)  (3,586)  (4,044)  (3,093)  (4,421)
Purchase of strategic investments  —   (2,500)  — 
Proceeds from the sale of Regulus Therapeutics, Inc.  4,467   25,527   22,949   —   2,507   4,467 
Proceeds from the sale of strategic investments  —   52   2,463 
Net cash provided by (used in) investing activities  56,599   (60,052)  (82,848)
Net cash (used in) provided by investing activities  (929,563)  (358,291)  56,599 
Financing activities:                        
Proceeds from equity, net  12,599   24,888   23,071   27,900   22,931   13,417 
Proceeds from issuance of 1 percent convertible senior notes, net of issuance costs  —   —   487,035 
Repurchase of $140 million of the principal amount of the 2¾ percent convertible senior notes
  —   —   (441,394)
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   — 
Proceeds from the issuance of common stock to Biogen  447,965   —   — 
Proceeds from the issuance of common stock to Novartis  —   71,737   — 
Proceeds from borrowing on line of credit facility  4,000   8,500   —   —   —   4,000 
Excess tax benefits from share-based compensation awards  1,861   396   1,463 
Proceeds from the sale of Akcea Therapeutics, Inc. common stock to Novartis in a private placement  —   50,000   — 
Offering costs paid  —   (2,037)  (818)
Payment to settle financing liability for leased facility  —   (80,133)  — 
Excess tax benefits from stock-based compensation awards  —   —   1,861 
Principal payments on debt and capital lease obligations  (7,066)  (9,058)  (10,587)  —   (3,599)  (7,066)
Net cash provided by financing activities  11,394   24,726   59,588   475,865   229,087   11,394 
Net decrease in cash and cash equivalents  (44,112)  (14,201)  (16,975)
Net increase (decrease) in cash and cash equivalents  149,190   44,945   (44,112)
Cash and cash equivalents at beginning of year  128,797   142,998   159,973   129,630   84,685   128,797 
Cash and cash equivalents at end of year $84,685  $128,797  $142,998  $278,820  $129,630  $84,685 
F-7

IONIS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

 Years Ended December 31, 
 2018  2017  2016 
    (as revised*) 
Supplemental disclosures of cash flow information:                  
Interest paid $7,313  $6,800  $6,353  $9,592  $8,035  $7,313 
Supplemental disclosures of non-cash investing and financing activities:                        
Amounts accrued for capital and patent expenditures $3,439  $1,162  $2,151  $4,428  $1,983  $3,439 
Purchases of property, plant and equipment included in long-term obligations $3,350  $—  $— 
1 percent convertible senior notes principal issued related to our December 2016 debt exchange $185,450  $—  $—  $—  $—  $185,450 
2¾ percent convertible senior notes principal extinguished related to our December 2016 debt exchange
 $61,099  $—  $—  $—  $—  $61,099 
Unpaid deferred offering costs $—  $—  $291 

*
Our 2017 and 2016 amounts are revised to reflect the new revenue recognition accounting guidance, which we adopted retrospectively in the first quarter of 2018. Refer to Note 1, Organization and Significant Accounting Policies, for further information.

See accompanying notes.

F-8

IONIS PHARMACEUTICALS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Significant Accounting Policies

Basis of presentationPresentation
 
TheIn our consolidated financial statements includewe included the accounts of Ionis Pharmaceuticals, Inc. ("we"(“we”, "us"“us” or "our"“our”) and the consolidated results of our wholly owned subsidiary,majority-owned affiliate, Akcea Therapeutics, Inc., which we formed in December 20142014. In July 2017, Akcea completed an initial public offering, or IPO, and its whollytherefore beginning in July 2017, we no longer own 100 percent of Akcea. From the closing of Akcea’s IPO in July 2017 through mid-April 2018, we owned subsidiaries,approximately 68 percent of Akcea. In the second, third and fourth quarters of 2018, we received additional shares of Akcea’s stock related to our license of TEGSEDI and AKCEA-TTR-LRx to Akcea, Therapeutics UK Ltd, whichincreasing our ownership percentage to approximately 75 percent. We reflected the increase in our ownership in these financial statements. In the first quarter of 2019, Akcea formedwill pay us a $75 million sublicense fee in August 2016 and Akcea Intl Ltd., which Akcea formedcommon stock, as a result of Novartis’ license of AKCEA-APO(a)-LRx in February 2017.2019. We will receive 2.8 million shares of Akcea common stock for the sublicense fee. Refer to the noncontrolling interest in Akcea section in this note 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 medicines using antisense technology. In December 2015, we changed our name from Isis Pharmaceuticals, Inc. to Ionis Pharmaceuticals, Inc.

Organization
Basic and business activity
We incorporated in California on January 10, 1989. In conjunction with our initial public offering, we reorganized as a Delaware corporation in April 1991. We were organized principally to develop human therapeutic drugs using antisense technology.Diluted Net Income (Loss) per Share

Basic and diluted net lossincome (loss) per share

We compute basic net lossincome (loss) per share by dividing the total net lossincome (loss) attributable to our common stockholders by theour weighted-average number of common shares outstanding during the period.

The calculation of total net income (loss) attributable to our common stockholders for 2018 and 2017 considered our net income for Ionis on a stand-alone basis plus our share of Akcea’s net loss for the period. During 2016, we owned 100 percent of Akcea. To calculate the portion of Akcea’s net loss attributable to our ownership for 2018 and 2017, we multiplied Akcea’s 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 our consolidated statements of operations for 2018 and 2017.

Our basic net income per share for 2018, was calculated as follows (in thousands, except per share amounts):

Year Ended December 31, 2018 
Weighted
Average Shares
Owned in Akcea
  
Akcea’s
Net Income (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 

Prior to Akcea’s IPO in July 2017, 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 the IPO was not a liquidation event or a change in control. During 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 that we owned in our calculation of basic and diluted net income (loss) per share for year ended December 31, 2017.

F-9
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 

Dilutive net income (loss per share)

For 2018 and 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.

We calculated our diluted net income per share for 2018 as follows (in thousands except per share amounts):

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 ESPP  —   6     
Income available to Ionis common stockholders, plus assumed conversions $276,868   134,056  $2.07 

We calculated our diluted net income per share for 2017 as follows (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 $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 ESPP  —   4     
Income available to Ionis common stockholders, plus assumed conversions $18,792   126,098  $0.15 

For 2018 and 2017, the calculation excluded our convertible notes because the effect on diluted earnings per share was anti-dilutive.

For 2016, we incurred a net loss for 2016, 2015 and 2014,loss; therefore, 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:

●
1 percent convertible senior notes;
●2¾ percent convertible senior notes;
●Dilutive stock options;
●Unvested restricted stock units; and
●Employee Stock Purchase Plan, or ESPP.

Revenue Recognition

Adoption of New Revenue Recognition Accounting Standard (Topic 606)

In May 2014, the FASB issued accounting guidance on the recognition of revenue from customers. This guidance supersedes the revenue recognition requirements we previously followed in Accounting Standards Codification, or ASC, Topic 605, Revenue Recognition, or Topic 605, and created a new Topic 606, Revenue from Contracts with Customers, or Topic 606. Under Topic 606, 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. We adopted Topic 606 on January 1, 2018 under the full retrospective approach, which required us to revise our prior period revenue. Under Topic 606, we were required to review all of our ongoing collaboration agreements in which we recognized revenue after January 1, 2016. We were required to assess what our revenue would have been for the period from January 1, 2016 to December 31, 2017 under Topic 606. As a result of this analysis, we determined that the cumulative revenue we would have recognized under Topic 606 decreased by $86.1 million. We recorded this amount as a cumulative adjustment to our accumulated deficit as of January 1, 2016 on our revised statement of stockholders’ equity. We have labeled our prior period financial statements “as revised” to indicate the change required under the accounting rules.

F-10
The following tables summarize the adjustments we were required to make to amounts we originally reported in 2017 and 2016 to adopt Topic 606 (in thousands, except per share amounts):

Consolidated Balance Sheet

  At December 31, 2017 
  
As Previously
Reported under
Topic 605
  
Topic 606
Adjustment
  As Revised 
Current portion of deferred contract revenue $106,465  $18,871  $125,336 
Long-term portion of deferred contract revenue $72,708  $35,318  $108,026 
Accumulated deficit $(1,187,398) $(53,636) $(1,241,034)
   Noncontrolling interest in Akcea Therapeutics, Inc. $87,847  $(3,580) $84,267 
Total stockholders’ equity $418,719  $(53,439) $365,280 

Consolidated Statements of Operations

  Year Ended December 31, 2017 
  
As Previously
Reported under
Topic 605
  
Topic 606
Adjustment
  As Revised 
Revenue:         
Commercial revenue:         
SPINRAZA royalties $112,540  $-  $112,540 
Licensing and other royalty revenue  9,519   (2,045)  7,474 
Total commercial revenue  122,059   (2,045)  120,014 
Research and development revenue under collaborative agreements  385,607   8,558   394,165 
Total revenue $507,666  $6,513  $514,179 
Income from operations $24,534  $6,513  $31,047 
Net income (loss) $(17,296) $6,513  $(10,783)
Net income (loss) attributable to Ionis Pharmaceuticals, Inc. common stockholders $(5,970) $6,316  $346 
Net income per share, basic and diluted $0.08  $0.07  $0.15 

  Year Ended December 31, 2016 
  
As Previously
Reported under
Topic 605
  
Topic 606
Adjustment
  As Revised 
Revenue:         
Commercial revenue:         
SPINRAZA royalties $883  $—  $883 
Licensing and other royalty revenue  19,839   2,045   21,884 
Total commercial revenue  20,722   2,045   22,767 
Research and development revenue under collaborative agreements  325,898   24,111   350,009 
Total revenue $346,620  $26,156  $372,776 
Income (loss) from operations $(46,316) $26,156  $(20,160)
Net income (loss) $(86,556) $26,156  $(60,400)
Net income (loss) attributable to Ionis Pharmaceuticals, Inc. common stockholders $(86,556) $26,156  $(60,400)
Net income (loss) per share, basic and diluted $(0.72) $0.22  $(0.50)

F-11
Consolidated Statements of Cash Flows

  Year Ended December 31, 2017 
  
As Previously
Reported under
Topic 605
  
Topic 606
Adjustment
  As Revised 
Net income (loss) $(17,296) $6,513  $(10,783)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:            
Deferred contract revenue $36,695  $(6,513) $30,182 
Cash and cash equivalents at beginning of year $84,685  $—  $84,685 
Cash and cash equivalents at end of year $129,630  $—  $129,630 

  Year Ended December 31, 2016 
  
As Previously
Reported under
Topic 605
  
Topic 606
Adjustment
  As Revised 
Net income (loss) $(86,556) $26,156  $(60,400)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:            
Deferred contract revenue $(59,150) $(26,156) $(85,306)
Cash and cash equivalents at beginning of year $128,797  $—  $128,797 
Cash and cash equivalents at end of year $84,685  $—  $84,685 

Under Topic 606, compared to Topic 605, our total revenue increased $6.5 million for 2017 and $26.2 million for 2016. The change in our revenue was primarily due to:

●
A change in how we recognize milestone payments: Topic 606 requires us to amortize more of the milestone payments we achieve, rather than recognizing the milestone payments in full in the period in which we achieved the milestone event as we did under Topic 605. This change resulted in an increase in R&D revenue recognized for 2017 and 2016 of $23.7 million and $24.1 million, respectively.

●
A change in how we calculate revenue for payments we are recognizing into revenue over time: Under Topic 605, we amortized payments into revenue evenly over the period of our obligations. When we made a change to our estimated completion period, we recognized that change on a prospective basis. Under Topic 606, we are required to use an input method to determine the amount we amortize each reporting period. Each period we review our “inputs” such as our level of effort expended, including the time we estimate it will take us to complete the activities or costs incurred, relative to the total expected inputs to satisfy the performance obligation. For certain collaborations, such as Bayer and Novartis, the input method resulted in a change to the revenue we had previously recognized using a straight-line amortization method. This change resulted in a decrease in our R&D revenue of $15.1 million for 2017. This change did not result in an impact to our 2016 R&D revenue.

Our updated revenue recognition policy reflecting Topic 606 is as follows:

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.

Arrangements with multiple deliverablesCommercial 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: TEGSEDI Product Sales, net

We began adding product sales from TEGSEDI to our commercial revenue in the fourth quarter of 2018. In the U.S., TEGSEDI is distributed 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 Germany, TEGSEDI is distributed through a non-exclusive distribution model with a 3PL that takes title to TEGSEDI. The 3PL is our sole customer in Germany. The 3PL in Germany then distributes TEGSEDI to hospitals and pharmacies.

F-12
Research and development revenue under collaborative agreements

We often enter into collaboration agreements to license and sell our technology on an exclusive or non-exclusive basis. Our collaboration agreements typically contain multiple elements, or 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 certainNote 6, Collaborative Arrangements and Licensing Agreements. Under each collaboration note we discuss 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 amount of revenue we should recognize and when we should recognize it. The five step process is as follows:

1.Identify the contract

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

●We and our partner approved the contract and we are both committed to perform our obligations;
●We have identified our rights, our partner’s rights and the payment terms;
●We have concluded that the contract has commercial substance, meaning that the risk, timing, or amount of our future cash flows is expected to change as a result of the contract; and
●We believe collectability 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 one performance obligation at the inception of a contract, which is to perform R&D services.

Often times we enter into a collaboration agreement in which we provide our partner with an option to license a medicine in the future. We may also provide our partner with an option to request that we provide additional goods or services in the future, such as active pharmaceutical ingredient, or API. We evaluate whether these options are material rights at the inception of the agreement. If we determine an option is a material right, we will consider the option a separate performance obligation. Historically, we have concluded that the options we grant to license a medicine in the future or to provide additional goods and services as requested by our partner are not material rights. 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, manufacturing services,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 performance obligations related to the license after delivery, then we consider the license to be a separate performance obligation.

3.Determine the transaction price

We then determine the transaction price by reviewing the amount of consideration we are eligible to earn under the collaboration agreement, including any variable consideration. Under our collaboration agreements, consideration typically includes fixed consideration in the form of an upfront payment and variable consideration in the form of potential milestone payments, license fees and royalties. At the start of an agreement, our transaction price usually consists of only the upfront payment. We do not typically include any payments we may receive in the future in our initial transaction price because the payments are not probable. We reassess the total transaction price at each reporting period to determine if we should include additional payments in the transaction 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 determine the likelihood of earning the milestone payment. We include a milestone payment in the transaction price once it is probable we will achieve the milestone event. Most often, we do not consider our milestone payments probable until we or our partner achieve the milestone event because the majority of our milestone payments are contingent upon events that are not within our control and are usually based on scientific progress. For example, in the first quarter of 2019, we earned a $35 million milestone payment from Roche when it dosed the first patient in the Phase 3 study of IONIS-HTTRx.  At December 31, 2018, we determined it was not probable that we could earn this milestone payment. As such, we did not recognize any revenue associated with it in 2018.   

4.Allocate the transaction price

Next, we allocate the considerationtransaction price to each unit of accountingour performance obligations. When we have to allocate the transaction price to more than one performance obligation, we make estimates of the relative stand-alone selling price of each performance obligation because we do not typically sell our goods or services on a stand-alone basis. We then allocate the transaction price to each performance obligation based on the relative stand-alone selling price.

F-13
We may engage a third party, independent valuation specialist to assist us with determining a stand-alone selling price for collaborations in which we deliver a license at the start of an agreement. We estimate the stand-alone selling price of each deliverable.these licenses using valuation methodologies, such as the relief from royalty method. Under this method, we estimate the amount of income, net of taxes, for the license. We then discount the projected income to present value. The significant inputs we use to determine the projected income of a license could include:

Identifying deliverables and units of accounting
●Estimated future product sales;
●Estimated royalties on future product sales;
●Contractual milestone payments;
●Expenses we expect to incur;
●Income taxes; and
●A discount rate.

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

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

We do not reallocate the transaction price after the start of an agreement to reflect subsequent changes in stand-alone selling prices.

5.Recognize revenue

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

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

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

Commercial Revenue: SPINRAZA royalties and Licensing and other royalty revenue

We recognize royalty revenue in the period in which the counterparty sells the related product, which in certain cases may require us to estimate our royalty revenue. We recognize royalties from SPINRAZA sales in the period Biogen records the sale of SPINRAZA. Our accounting for SPINRAZA royalties did not change as a result of adopting Topic 606.

Commercial Revenue: TEGSEDI Product Sales, net

We recognize TEGSEDI product sales in the period when our customer obtains control of TEGSEDI, 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 TEGSEDI Product Sales

We record TEGSEDI 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 reductions of accounts receivable when the amount is payable to our customer or a current liability when the amount is payable to a party other than our customer in our consolidated balance sheet. In certain cases, our estimates include a 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 TEGSEDI product sales in the respective period.

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The following are the components of variable consideration related to TEGSEDI 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 record reserves for these chargebacks related to TEGSEDI product sales to our U.S. customer during the reporting period. We also estimate the amount of product remaining in the distribution channel inventory at the end of the reporting period that we expect our customer to sell to wholesalers in future periods.

Government rebates: We are subject to discount obligations under government programs, including Medicaid programs and Medicare in the U.S. 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 TEGSEDI product sales in the same period we recognize the related sale. For Medicare rebates, 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. In Germany, pharmaceutical companies must grant a specified rebate percentage to the German government. We include this rebate in the same period we recognize the related TEGSEDI product sales, resulting in a reduction of product sales.

Trade discounts and allowances: We provide customary invoice discounts on TEGSEDI product sales to our U.S. customer for prompt payment. We record this discount as a reduction of TEGSEDI product sales in the period in which we recognize the related product revenue. In addition, we receive and pay for various distribution services from our U.S. customer and wholesalers in our U.S. distribution channel. For services we receive that are either not distinct from the sale of TEGSEDI or for which we cannot reasonably estimate the fair value, we classify such fees as a reduction of TEGSEDI product sales.

Product Returns: Our U.S. customer has return rights and the wholesalers have limited return rights primarily related to the expiration date of the TEGSEDI product. We estimate the amount of TEGSEDI 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 TEGSEDI product sales, in the same period we recognize the related sale. Based on our distribution model for TEGSEDI, contractual inventory limits with our customer and wholesalers and the price of TEGSEDI, we believe we will have minimal returns. Our customer in Germany only takes title to the product once it receives an order from a hospital or pharmacy and therefore does not maintain any inventory of TEGSEDI, as such we do not estimate returns in Germany.

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 TEGSEDI 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 TEGSEDI product sales, in the same period we recognize the related sale.

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Research and development revenue under collaboration agreementsagreements:

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 new 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. Refer to Note 6, Collaborative Arrangements and Licensing Agreements, for further discussion. Under Topic 605, we amortized upfront payments evenly over the period of our obligation.

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 under our collaboration agreements. 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 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 third quarter of 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. Under Topic 606, we added this payment to the transaction price and allocated it to our R&D services performance obligation. We are recognizing revenue from this milestone payment over our estimated period of performance. Under Topic 605, this milestone payment was recognized in full in the third quarter of 2017, which was the period in which we achieved the milestone event.

Conversely, we recognize in full those milestone payments that we earn based on our partners’ activities when our partner achieves the milestone event. For example, in the third quarter of 2018, we recognized a $10 million milestone payment when AstraZeneca initiated a Phase 1 study of IONIS-AZ4-2.5-LRx. We concluded that the milestone payment was not related to our R&D services performance obligation. Therefore, we recognized this milestone payment in full in the third quarter of 2018 because we do not have any performance obligations related to this milestone payment. Our revenue recognition of milestone payments we earn based on our partners’ activities did not change as a result of adopting Topic 606.

License Fees

We generally recognize as revenue the total amount we determine to be the 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 2018, we earned a $35 million license fee when Biogen licensed IONIS-SOD1Rx from us. Our recognition of license fees did not change as a result of adopting Topic 606.

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 whether they meet the criteria to be accountedaccounting for as separate units of accounting the amendment:

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

If we conclude the goods and/or whether they should be combined with other deliverablesservices in the amendment are distinct from the performance obligations in the original agreement and accounted for asat a single unit of accounting. When the delivered items in an arrangement have "stand-alone value" to our customer,stand-alone selling price, we account for the deliverablesamendment as a separate units of accounting. Delivered itemsagreement. 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 stand-alone value if theyalready 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 sold separately bynot distinct from what we have already provided, we update the transaction price for our single performance obligation and recognize any vendor or the customer could resell the delivered items onchange in our estimated revenue as a stand-alone basis. cumulative adjustment.

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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 paymentpayment. 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 second quarter of 2015.2017 amendment, Bayer paid us $75 million. We are also eligible to receive milestone payments and tiered royalties on gross margins of IONIS-FXIRx. At the onset of the agreement, we were responsible for completing the development services for IONIS-FXI and IONIS-FXI-LRx. Under the 2017 amendment, we concluded we had a new agreement with three performance obligations. These performance obligations were to deliver the license of IONIS-FXI-LRx, to provide R&D services and for providing an initial supply of active pharmaceutical ingredient, orto deliver API. SinceWe allocated the agreement had multiple elements, we evaluated the deliverables in this arrangement when we entered into the agreement and determined that certain deliverables have stand-alone value. In February 2017, we expanded our collaboration with Bayer, refer$75 million transaction price to these performance obligations. Refer to Note 6, Collaborative Arrangements and Licensing Agreements, in the Notes to the Consolidated Financial Statements for further information. Below is a listdiscussion of our accounting treatment for our Bayer collaboration. Our allocation of the three units of accounting under our original agreement:

The exclusive license we granted to Bayer to develop and commercialize IONIS-FXIRx for the treatment of thrombosis;
The development services we agreed to perform for IONIS-FXIRx; and 
The initial supply of API.

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We determined that each of these three units of accounting have stand-alone value. The licenseconsideration we granted to Bayer has stand-alone value because it gives Bayer the exclusive right to develop IONIS-FXIRx or to sublicense its rights. The development services and the initial 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 on the relative 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, 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 considerationreceived for the Bayer collaboration was $100 million and we allocated it based on the relative BESP of each unit of accounting. We engaged a third party, independent valuation expert to assist us with determining BESP. We estimated the selling price of the license granted for IONIS-FXIRx by using the relief from royalty method. Under this method, we estimated the amount of income, net of taxes, for IONIS-FXIRx. 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;
Income taxes; and
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 drug product we will use.

We determine the selling price of our API consistently for all of our partnerships. On an annual basis, we calculate our fully absorbed cost to manufacture API. We then determine the unit price we will charge our partners by dividing our fully absorbed costs by the quantity of API we expect to produce during the year.

For purposes of determining BESP of the services we performed and the API we delivered in our Bayer transaction, accounting guidance required us to include a markup for a reasonable profit margin.

Based on the units of accounting under the agreement, we allocated the $100 million upfront payment from Bayer as follows:

$91.2 million to the IONIS-FXIRx exclusive license;
$4.3 million for development services; and
$4.5 million for the delivery of 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-FXIRx license, we determined that the revenue we would have allocated to the IONIS-FXIRx license would change by approximately one percent, or $0.9 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-FXIRx in the second quarter of 2015 because that was when we delivered the license. We also recognize revenue over time. 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 must estimate our period of performance when the agreements we enter into doamendment did not clearly define such information. We estimate the period of time over which we will complete the activities for which we are responsible and use that period of time as our period of performance for purposes of revenue recognition. We then recognize revenue ratably over such period. We have made estimates of our continuing obligations under numerous agreements and in certain instances the timing of satisfying these obligations change as a result of adopting Topic 606. However, the development plans for our drugs progress. Accordingly, our estimates may changemethod in the future. 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.

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The following are the periods over which we are recognizing revenue for each ofrelated to our units of accountingR&D services performance obligation did change. We are amortizing revenue related to our R&D services performance obligation using the input method under our Bayer agreement:Topic 606.

We recognized the portion of the consideration attributed to the IONIS-FXIRx license immediately in the second quarter of 2015 because we delivered the license and earned the revenue; 

We recognized the amount attributed to the development services for IONIS-FXIRx over the period of time we performed the services; and
We are recognizing the amount attributed to the API supply as we deliver it to Bayer.

Multiple agreementsAgreements

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 2012 and 2013,the second quarter of 2018, we entered into several collaboration agreements with Biogen:

In January 2012, we entered into a collaboration agreement with Biogen to develop and commercialize SPINRAZA (nusinersen) for spinal muscular atrophy, or SMA. As part of the collaboration, we received a $29 million upfront payment and we were responsible for global development of SPINRAZA through completion of Phase 2/3 clinical trials.

In June 2012, we entered into a second andtwo separate collaboration agreement with Biogen to develop and commercialize a novel antisense drug targeting DMPK, or dystrophia myotonica-protein kinase. As part of the collaboration, we received a $12 million upfront payment and we are responsible for global development of the drug through the completion of a Phase 2 clinical trial.

In December 2012, we entered into a third and separate collaboration agreement with Biogen to discover and develop antisense drugs against three targets to treat neurological or neuromuscular disorders. As part of the collaboration, we received a $30 million upfront payment and we are responsible for the discovery of a lead antisense drug for each of three targets.

In September 2013, we entered into a fourth and separate collaboration agreement with Biogen to leverage antisense technology to advance the treatment of neurodegenerative diseases. We granted Biogen exclusive rights to the use of our antisense technology to develop therapies for neurological diseases as part of this broad collaboration. We received a $100 million upfront payment and we are responsible for discovery and early development through the completion of a Phase 2 clinical trial for each antisense drug identified during the six-year term of this collaboration, while Biogen is responsible for the creation and development of small molecule treatments and biologics.

Under our collaboration agreement, in July 2016, Biogen exercised its option to license SPINRAZA. Our other collaboration agreements with Biogen give Biogenat the option to license one or more drugs resulting from the specific collaboration. Similar to oursame time: a new strategic neurology collaboration agreement for SPINRAZA, if Biogen exercises an option, it will pay usand a license fee and will assume future global development, regulatory and commercialization responsibilities for the licensed drug. We are also eligible to receive milestone payments associated with the research and/stock purchase agreement, or development of the drugs prior to licensing, milestone payments if Biogen achieves pre-specified regulatory milestones, and royalties on any product sales from any drugs resulting from these collaborations.

SPA. We evaluated all of the Biogen agreements to determine whether we should account for them as separate agreements.treat the agreements separately or combine them. We determinedconsidered that the agreements were negotiated concurrently and in contemplation of one another. Based on these facts and circumstances, we concluded that we should account forevaluate the provisions of the agreements separately because we conducted the negotiations independently of one another, each agreement focuses on different drugs, there are no interrelated or interdependent deliverables, there are no provisions in any of these agreements that are essentiala combined basis. Refer to the other agreement, and the payment terms and fees under each agreement are independent of each other.

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 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.

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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 Phase 1 clinical trials 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 scale studies in patients with the primary intent of determining the efficacy 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 Food and Drug Administration, or FDA, and/or foreign equivalents. The Phase 3 studies typically involve large numbers of patients and can take up to several years to complete. If the data gathered during the 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 a drug achieves marketing authorization, it moves into the commercialization stage, during which our partner will market and sell the drug to patients. Although our partner will ultimately be responsible for marketing and selling the 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 sold 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.
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 existing 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:
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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. for further discussion of the accounting treatment for the 2018 strategic neurology collaboration with Biogen.

Option to licenseContracts Receivable

In severalOur contracts receivable balance represents the amounts we have billed our partners for goods we have delivered or services we have performed that are due to us unconditionally. When we bill our partners with payment terms based on the passage of time, we consider the contract receivable to be unconditional. We typically receive payment within one quarter of billing our partner. Our contracts receivable balance as of December 31, 2017 did not change when we adopted Topic 606.

Unbilled SPINRAZA Royalties

Our unbilled SPINRAZA royalties represent our right to receive consideration from Biogen in advance of when we are eligible to bill Biogen for SPINRAZA royalties. We include these unbilled amounts in other current assets on our consolidated balance sheet. Our unbilled SPINRAZA royalties as of December 31, 2017 did not change when we adopted Topic 606.

Deferred Revenue

We are often entitled to bill our customers and receive payment from our customers in advance of our collaboration agreements,obligation to provide services or transfer goods to our partners. In these instances, we provideinclude the amounts in deferred revenue on our partner with an optionconsolidated balance sheet. During the years ended December 31, 2018 and 2017, we recognized $105.3 million and $95.1 million of revenue from amounts that were in our beginning deferred revenue balances for those periods, respectively. Refer to obtain a licenseour revenue recognition policy above detailing how we recognize revenue for further discussion.

The following table summarizes the adjustments we were required to one ormake to our deferred revenue amounts to adopt Topic 606 (in thousands):

  At December 31, 2017 
  
As Previously
Reported under
Topic 605
  
Topic 606
Adjustment
  As Revised 
Current portion of deferred contract revenue $106,465  $18,871  $125,336 
Long-term portion of deferred contract revenue  72,708   35,318   108,026 
Total deferred revenue $179,173  $54,189  $233,362 

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Our deferred revenue balance increased $54.2 million at December 31, 2017 under Topic 606, compared to Topic 605. The increase was primarily related to the change in the accounting for certain milestone payments and the way in which we amortize payments. Under Topic 605, we previously recognized the majority of the milestone payments we earned in the period we achieved the milestone event, which did not impact our deferred revenue balance. Under Topic 606 we are now amortizing more milestone payments over the period of our drugs.  Whenperformance obligation, which adds to our deferred revenue balance. Additionally, under Topic 605 we haveamortized payments evenly over the period of our obligation. Under Topic 606, we are required to use an input method to determine the amount we amortize each reporting period. The increase in deferred revenue relates to agreements with the following partners:

●$24.2 million from Biogen;
●$15.9 million from AstraZeneca;
●$11.8 million from Novartis; and
●$ 2.3 million from other partners.

Cost of Products Sold

We obtained the first regulatory approval for TEGSEDI in July 2018, as a multiple element arrangement thatresult we began recognizing cost of products sold expenses related to TEGSEDI. Our cost of products sold includes an optionmanufacturing costs, transportation and freight costs and indirect overhead costs associated with the manufacturing and distribution of TEGSEDI. We also may include certain period costs related to obtainmanufacturing services and inventory adjustments in cost of products sold. Prior to obtaining regulatory approval, we expensed a license, we evaluate if the option is a deliverable at the inceptionsignificant portion of the arrangement.  We do not considercosts we incurred to produce 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,TEGSEDI supply we are at risk as to whether our collaborative partner will choose to exercise its option to obtain the license. In those circumstances, we do not include the associated license feeusing 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 2016, we earned license fee revenue when three of our partners, AstraZeneca, Biogen and Janssen, exercised their option to license three of our drugs, which under the respective agreements we concluded to be substantive options at inception. As a result, in 2016 we recognized $98 million incommercial launch as research and development expense.  We previously recognized $0.1 million of costs to produce TEGSEDI related to the TEGSEDI commercial revenue under collaborative agreements on our statement of operations as these amounts relate to drugswe recognized in development under research and development collaboration arrangements.2018.

Licensing
Research, Development and royalty revenuePatent Expenses

We often enter into agreements to license and sell our proprietary patent rights on an exclusive or non-exclusive basis in exchange for upfront fees, milestone payments and/or royalties. We generally recognize as revenue immediately those payments for which we have no significant future performance obligations and for which we are reasonably assured of collecting the resulting receivable.

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, 2016, 20152018, 2017 and 2014,2016, research and development expenses were $340.4$411.9 million, $319.5$372.5 million and $238.9$340.4 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, 2016, 20152018, 2017 and 2014,2016, research and development costs of approximately $187.1$58.7 million, $161.7$59.5 million and $85.6$187.1 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 10.1 years at December 31, 2016.2018.

The cost of our patents capitalized on our consolidated balance sheet at December 31, 20162018 and 20152017 was $28.8$32.7 million and $27.5$30.8 million, respectively. Accumulated amortization related to patents was $8.4$8.7 million and $8.2$8.8 million at December 31, 20162018 and 2015,2017, respectively.

Based on our existing patents, estimatedwe estimate amortization expense related to patents in each of the next five years is as follows:to be the following:

Years Ending December 31, 
Amortization
(in millions)
  
Amortization
(in millions)
 
2017 $1.4 
2018 $1.3 
2019 $1.2  $1.7 
2020 $1.1  $1.6 
2021 $1.0  $1.5 
2022 $1.4 
2023 $1.3 

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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 2016, 20152018, 2017 and 2014,2016, patent expenses were $3.9$2.6 million, $2.8$2.1 million and $2.9$3.9 million, respectively, and included non-cash charges related to the write-down of our patent costs to their estimated net realizable values of $2.3$0.8 million, $1.1$0.4 million and $1.3$2.3 million, respectively.

F-18
Accrued Liabilities

Our accrued liabilities consisted of the following (in thousands):

  December 31, 
  2018  2017 
Clinical expenses $22,125  $16,347 
In-licensing expenses  12,298   33,790 
Other miscellaneous expenses  13,938   16,481 
Total accrued liabilities $48,361  $66,618 

Noncontrolling Interest in Akcea Therapeutics, Inc.

Prior to Akcea’s IPO in July 2017, we owned 100 percent of Akcea. From the closing of Akcea’s IPO in July 2017 through mid-April 2018, we owned approximately 68 percent of Akcea. In the second, third and fourth quarters of 2018, we received additional shares of Akcea’s stock related to our license of TEGSEDI and AKCEA-TTR-LRx to Akcea, increasing our ownership percentage to approximately 75 percent. We reflected this increase in our ownership percentage in these financial statements as an adjustment to noncontrolling interest. The shares third parties own represent an interest in Akcea’s equity that is not controlled by us. 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. We reflect the noncontrolling interest attributable to other owners of Akcea’s common stock in a separate line on the statement of operations and a separate line within stockholders’ equity in our consolidated balance sheet. In addition, we record a noncontrolling interest adjustment to account for the stock options Akcea grants, which if exercised, will dilute our ownership in Akcea. This adjustment is 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.

Concentration of credit riskCredit 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 equivalentsCash Equivalents and short-term investmentsShort-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 have received as part of a technology license or partner agreement. At December 31, 2016, we held ownership interests of less than 20 percent in each of the respective companies.

We account for our equity investments in publicly held companies at fair value and record unrealized gains and losses related to temporary increases and decreases in the stock of these publicly held companies as a separate component of comprehensive income (loss). At December 31, 2016,2018, we held equity investments in two publicly held companies, ProQR Therapeutics N.V., or ProQR, and Antisense Therapeutics Limited, or ATL. We also held equity investments in four privately-held companies, Atlantic Pharmaceuticals Limited, Dynacure SAS, Seventh Sense Biosystems and Regulus Therapeutics. We accountSuzhou Ribo Life Science Co, Ltd.

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 at fair value. Additionally, the amended accounting guidance requires us to recognize the changes in fair value in our consolidated statement of operations, instead of through accumulated other comprehensive income. Prior to 2018, 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. At December 31, 2016,we heldan impact on our results.

Inventory Valuation

We reflect our inventory on our consolidated balance sheet at the lower of cost method investments in three companies, Atlantic Pharmaceuticals Limited, Kastle Therapeutics and Dynacure, SAS. Realization of our equity position in these private companies is uncertain. When realization of our investment is uncertain, we record a full valuation allowance. In determining if and when a decrease inor market value below our cost in our equity positions is temporaryunder the first-in, first-out method, 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.

Inventory valuation

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. 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 deliverbegin to manufacture API for a particular medicine if the drugsmedicine has not been approved for marketing by a regulatory agency.

F-19
We obtained the first regulatory approval for TEGSEDI in July 2018. At December 31, 2018, our physical inventory for TEGSEDI included API that we produced prior to our partners, orwhen we obtained regulatory approval and accordingly has no cost basis as we provide these drugs for our own clinical trials. We reflect our inventory onhad 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 did not record any inventory write-offs for the years ended December 31, 2016, 20152018, 2017 or 2014.2016. Total inventory was $7.5$8.6 million and $6.9$10.0 million as of December 31, 20162018 and 2015,2017, respectively.

Property, plantPlant and equipmentEquipment

F-14

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):

    December 31,  Estimated Useful Lives  December 31, 
 
Estimated Useful Lives
(in years)
  2016  2015  (in years)  2018  2017 
Computer software, laboratory, manufacturing and other equipment 3 to 10  $63,287  $56,822  3 to 10  $53,496  $66,558 
Building and building systems 25 to 40   48,909   48,163 
Building, building improvements and building systems 15 to 40   97,528   92,770 
Land improvements  20   2,853   2,853   20   2,853   2,853 
Leasehold improvements 5 to 20   41,736   39,061  5 to 15   18,981   26,748 
Furniture and fixtures 5 to 10   5,937   5,842  5 to 10   6,283   6,161 
      162,722   152,741       179,141   195,090 
Less accumulated depreciation      (80,075)  (72,706)      (61,474)  (87,676)
      82,647   80,035       117,667   107,414 
Land      10,198   10,198       14,493   14,493 
Total     $92,845  $90,233      $132,160  $121,907 

We depreciate our leasehold improvements using the shorter of the estimated useful life or remaining lease term.

Fair valueValue of financial instrumentsFinancial 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.

Long-lived assets
Long-Lived Assets
 
We evaluate long-lived assets, which include property, plant and equipment and patent costs, and exclusive licenses acquired from third parties, 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 $2.3$0.8 million, $1.9$0.8 million and $1.3$2.3 million for the years ended December 31, 2016, 20152018, 2017 and 2014,2016, respectively, related primarily to the write-down of intangible assets.

Use of estimatesEstimates

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
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 Statements of 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 method of valuing option awards 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.

F-20
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), an entity recognizeswe 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 share-basedstock-based compensation plans.
F-15

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 incomeloss to our Consolidated Statement of Operations. The following table summarizes changes in accumulated other comprehensive incomeloss for the years ended December 31, 2016, 20152018, 2017 and 20142016 (in thousands):
 
  Year Ended December 31, 
  2016  2015  2014 
Beginning balance accumulated other comprehensive (loss) income $(13,565) $39,747  $21,080 
Unrealized (losses) gains on securities, net of tax (1)  (17,219)  (33,101)  40,079 
Amounts reclassified from accumulated other comprehensive (loss) income (2)  447   (20,211)  (21,412)
Currency translation adjustment  (21)  —   — 
Net other comprehensive (loss) income for the period  (16,793)  (53,312)  18,667 
Ending balance accumulated other comprehensive (loss) income $(30,358) $(13,565) $39,747 
  Year Ended December 31, 
  2018  2017  2016 
Beginning balance accumulated other comprehensive loss $(31,759) $(30,358) $(13,565)
Unrealized losses on securities, net of tax (1)  (280)  (960)  (17,219)
Amounts reclassified from accumulated other comprehensive loss  —   (374)  447 
Currency translation adjustment  23   (67)  (21)
Net other comprehensive loss for the period  (257)  (1,401)  (16,793)
Ending balance accumulated other comprehensive loss $(32,016) $(31,759) $(30,358)

(1)OtherA tax benefit of $0.3 million was included in other comprehensive income includes income tax expense of $12.8 millionloss for the year ended December 31, 2014.2018. There was no tax benefit or expense for other comprehensive incomeloss for the years ended December 31, 20162017 or 2015.2016.

(2)Amounts for 2015 are included in the separate line called “Gain on investment in Regulus Therapeutics Inc.” on our Consolidated Statement of Operations. For 2014, $19.9 million is included in a separate line called “Gain on investment in Regulus Therapeutics Inc.”, with the remaining amount included in a separate line called “Gain on investments, net” on our Consolidated Statement of Operations.

Convertible debtDebt

We account for convertible debt instruments, including our 1 percent and 2¾ percent 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 determine the carrying amount 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 value by using assumptions that market participants would use in pricing a debt instrument, including market interest rates, credit standing, yield curves and volatilities. DeterminingWe use accounting estimates and assumptions when we determine the fair value of the debt component requires the use of accounting estimates and assumptions.component. These estimates and assumptions we use 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. At January 1, 2016, we adopted the amended accounting guidance to simplify the presentation of debt issuance costs. As a result of this amended guidance, we reclassed our debt issuance costs in all periods presented from other assets to the net carrying amount of the related debt liability on our consolidated balance sheet. 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

Segment information

In 2015, we beganWe have two operating as two segments, our Ionis Core segment and Akcea Therapeutics, which includes the consolidated operations of our wholly owned subsidiary,majority-owned affiliate. Akcea Therapeutics, Inc. We formed Akcea to developis a biopharmaceutical company focused on developing and commercialize drugscommercializing medicines to treat patients with rare and serious cardiometabolic 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 use judgmentsallocate a portion of Ionis’ development, R&D support and estimates in determining the allocation of sharedgeneral and administrative expenses to the two segments.Akcea for work Ionis performs on behalf of Akcea.

Fair value measurementsValue 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. TheWe classify the majority of our securities have been classified 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 20162018 and 2015,2017, 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. During 2016 and 2015, we did not have any investments that were classified as Level 3 investments.

F-16F-21


The following tables present the major security types we held at December 31, 20162018 and 20152017 that are regularly measured and carried at fair value. 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. At December 31, 2017, we did not have any financial instruments that we valued using Level 3 inputs. 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, 2016
  
Quoted Prices in
Active Markets
(Level 1)
  
Significant Other
Observable
Inputs
(Level 2)
 
Cash equivalents (1) $54,137  $54,137  $— 
Corporate debt securities (2)  396,221   —   396,221 
Debt securities issued by U.S. government agencies (2)  55,179   —   55,179 
Debt securities issued by the U.S. Treasury (2)  29,286   29,286   — 
Debt securities issued by states of the U.S. and political subdivisions of the states (3)  109,111   —   109,111 
Investment in Regulus Therapeutics Inc.  2,414   2,414   — 
Total $646,348  $85,837  $560,511 
  
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) $146,281  $146,281  $—  $— 
Corporate debt securities (2)  1,252,960   —   1,252,960   — 
Debt securities issued by U.S. government agencies (3)  276,612   —   276,612   — 
Debt securities issued by the U.S. Treasury (4)  260,154   260,154   —   — 
Debt securities issued by states of the U.S. and political subdivisions of the states (3)  79,942   —   79,942   
—
 
Investment in ProQR Therapeutics N.V. (5)
  1,349   —   —   1,349 
Total $2,017,298  $406,435  $1,609,514  $1,349 

 
At
December 31, 2015
  
Quoted Prices in
Active Markets
(Level 1)
  
Significant Other
Observable
Inputs
(Level 2)
  
At
December 31, 2017
  
Quoted Prices in
Active Markets
(Level 1)
  
Significant Other
Observable Inputs
(Level 2)
 
Cash equivalents (1) $88,902  $88,902  $—  $86,262  $86,262  $— 
Corporate debt securities (2)(6)  438,426   —   438,426   647,461   —   647,461 
Debt securities issued by U.S. government agencies (2)(3)  89,253   —   89,253   136,325   —   136,325 
Debt securities issued by the U.S. Treasury (2)(3)  2,601   2,601   —   30,818   30,818   — 
Debt securities issued by states of the U.S. and political subdivisions of the states (4)(7)  127,656   —   127,656   93,932   —   93,932 
Investment in Regulus Therapeutics Inc.  24,792   24,792   — 
Total $771,630  $116,295  $655,335  $994,798  $117,080  $877,718 


(1)Included in cash and cash equivalents on our consolidated balance sheet.

(2)$50.2 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.

(3)Included in short-term investments on our consolidated balance sheet.

(3)$9.3
(4)$14.2 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.

(5)Included in other current assets on our consolidated balance sheet.

(6)$11.9 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.

(7)$3.5 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, withsheet. 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 difference included in short-term investmentsremaining balance to other expenses on our third quarter 2017 consolidated balance sheet.statement of operations.

(4)$7.5 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.F-22

In November 2014, we participated as a selling shareholder in Regulus' equity offering and as a result we were subject to trading restrictions on our remaining shares through January 2015. Therefore, our investment in Regulus included a lack of marketability discount, and as a result, we classified it as a Level 3 investment at the beginning of 2015. We determined the lack of marketability discount by using a Black-Scholes model to value a hypothetical put option to approximate the cost of hedging the stock until the restriction ends. We transferred these securities to Level 1 in the first quarter of 2015, when the trading restrictions ended.

The following is a summaryreconciliation of our investmentsthe 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 the year ended December 31, 20152017 (in thousands):

  
Year Ended
December 31,
 
  2015 
Beginning balance of Level 3 investments $81,881 
Transfers into Level 3 investments  — 
Total gains (losses) included in accumulated other comprehensive income (loss)  22,377 
Transfers out of Level 3 investments  (104,258)
Ending balance of Level 3 investments $— 
Year Ended
December 31, 2017
Beginning balance of Level 3 instruments$—
Value of 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)
Ending balance of Level 3 instruments$—

F-17
Income Taxes

Impact of recently issued accounting standards
In May 2014,We account for income taxes using the FASB issued accounting guidance onasset and liability method, which requires the recognition of revenue from customers. Under thisdeferred 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. We record a valuation allowance when necessary to reduce deferred tax assets to the amount we expect to realize.

We apply the authoritative accounting guidance an entityprescribing 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 recognize revenue when it transfers promised goodsbe sustained on audit, including resolution of related appeals or serviceslitigation processes, if any. The second step requires us to customers in anestimate and measure the tax benefit as the largest amount that reflects whatis more than 50 percent likely to be realized upon ultimate settlement.

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 entity expectsfinal 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 receiveuse significant judgment in exchangedetermining 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 goods or services. Underfeasibility of tax planning strategies and estimates of future taxable income. We base our estimates of future taxable income on assumptions that are consistent with our plans. The assumptions we use represent our best estimates and involve inherent uncertainties and the current accounting guidance,application of our judgment. Should actual amounts differ from our estimates, the amount of our tax expense and liabilities we recognize revenue from milestone paymentscould be materially impacted. We record a valuation allowance to reduce the balance of our net deferred tax assets to the amount we earn under the milestone method. Under the new guidance, the milestone method of revenue recognitionbelieve is eliminated. This new guidance also requires more detailed disclosuresmore-likely-than-not to enable users of the financial statementsbe realized. 

For U.S. federal income tax purposes, we are required to understand the nature, amount, timingfile separate U.S. federal income tax returns for Ionis and uncertainty of revenue and cash flows arising from contracts with customers. The guidance as originally issued is effectiveAkcea. We began deconsolidating Akcea for fiscal years, and interim periods within that year, beginning after December 15, 2016. In July 2015, the FASB issued updated accounting guidance to allow for an optional one year deferral from the original effective date.U.S. federal income tax purposes upon Akcea’s initial public offering. As a result, we will adopt this guidance beginning on January 1, 2018. The guidance allows usare required to select one of two methods of adoption, either the full retrospective approach, meaning the guidance would be applied to all periods presented, or modified retrospective approach, meaning the cumulative effect of applying the guidance would be recognized as an adjustment toassess our opening accumulated deficit balance. AsIonis stand-alone and Akcea’s valuation allowances separately even though we have a significant number of collaborations that span several years with associated revenue, we are currently evaluating which adoption method we will use and assessing the impact the adoption will have onconsolidate Akcea’s financial results in our consolidated financial statements and disclosures.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.

In August 2014, the FASB issued accounting guidance on how and whenWe have historically recorded a valuation allowance against all our net deferred tax assets due to disclose going-concern uncertaintiescumulative financial statement losses. However, in the financial statements. This guidance requiresfourth quarter of 2018, we reversed the valuation 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. Given our current stand-alone Ionis pre-tax income, and assuming we maintain this current level of Ionis stand-alone pre-tax income, we expect to generate income before taxes in the U.S. in future periods at a level that would result in us fully utilizing our U.S. federal net operating loss carryforwards and most of our Research and Development and Orphan Drug tax credit carryforwards over the next three years.

We continue to perform interimmaintain a full valuation allowance of $234.2 million against all of Akcea’s net deferred tax assets and annual assessmentsthe net state deferred tax assets of Ionis at December 31, 2018 due to determineuncertainties related to our ability to continuerealize the tax benefits associated with these assets.

We evaluate our deferred tax assets regularly to determine whether adjustments to the valuation allowance are appropriate due to changes in facts or circumstances, such as a going concern within one year from the date thatchanges in expected future pre-tax earnings, tax law, interactions with taxing authorities and developments in case law. In making this evaluation, we issue our financial statements. The guidance is effective for annual periods ending after December 15, 2016, and interim and annual periods thereafter. We adopted this guidance in these financial statements for our year ended December 31, 2016. This guidance did not have any effectrely on our consolidated financial statementsrecent history of pre-tax earnings. Our material assumptions are our forecasts of future pre-tax earnings and disclosures.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.

In January 2016, the FASB issued amended accounting guidance related to the recognition, measurement, presentation,We do not provide for a U.S. income tax liability and disclosureforeign withholding taxes on undistributed foreign earnings of certain financial instruments. The amended guidance requires us to measure and record equity investments, except those accounted for under the equity methodour foreign subsidiaries.

F-23
Impact 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 will adopt this guidance on January 1, 2018 and we will make any adjustments to beginning balances through a cumulative-effect adjustment to accumulated deficit on that date. We are currently determining the effects the adoption will have on our consolidated financial statements and disclosures.Recently Issued Accounting Standards

In February 2016, the FASB issued amended accounting guidance related to leasing,lease accounting, which requireswill 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 (lease liability) and an asset representing the underlying leased asset.asset (right of use asset). The new accounting guidance requires us to determine if our leases are operating or financing leases, similar to current accounting guidance.leases. We will record expense for operating type leases on a straight-line basis as an operating expense andexpense. If we determine a lease is a financing lease, we will record both interest and amortization expense for finance type leases as interest expense. The new lease standard is effective for annual and interimgenerally the expense will be higher in the earlier periods beginning after December 15, 2018, with early adoption permitted. We must adoptof 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 are currently assessing the timing of adoption as well as the effects it will have on our consolidated financial statements and disclosures.

In March 2016, the FASB issued amended guidance to simplify certain aspects of share-based payment accounting. Under the amended guidance, we will recognize excess tax benefits and tax deficiencies as income tax expense or benefit in our statement of operations on a prospective basis. As we have a valuation allowance, this change will impact our net operating loss carryforward and our valuation allowance disclosures. Additionally, we will classify excess tax benefits as an operating activity and classify amounts we withhold in shares for the payment of employee taxes as a financing activity on our statement of cash flows for each period we present. Lastly, the amended guidance allows us to account for forfeitures when they occur or continue to estimate them. We will continue to estimate our forfeitures. The amended share-based payment standard is effective for annual and interim periods beginning after December 15, 2016, with early adoption permitted in any interim or annual period.lease. We adopted this guidance on January 1, 2017.2019 and adjusted our opening balance sheet on that date. We elected the available practical expedients. The amended guidancemost significant impact was the recognition of right of use assets and lease liabilities for our operating leases. We are in the process of finalizing the impact of the adoption. The adoption will not have an impact on our financial results.consolidated statement of operations or statement of cash flows.

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 lifetime 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 adopt the new standard, we will make any adjustments to beginning balances through a cumulative-effect adjustment to accumulated deficit on that date. We plan to adopt this guidance on January 1, 2020. We are currently assessing the timing of adoption as well as the effects it will have on our consolidated financial statements and disclosures.

F-18
In February 2018, the FASB issued updated guidance for reclassification of tax effects from accumulated other comprehensive income (loss). The updated guidance gives entities an option to reclassify amounts included in accumulated other comprehensive income (loss) that under the Tax Act do not have a way to be relieved, and allows a one-time reclassification to retained earnings. The updated guidance is effective for all entities for fiscal years beginning after December 31, 2018, and interim periods within those fiscal years. We have decided not to record the reclassification adjustments provided by this guidance.

In June 2018, the FASB issued updated guidance to simplify the accounting for stock-based compensation expense for nonemployees. Specifically, we are now expensing grants to nonemployees in a similar manner as grants to employees. Previously, we had to re-value these grants at each reporting period to reflect the current fair value. Under the amended guidance, we value grants to nonemployees when we grant them and we will not adjust their value for future changes. We adopted this guidance in the second quarter of 2018. The updated guidance did not have a material impact to our financial results.

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). The clarifying guidance included the following:

1)When a participant is considered a customer in a collaborative arrangement, all of the associated accounting under Topic 606 should be applied;
2)Adds “unit of account” concept to collaboration accounting guidance to align with Topic 606. This is used to determine if revenue is recognized or if a contra expense is recognized from consideration received under a collaboration; and
3)Precludes revenue from being recognized under Topic 606 when a transaction with a collaborative partner is determined not be a customer and is not directly related to the sales to third parties.

The updated guidance is effective for public entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. We plan to adopt this guidance on January 1, 2020. We are currently assessing the effects it will have on our consolidated financial statements and disclosures.

2. Investments

As of December 31, 2016,2018, 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, 2016:2018:

One year or less 55 77%
After one year but within two years 32 20%
After two years but within three and aone half years 13 3%
Total 100%

As illustrated above, at December 31, 2016, 872018, 97 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.

F-24
At December 31, 2016,2018, we had an ownership interest of less than 20 percentin threefour private companies and two public companies with which we conduct business. The privately heldprivately-held companies are Atlantic Pharmaceuticals Limited, Kastle Therapeutics and Dynacure SAS, Seventh Sense Biosystems and theSuzhou Ribo Life Science Co, Ltd.The publicly traded companies are Antisense Therapeutics LimitedATL and Regulus. We account for equity investments in the privately held companies under the cost method of accounting and we account for equity investments in the publicly traded companies 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 2014, we realized a net gain on investments of $20.3 million, and $21.2 million, respectively. Our net gain for 2015 and 2014 was primarily from the $20.2 million and $19.9 million gain we realized when we sold a portion of our stock in Regulus, respectively. We have reflected this gain in a separate line called “Gain on investment in Regulus Therapeutics Inc.”, on our Consolidated Statements of Operations. During 2016, we recognized nominal gains from sales of our investments. As of December 31, 2016, our carrying balance of our investment in Regulus was $2.4 million on our consolidated balance sheet.

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

   Gross Unrealized   
December 31, 2016 
Cost (1)
  Gains  Losses  Estimated Fair Value 
December 31, 2018 
Cost (1)
  Gains  Losses  Fair Value 
Available-for-sale securities:                        
Corporate debt securities (2) $956,879  $13  $(1,858) $955,034 
Debt securities issued by U.S. government agencies  168,839   3   (104)  168,738 
Debt securities issued by the U.S. Treasury (2)  244,640   15   (77)  244,578 
Debt securities issued by states of the U.S. and political subdivisions of the states  63,572   —   (323)  63,249 
Total securities with a maturity of one year or less  1,433,930   31   (2,362)  1,431,599 
Corporate debt securities $195,087  $25  $(161) $194,951   299,018   194   (1,286)  297,926 
Debt securities issued by U.S. government agencies  26,548   —   (10)  26,538   107,789   194   (109)  107,874 
Debt securities issued by the U.S. Treasury  29,298   2   (14)  29,286   15,600   —   (24)  15,576 
Debt securities issued by states of the U.S. and political subdivisions of the states (2)  72,775   2   (134)  72,643 
Total securities with a maturity of one year or less  323,708   29   (319)  323,418 
Corporate debt securities  202,408   36   (1,174)  201,270 
Debt securities issued by U.S. government agencies  28,807   1   (167)  28,641 
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 

     Gross Unrealized  Estimated 
December 31, 2017 
Cost (1)
  Gains  Losses  Fair Value 
Available-for-sale securities:            
Corporate debt securities (2) $500,599  $2  $(752) $499,849 
Debt securities issued by U.S. government agencies  83,926   —   (212)  83,714 
Debt securities issued by the U.S. Treasury  29,428   —   (17)  29,411 
Debt securities issued by states of the U.S. and political subdivisions of the states (2)  29,240   4   (122)  29,122 
Total securities with a maturity of one year or less  643,193   6   (1,103)  642,096 
Corporate debt securities  148,663   8   (1,059)  147,612 
Debt securities issued by U.S. government agencies  52,779   —   (168)  52,611 
Debt securities issued by the U.S. Treasury  1,409   —   (2)  1,407 
Debt securities issued by states of the U.S. and political subdivisions of the states  65,550   —   (740)  64,810 
Total securities with a maturity of more than one year  268,401   8   (1,969)  266,440 
Total available-for-sale securities $911,594  $14  $(3,072) $908,536 

F-19



   Gross Unrealized   
December 31, 2015 
Cost (1)
  Gains  Losses  
Estimated
Fair Value
 
Available-for-sale securities:            
Corporate debt securities $181,670  $5  $(250) $181,425 
Debt securities issued by U.S. government agencies  50,559   1   (19)  50,541 
Debt securities issued by the U.S. Treasury  2,604   —   (3)  2,601 
Debt securities issued by states of the U.S. and political subdivisions of the states (2)  79,414   18   (88)  79,344 
Total securities with a maturity of one year or less  314,247   24   (360)  313,911 
Corporate debt securities  258,703   3   (1,705)  257,001 
Debt securities issued by U.S. government agencies  38,956   —   (244)  38,712 
Debt securities issued by states of the U.S. and political subdivisions of the states  48,552   3   (243)  48,312 
Total securities with a maturity of more than one year  346,211   6   (2,192)  344,025 
Total available-for-sale securities $660,458  $30  $(2,552) $657,936 
Equity securities:                
Regulus Therapeutics Inc. $7,162  $17,630  $—  $24,792 
Total equity securities $7,162  $17,630  $—  $24,792 
Total available-for-sale and equity securities $667,620  $17,660  $(2,552) $682,728 

(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)
We recognize our 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, 20162018 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  255  $280,393  $(1,197) $32,753  $(138) $313,146  $(1,335)  546  $1,000,461  $(1,936) $126,357  $(1,208) $1,126,818  $(3,144)
Debt securities issued by U.S. government agencies  29   43,851   (177)  —   —   43,851   (177)  50   161,312   (109)  34,403   (104)  195,715   (213)
Debt securities issued by the U.S. Treasury  2   18,782   (14)  —   —   18,782   (14)  36   183,212   (100)  1,413   (1)  184,625   (101)
Debt securities issued by states of the U.S. and political subdivisions of the states  135   80,896   (398)  6,934   (85)  87,830   (483)  49   13,868   (14)  62,883   (596)  76,751   (610)
Total temporarily impaired securities  421  $423,922  $(1,786) $39,687  $(223) $463,609  $(2,009)  681  $1,358,853  $(2,159) $225,056  $(1,909) $1,583,909  $(4,068)

F-25
We believe that the decline in value of theseour 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 theirour 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, 
 2016  2015  2018  2017 
1 percent convertible senior notes $500,511  $339,847  $568,215  $533,111 
2¾ percent convertible senior notes  124   49,523 
Long-term financing liability for leased facility  72,359   72,217 
Fixed rate note with Morgan Stanley  12,500   — 
Long-term mortgage debt  59,842   59,771 
Principal balance of fixed rate note with Morgan Stanley (1)  12,500   12,500 
Leases and other obligations  3,611   2,856   6,163   2,095 
Total $589,105  $464,443  $646,720  $607,477 
Less: current portion  (1,185)  (515)  (13,749)  (1,621)
Total Long-Term Obligations $587,920  $463,928  $632,971  $605,856 

F-20
(1)Our $12.5 million fixed rate note with Morgan Stanley is included in our current portion of long-term obligations on our consolidated balance sheet at December 31, 2018.

Convertible 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 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 the 2¾ percent notes was $61.2 million. We recognized an $8.3 million non-cash loss as a result of the early retirement of a portion of the 2¾ percent notes.

In December 2016, we issued an additional $185.5 million of 1 percent convertible senior notes in exchange for the redemption of $61.1 million of our 2¾ percent convertible senior notes. 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.

At December 31, 2016,2018, we had a nominal amount of our 2¾ percent convertible senior notes outstanding. At December 31, 20162018, we had the following 1 percent convertible senior notes outstanding (amounts in millions except price per share data):

  
1 Percent
Convertible Senior Notes
 
Outstanding balance $685.5 
Original issue date ($500 million of principal) November 2014 
Additional issue date ($185.5 million of principal) December 2016 
Maturity date November 2021 
Interest rate 1 percent 
Conversion price per share $66.81 
Total shares of common stock subject to conversion  10.3 

Interest is payable semi-annually in arrears on May 15 and November 15 of each year for the 1 percent notes. The 1 percent 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 notes are initially convertible into approximately 10.3 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 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 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.

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 Notes
Issued in November 2014
 
1 Percent
Convertible Senior Notes
Issued in December 2016
Nonconvertible debt borrowing rate7.4 percent 6.8 percent
Effective interest rate7.8 percent 7.2 percent
Amortization period of debt discount7 years 5 years

F-26
Interest expense for the yearyears ended December 31, 2018, 2017 and 2016 2015 and 2014 included $25.1$35.2 million, $23.2$32.5 million and $9.6$25.1 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,  December 31, 
 2016  2015  2018  2017 
            
Fair value of outstanding notes $700,969  $555,000  $724,966  $727,420 
Principal amount of convertible notes outstanding $685,450  $500,000  $685,450  $685,450 
Unamortized portion of debt discount $175,699  $152,786  $110,817  $144,112 
Long-term debt $500,511  $339,847  $568,215  $533,111 
Carrying value of equity component $219,011  $174,770  $219,011  $219,011 

F-21
Financing Arrangements

Financing ArrangementsLine 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. We amended the credit agreement in February 2016 to increase the amount available for us to borrow. Under the amended credit agreement, we can borrow up to a maximum of $30 million of revolving credit for general working capital purposes. Under the credit agreement interest is payable monthly in arrears on the 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 unused under the credit facility. As of December 31, 20162018, 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 werewe used to fund our capital equipment needs and is consistent with our historical practice to finance these costs.needs.

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 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 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 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.

F-27
Maturity Schedules

Annual debt and other obligation maturities, including fixed and determinable interest, at December 31, 20162018 are as follows (in thousands):

2017 $7,271 
2018  7,211 
2019  19,801  $22,067 
2020  6,915   9,330 
2021  692,365   694,774 
2022  2,809 
2023  3,494 
Thereafter  840   68,108 
Subtotal $734,403  $800,582 
Less: current portion  (52)  (12,890)
Less: fixed and determinable interest  (35,959)  (41,837)
Less: unamortized portion of debt discount  (175,721)  (111,426)
Plus: Deferred rent  2,130   4,960 
Total $524,801  $639,389 

Operating Leases

OperatingIonis Leases

We lease office, laboratory and manufacturing space under non-cancelable operating leases with terms through December 2031. We are located in three buildings in Carlsbad, California, which consists of laboratory, manufacturing and office space. Our facilities include a primary research and development facility, a manufacturing facility and a building adjacent to our manufacturing facility. We account for the lease of our primary research and development facility as a financing obligation as discussed below. Our manufacturing facility is used for our drug development business and was built to meet current Good Manufacturing Practices and the facility adjacent to our manufacturing facility that has laboratory and office space that we use to support our manufacturing activities. Thefacility. We lease for our manufacturing facility expires in 2031 and has four five-year options to extend. Under thethis space under a non-cancelable operating lease agreement, we have the option to purchase the facility at the end of each year from 2016 through 2020, and at the end of 2026 and 2031. The lease for the facility adjacent to our manufacturing facility haswith an initial term ending in June 2021 withand an option to extend the lease for up to two five-year periods.

Additionally, Akcea leaseswe lease office space that we sublease to Akcea. We lease this space under a non-cancelable operating lease with an initial term ending in a building in Cambridge, Massachusetts. TheJune 2023 and an option to extend the lease for one five-year period. The sublease with Akcea has a three-year term and expiresis eliminated in July 2018.our consolidated financial statements. We also lease office equipment under non-cancelable operating leases with terms through January 2019.2021.

Akcea Lease

On April 5, 2018, Akcea entered into an operating lease agreement for office space located in Boston, Massachusetts for its new corporate headquarters. The lease commencement date was August 15, 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. The letter of credit amount is included in deposits and other assets in our consolidated balance sheet.

Annual future minimum payments under our operating leases as of December 31, 20162018 are as follows (in thousands):

 
Operating
Leases
  
Operating
Leases
 
2017 $1,954 
2018  1,690 
2019  1,474  $3,129 
2020  1,527   3,008 
2021  1,411   2,725 
2022  2,539 
2023  2,505 
Thereafter  14,714   11,862 
Total minimum payments $22,770  $25,768 

F-22

Rent expense was $2.6 million, $1.7 million and $2.0 million each offor the years ended December 31, 20162018, 2017 and 2015. Rent expense for 2014 was $1.8 million.2016. We recognizerecognized 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, the office building that Akcea subleases and Akcea’s office space, which resulted in a deferred rent balance of $2.1$5.0 million and $2.0$0.1 million at December 31, 20162018 and 2015,2017, respectively.

Research and Development Facility Lease Obligation

F-28
In March 2010, we entered into a lease agreement with an affiliate of BioMed Realty, L.P., or BioMed. Under the lease, BioMed constructed our primary research and development facility in Carlsbad, California. The lease expires in 2031 and has four five-year options to extend. Under the lease agreement, we have the option to purchase the facility and land at the end of each year from 2016 through 2020, and at the end of 2026 and 2031. To gain early access to the facility, we agreed to modify our lease with BioMed to accept additional responsibility. As a result, we recorded the costs for the facility as a fixed asset and we also recorded a corresponding liability in our non-current liabilities as a long-term financing obligation. In July 2011, we took possession of the facility and began depreciating the cost of the facility over its economic useful life. At December 31, 2016 and 2015, the facility and associated parcel of land had a net book value of $60.0 million and $62.2 million, respectively, which included $12.1 million and $9.9 million, respectively, of accumulated depreciation. We are applying our rent payments, which began on January 1, 2012, against the liability over the term of the lease.

In conjunction with the lease agreement with BioMed, we purchased a parcel of land for $10.1 million and subsequently sold it to BioMed. Since we have the option to purchase the facility, including the land, we have continuing involvement in the land, which requires us to account for the purchase and sale of the land as a financing transaction. As such, our property, plant and equipment at December 31, 2016 and 2015 included the value of the land. Additionally, we have recorded a corresponding amount in our non-current liabilities as a long-term financing obligation. Since land is not a depreciable asset, the value of the land and financing obligation we recorded will not change until we exercise our purchase option or the lease terminates.

Annual future rent payments as of December 31, 2016 for our primary research and development facility are as follows (in thousands):

  
Future Rent
Payments
 
2017 $6,550 
2018  6,943 
2019  6,943 
2020  7,359 
2021  7,359 
Thereafter  83,846 
Total minimum payments $119,000 

4. Stockholders’Stockholders’ Equity

Preferred Stock

We are authorized to issue up to 15,000,000 shares of “blank check” Preferred Stock. As of December 31, 2016,2018, there were no shares of Preferred Stock outstanding. We have designated Series C Junior Participating Preferred Stock but have no issued or outstanding shares as of December 31, 2016.2018.

Common Stock

At December 31, 20162018 and 2015,2017, we had 300,000,000 shares of common stock authorized, of which 121,636,273137,928,828 and 120,351,480124,976,373 were issued and outstanding, respectively. As of December 31, 2016,2018, total common shares reserved for future issuance were 14,703,837.14,839,373.

During the years ended December 31, 2016, 20152018, 2017 and 2014,2016, we issued 1,285,000, 1,908,0001,451,000, 1,709,000 and 1,972,0001,285,000 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 $27.9 million, $22.9 million and $13.7 million $24.9 millionin 2018, 2017 and $23.1 million in 2016, 2015 and 2014, respectively.

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 20,000,000 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, 2016,2018, a total of 2,732,089848,753 options were outstanding, of which options to purchase 2,542,372831,656 shares were exercisable, and 25,55242,925 shares were available for future grant under the 1989 Plan.
F-23

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, 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 5,500,000 to 11,000,000.11,000,000 in June 2015 and from 11,000,000 to 16,000,000 in May 2017. 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, 2016,2018, a total of 5,830,0789,705,441 options were outstanding, of which 1,827,2644,801,904 were exercisable, 737,1131,183,154 restricted stock unit awards were outstanding, and 3,661,5383,340,351 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 our 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 one 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.

F-29
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 1,200,000 to 2,000,000. Options under this plan expire ten years from the date of grant. Options granted become exercisable in four equal annual installments beginning one year after the date of grant. At December 31, 2016,2018, a total of 615,812757,750 options were outstanding, of which 368,877437,750 were exercisable, 41,15163,099 restricted stock unit awards were outstanding, and 747,869420,762 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 3,374,596 million3,674,596 shares authorized under the plan as of December 31, 2016.2018. 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 2016,2018, employees purchased and we issued to employees 46,05143,416 shares under the ESPP at a weighted average price of $30.47$39.03 per share. At December 31, 2016,2018, there were 585,713774,816 shares available for purchase under the ESPP.

F-24

Stock Option Activity

The following table summarizes the stock option activity under our stock plans for the year ended December 31, 20162018 (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, 2015  8,041  $33.21     
Outstanding at December 31, 2017  9,397  $44.52       
Granted  2,428  $54.79       3,518  $48.40       
Exercised  (994) $12.63       (1,064) $17.78       
Cancelled/forfeited/expired  (297) $53.65       (540) $52.47       
Outstanding at December 31, 2016  9,178  $40.48   4.46  $122,738 
Exercisable at December 31, 2016  4,898  $28.73   3.40  $107,969 
Outstanding at December 31, 2018  11,311  $47.85   4.41  $93,663 
Exercisable at December 31, 2018  6,071  $46.83   3.22  $63,756 

The weighted-average estimated fair values of options granted were $26.72, $27.44$25.49, $25.42 and $17.54$26.72 for the years ended December 31, 2016, 20152018, 2017 and 2014,2016, respectively. The total intrinsic value of options exercised during the years ended December 31, 2018, 2017 and 2016 2015 and 2014 were $28.0$34.8 million, $84.7$49.5 million and $62.8$28.0 million, respectively, which we determined as of the date of exercise. The amount of cash received from the exercise of stock options was $12.6$18.9 million, $23.6$21.2 million and $22.4$12.6 million for the years ended December 31, 2016, 20152018, 2017 and 2014,2016, respectively. For the year ended December 31, 2016,2018, the weighted-average fair value of options exercised was $40.83.$50.50. As of December 31, 2016,2018, total unrecognized compensation cost related to non-vested stock-based compensation plans was $48.1$118.3 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 1.11.2 years.

F-30
Restricted Stock Unit Activity

The following table summarizes the RSU activity for the year ended December 31, 20162018 (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, 2015  751  $47.47 
Non-vested at December 31, 2017  863  $49.55 
Granted  346  $41.79   789  $51.06 
Vested  (270) $39.22   (324) $50.21 
Cancelled/forfeited  (49) $49.38   (82) $51.59 
Non-vested at December 31, 2016  778  $47.68 
Non-vested at December 31, 2018  1,246  $50.20 

For the years ended December 31, 2016, 20152018, 2017 and 2014,2016, the weighted-average grant date fair value of RSUs granted was $41.79, $65.69$51.06, $48.88 and $44.94$41.79 per RSU, respectively. As of December 31, 2016,2018, total unrecognized compensation cost related to RSUs was $13.3$27.9 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 1.21.4 years.

Stock-based Compensation Expense and Valuation Information

The following table summarizes stock-based compensation expense for the years ended December 31, 2016, 20152018, 2017 and 20142016 (in thousands), which was allocated as follows and includes $10.1$44.3 million, $17.5 million and $6.5$10.1 million of stock-based compensation expense for Akcea employees in 20162018, 2017 and 2015,2016, respectively:

 
Year Ended
December 31,
 
 2016 2015 2014 
Research, development and patents $55,099  $43,638  $25,843 
General and administrative  17,009   15,676   5,540 
Total $72,108  $59,314  $31,383 
  Year Ended December 31, 
  2018  2017  2016 
Cost of products sold $160  $—  $— 
Research, development and patent  76,557   64,521   55,099 
Selling, general and administrative  54,595   21,454   17,009 
Total $131,312  $85,975  $72,108 


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.

F-25

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), an entity recognizeswe 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, 2016, 20152018, 2017 and 2014,2016, we used the following weighted-average assumptions in our Black-Scholes calculations:

Employee Stock Options:

December 31, December 31, 
2016 2015 2014 2018  2017  2016 
Risk-free interest rate1.5 % 1.5 % 1.7 %  2.4%  1.8%  1.5%
Dividend yield0.0 % 0.0 % 0.0 %  0.0%  0.0%  0.0%
Volatility58.7 % 53.8 % 50.1 %  63.0%  65.9%  58.7%
Expected life4.5 years 4.5 years 4.7 years 4.6 years  4.5 years  4.5 years 

Board of Director Stock Options:

December 31, December 31, 
2016 2015 2014 2018  2017  2016 
Risk-free interest rate1.3 % 2.1 % 2.2 %  2.8%  2.2%  1.3%
Dividend yield0.0 % 0.0 % 0.0 %  0.0%  0.0%  0.0%
Volatility53.1 % 52.2 % 54.2 %  61.5%  61.2%  53.1%
Expected life6.5 years 6.9 years 6.9 years 6.6 years  6.6 years  6.5 years 

F-31
ESPP:

December 31, December 31, 
2016 2015 2014 2018  2017  2016 
Risk-free interest rate0.4 % 0.1 % 0.1 %  1.8%  0.8%  0.4%
Dividend yield0.0 % 0.0 % 0.0 %  0.0%  0.0%  0.0%
Volatility86.4 % 51.7 % 60.1 %  47.3%  59.9%  86.4%
Expected life6 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 historical forfeiture estimates have not been materially different from our actual forfeitures.

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, 2018, 2017 and 2016:

Employee Stock Options:

  December 31, 
  2018  2017  2016 
Risk-free interest rate  2.8%  1.9%  1.6%
Dividend yield  0.0%  0.0%  0.0%
Volatility  77.1%  79.5%  71.4%
Expected life 6.08 years  6.06 years  6.08 years 

Board of Director Stock Options:

  December 31, 
  2018  2017  2016 
Risk-free interest rate  2.9%  1.9%  2.0%
Dividend yield  0.0%  0.0%  0.0%
Volatility  78.2%  79.4%  79.6%
Expected life 6.42 years  6.25 years  6.08 years 

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 volatility 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 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.

F-32
5. Income Taxes

The provisions for
Loss before income taxes ontax (benefit) expense is comprised of (in thousands):

  Year Ended December 31, 
  2018  2017  2016 
United States $(69,576) $(5,289) $(57,466)
Foreign  (6,580)  (11,474)  — 
Loss before income tax (benefit) expense $(76,156) $(16,763) $(57,466)

Our income from continuing operations weretax (benefit) expense was as follows (in thousands):

 Year Ended December 31,  Year Ended December 31, 
 2016  2015  2014  2018  2017  2016 
Current:                  
Federal $1,067  $379  $263  $438  $(7,460) $1,067 
State  1,867   (7)  (4,295)  (1,442)  1,246   1,867 
Total current  2,934   372   (4,032)
Foreign  374   234   — 
Total current income tax (benefit) expense  (630)  (5,980)  2,934 
                        
Deferred:                        
Federal  —   —   (8,948)  (290,511)  —   — 
State  —   —   (2,427)  —   —   — 
Total deferred  —   —   (11,375)
Income tax expense (benefit) $2,934  $372  $(15,407)
Total deferred income tax (benefit) expense  (290,511)  —   — 
Total income tax (benefit) expense $(291,141) $(5,980) $2,934 

F-26


In periods in which we have a year-to-date pre-tax loss from continuing operations and pre-tax income in other categories of earnings, such as other comprehensive income, intraperiod tax allocation rules require us to allocate the tax provision to the other categories of earnings. We then record a related tax benefit in continuing operations. During 2016 and 2015, we recorded unrealized losses on our investments in available-for-sale securities in other comprehensive income, therefore we did not have to allocate our tax provision to our other categories of earnings. However, during 2014, we recorded unrealized gains on our investments in available-for-sale securities and had to allocate our tax provision between continuing operations and other comprehensive income. As a result, for the year ended December 31, 2014, we recorded a $12.8 million tax benefit, in continuing operations and a $12.8 million tax expense, in other comprehensive income.

The reconciliation between our effective tax rate on loss from continuing operations and the statutory U.S. tax rate is as follows (in thousands):

 Year Ended December 31,  Year Ended December 31, 
 2016  2015  2014  2018  2017  2016 
Pre-tax loss $(83,622)    $(87,906)    $(54,391)    $(76,156)    $(16,763)    $(57,466)   
                                          
Statutory rate  (29,268)  35.0%  (30,767)  35.0%  (19,035)  35.0%  (15,993)  21.0%  (5,867)  35.0%  (20,113)  35.0%
State income tax net of federal benefit  (276)  0.3%  1   0.0%  (3,125)  5.7%  (2,202)  2.9%  820   (4.9)%  95   (0.2)%
Foreign  1,735   (2.3)%  4,299   (25.6)%  —   0.0%
Net change in valuation allowance  55,927   (66.9)%  69,499   (79.1)%  29,547   (54.3)%  (277,924)  364.9%  (86,296)  514.8%  46,402   (80.7)%
Loss on debt extinguishment  —   0.0%  —   0.0%  2,406   (4.4)%
Net operating loss expiration  8,864   (11.6)%  3,987   (23.8)%  —   0.0%
TEGSEDI licensing gain  59,583   (78.2)%  —   0.0%  —   0.0%
Tax credits  (26,954)  32.2%  (41,284)  47.0%  (23,628)  43.4%  (73,362)  96.3%  (32,769)  195.5%  (26,954)  46.9%
California franchise tax refund  —   0.0%  —   0.0%  (2,795)  5.1%
Deferred tax true-up  2,591   (3.1)%  1,496   (1.7)%  977   (1.8)%  9,947   (13.1)%  4,848   (28.9)%  2,591   (4.5)%
Tax rate change  (1,808)  2.4%  114,832   (685.0)%  —   0.0%
Non-deductible compensation  3,154   (4.1)%  1,575   (9.4)%  825   (1.4)%
Other non-deductible items  (569)  0.7%  2,548   (15.2)%  324   (0.6)%
Akcea deconsolidation adjustment at IPO  —   0.0%  469   (2.8)%  —   0.0%
Stock-based compensation  (4,199)  5.5%  (14,337)  85.5%  —   0.0%
Other  914   (1.1)%  1,427   (1.6)%  246   (0.5)%  1,633   (2.1)%  (89)  0.5%  (236)  0.4%
Effective rate $2,934   (3.5)% $372   (0.4)% $(15,407)  28.2% $(291,141)  382.3% $(5,980)  35.7% $2,934   (5.1)%

F-33
Significant components of our deferred tax assets and liabilities as of December 31, 20162018 and 20152017 are as follows (in thousands):

 Year Ended December 31,  Year Ended December 31, 
 2016  2015  2018  2017 
Deferred Tax Assets:            
Net operating loss carryovers $194,372  $218,493  $89,717  $153,575 
R&D credits  193,845   153,601   313,652   240,290 
Deferred revenue  54,203   45,110   27,381   54,302 
Stock-based compensation  48,209   31,093   61,027   40,090 
Intangible and capital assets  49,007   672 
Other  26,228   19,655   8,275   12,164 
Total deferred tax assets $516,857  $467,952  $549,059  $501,093 
                
Deferred Tax Liabilities:                
Convertible debt $(62,669) $(55,928) $(24,018) $(32,391)
Unrealized gain in other comprehensive income  -   (5,288)
Intangible and capital assets  (2,030)  (2,643)
Net deferred tax asset $452,158  $404,093  $525,041  $468,702 
Valuation allowance  (452,158)  (404,093)  (234,245)  (468,702)
                
Net deferreds $—  $— 
Total net deferred tax assets and liabilities $290,796  $— 

We have adjusted all prior year tax amounts to reflect the tax impact of our adoption of Topic 606.

We evaluate our deferred tax assets regularly 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 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 relating primarilydue 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. Given our current stand-alone Ionis pre-tax income, and assuming we maintain this current level of Ionis stand-alone pre-tax income, we expect to generate income before taxes in the U.S. in future periods at a level that would result in us fully utilizing our U.S. federal net operating loss carryforwards or NOL’s, and researchmost of our Research and developmentDevelopment and Orphan Drug tax credit carryforwards. Subjectcarryforwards over the next three years.

We continue to certain limitations, we may use these deferred tax assets to offset taxable income in future periods. Since we have a history of losses and the likelihood of future profitability is not assured as it pertains to the income tax accounting rules, we have providedmaintain a full valuation allowance for theof $234.2 million against all of Akcea’s net deferred tax assets in our balance sheet as of December 31, 2016. If we determine that we are able to realize a portion or all of theseand the net state deferred tax assets inof Ionis at December 31, 2018 due to uncertainties related to our ability to realize the future, we will record an adjustment to increase their recorded value and a corresponding adjustment to increase income or additional paid in capital, as appropriate, in that same period.

Historically, we recognized excess tax benefits associated with share-based compensationthese assets.

Our valuation allowance decreased by $234.5 million from December 31, 2017 to stockholders' equity only when realized. We followedDecember 31, 2018.  The net decrease relates primarily to the with-and-without approach excluding any indirect effectsreversal of the excess tax deductions to determine when we should realize excess tax benefits relating to share-based compensation. Under this approach, we did not realize our excess tax benefits related to share-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, wevaluation allowance previously recorded a corresponding credit to additional paid-in capital.
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In March 2016, the FASB issued amended guidance to simplify certain aspects of share-based payment accounting which affects how we account for unrecognized tax benefits. As of December 31, 2016, we had $82.5 million of unrealized excess tax benefits associated with share-based compensation. We adopted this amended guidance on January 1, 2017. Upon adoption we will recognize the balance of these unrecognized tax benefits as aagainst Ionis’ stand-alone U.S. federal net deferred tax asset which will beassets, offset by current year utilization of a portion of our full valuation allowance. The adoption of this guidance did not affect our accumulated loss.net operating loss carry forwards.

At December 31, 2016,2018, we had federal and state, primarily California, tax net operating loss carryforwards of approximately $679.8$284.6 million and $973.1$808.7 million, respectively. Our federal tax loss carryforwards will begin to expire in 2024,2033, unless we use them before then. Our California loss carryforwards continuecontinued to expire in 2016.2018. At December 31, 20162018, we also had federal and California research and development tax credit carryforwards of approximately $189.6$288.9 million and $48.0$68.4 million, respectively. Our Federal research and development tax credit carryforwards beginbegan to expire in 2018. 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.

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 made broad and complex changes to the U.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 and 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 the year of enactment. In order to calculate these effects, we were required to determine the transition tax amount, remeasure our U.S. deferred tax assets and liabilities, and consider the impact to our AMT tax credit carryforwards. For the year ended December 31, 2017, we recorded provisional amounts in accordance with that guidance where it was possible for us to make reasonable estimates of the effects of the Tax Act. We evaluated the decrease in our corporate tax rate and recorded a provisional, one-time tax expense of $107.3 million at December 31, 2017. We fully offset our tax effect by a decrease in our valuation allowance which resulted in no net tax effect in 2017. During the fourth quarter of 2018, we completed our accounting for all aspects of the Tax Act. We did not identify material changes from our 2017 provisional analysis.

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We analyze filing positions in all of theU.S. federal, state and stateforeign 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):

 Year Ended December 31,  Years Ended December 31, 
 2016  2015  2014  2018  2017  2016 
Beginning balance of unrecognized tax benefits $51,257  $27,365  $23,964  $78,014  $66,999  $51,257 
Settlement of prior period tax positions  (4,033)  —   —   —   —   (4,033)
Decrease for prior period tax positions  —   —   (1,653)  (12,814)  —   — 
Increase for prior period tax positions  7,928   215   —   —   1,520   7,928 
Increase for current period tax positions  11,847   23,677   5,054   3,101   9,495   11,847 
Ending balance of unrecognized tax benefits $66,999  $51,257  $27,365  $68,301  $78,014  $66,999 

Included in the balance of unrecognized tax benefits at December 31, 2016,2018, is $46.4$55.5 million that if recognized, would notcould impact our income tax benefit or effective tax rate, as long as our deferred tax asset remains subject to a fullour remaining valuation 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 not recognize any accrued interest and penalties related to gross unrecognized tax benefits during the year ended December 31, 2016.2018.

Due to the carryforward of unutilized net operating losses and research and development credits, weWe are subject to taxation in the United StatesU.S. and various state and foreign jurisdictions. Our tax years for 1998 and forward1999 through 2018 are subject to examination by the U.S. federal, state and foreign tax authoritiesauthorities.

We do not provide for a U.S. income tax liability and foreign withholding taxes on undistributed foreign earnings of our foreign subsidiaries as we consider those earnings to be permanently reinvested. It is not practicable for us to calculate the amount of unrecognized deferred tax years for 2003 and forwardliabilities associated with these earnings.

We are subject to examinationperiodic audits by domestic and foreign tax authorities; however, we are not aware of any audits at this time. We believe that we have appropriate support for the Californiaincome tax authorities.positions taken on our tax returns and our accruals for tax liabilities are adequate for all open audit years. Our conclusions are based on an assessment of many factors, including past experience and interpretations of tax law applied to the facts of each matter.

6. Collaborative Arrangements and Licensing Agreements

Strategic Partnerships

AstraZeneca

Cardiometabolic and Renal Diseases Partnership

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 a preclinical program and the option to license a drug for each target advanced under this research collaboration. Upon acceptance of a drug development candidate, AstraZeneca will be responsible for all further global development, regulatory and commercialization activities for such drug. 

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. In December 2016, we earned a $25 million milestone payment when we moved the first development candidate into preclinical development, IONIS-AZ4-2.5-LRx, our first generation 2.5 plus LIgand-Conjugated Antisense, or LICA, drug. 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.
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Oncology Partnership

In December 2012, we entered into a collaboration agreement with AstraZeneca to discover and develop antisense drugs for 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 a separate research program. 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 patients with advanced metastatic hepatocellular carcinoma and advanced lymphoma. AstraZeneca is evaluating IONIS-STAT3-2.5Rx in combination with MEDI4736, AstraZeneca's investigational anti-PD-L1 drug, in patients with head and neck cancer and in patients with diffuse large B cell lymphoma. For 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 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 are recognizing 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 2016, we have received $76 million in milestone payments and upfront fees under this oncology collaboration, not including the $15 million milestone payment and $13 million license fee we earned for IONIS-KRAS-2.5Rx in December 2016. 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 2016, 2015 and 2014 we earned revenue of $64.9 million, $6.4 million and $27.7 million, respectively, from our relationship with AstraZeneca, which represented 19 percent, 2 percent and 13 percent, respectively, of our total revenue for those periods. Our balance sheets at December 31, 2016 and 2015 included deferred revenue of $51.5 million and $63.3 million, respectively, related to our relationship with AstraZeneca.

Biogen

We have fourseveral 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 recently approved drugmedicine to treat pediatric and adult patientspeople 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. Additionally, we and Biogen are currently developing foursix other drugsmedicines to treat neurodegenerative diseases under these collaborations, including IONIS-SOD1Rx for ALS, IONIS-MAPTRx for Alzheimer’s disease, IONIS-C9Rx for ALS, and IONIS-BIIB6Rx, IONIS-BIIB7Rxand three drugsIONIS-BIIB8Rx to treat undisclosed neurodegenerative diseases, IONIS-BIIB4Rx,IONIS-BIIB5Rx and IONIS-BIIB6Rx.diseases. In addition to these drugs,medicines, we and Biogen are evaluating numerous additional targets to develop drugsmedicines to treat neurological diseases. In April 2018, we entered into a new strategic collaboration for the treatment of neurological diseases with Biogen. From inception through December 2016,2018, we have received nearly $500 millionover $2.0 billion from our Biogen collaborations, not including the $60 million milestone payment we earned for the FDA’s approval of SPINRAZA that$1 billion we received from Biogen in February 2017.the second quarter of 2018 for our 2018 strategic neurology collaboration.

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Spinal Muscular Atrophy Collaborations

SPINRAZA (nusinersen)

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 2019 that SPINRAZA was approved in over 40 countries around the world. In December 2016, the FDAFebruary 2019, SPINRAZA was approved SPINRAZA for the treatment of SMA in pediatric and adult patients. SPINRAZA is currently under Accelerated Assessment with the EMA for marketing authorization.China. Biogen is responsible for all further global development, regulatory and commercialization activities and costs for SPINRAZA.
F-29SPINRAZA commercial activities.

Under the terms of our collaboration agreement,From inception through December 2018, we received an upfront payment of $29earned more than $785 million in January 2012, which we amortized through December 2016. Over the term of thetotal revenue under our SPINRAZA collaboration, we are eligible to receive up to $346including more than $350 million in a license feerevenue from SPINRAZA royalties and payments, including up to $121more than $435 million in substantive milestone and other payments associated with the clinical development of SPINRAZA prior to licensing and up to $150 million in substantive milestone payments if Biogen achieves pre-specified regulatory milestones.R&D revenue. We are also eligible to receivereceiving tiered royalties upranging from 11 percent to the mid-teens15 percent on any net sales of SPINRAZA. We have exclusively in-licensed patents related to SPINRAZA from Cold Spring Harbor Laboratory and the University of Massachusetts. We are obligated to pay Cold Spring Harbor Laboratory and the University of Massachusetts nominal amounts for license fees and milestone payments we receive and a low single digit royalty on net sales of SPINRAZA. From inception through December 2016, we have received $259 million in payments for advancing SPINRAZA, including the $75 million license fee we received from Biogen when Biogen licensed SPINRAZA, which we recognized as revenue in the third quarter of 2016. Additionally in February 2017, we received a $60 million substantive milestone payment that we earned in December 2016. We will earn the next milestone payment of up to $50 millionif Biogen receives regulatory approval in Europe or Japan for SPINRAZA.

IONIS-DMPK-2.5Rx

In June 2012, we and Biogen entered into a second and separate collaboration agreement to develop and commercialize a novel antisense drug, IONIS-DMPK-2.5Rx, targeting DMPK for the treatment of myotonic dystrophy type 1, or DM1. We areis responsible for global development of the drug through the completion of the first Phase 2 clinical trial. We completed a Phase 1/2 clinical study in patients with DM1. Based on the data reported in December 2016, we plan to pursue a more potent drug using our LICA technology. From inception through December 2016, we have received nearly $39 million in payments for advancing IONIS-DMPK-2.5Rx.

Neurology

In December 2012, we and Biogen entered into a separate 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-BIIB4Rx under this collaboration. If Biogen exercises its option for a drug, it will assume all further global development, regulatory and commercialization responsibilitiesactivities and costs for that drug. SPINRAZA.

Over the course of our SPINRAZA collaboration, we identified two performance obligations, which were to perform R&D services and to deliver the SPINRAZA license to Biogen. 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 through December 2016. We recognized the $75 million license fee for SPINRAZA as revenue when we delivered the license to Biogen in July 2016 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.

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 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 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 terms of thecollaboration agreement, we received ana $25 million upfront payment of $30 million, which we are amortizing throughin December 2020. Over2017. We will receive development and regulatory milestone payments from Biogen if new medicines advance towards marketing approval. In total over the term of theour collaboration, we are eligible to receive up to $259 million$1.2 billion in a license fee and substantivefees, milestone payments per program. We are eligible to receiveand other payments, including up to $59$80 million infor the achievement of development milestone payments to support research and development of each program, including amounts related to the cost of clinical trials. We are also eligible to receivemilestones, up to $130$180 million in milestone payments per program if Biogen achieves pre-specified regulatoryfor the achievement of commercialization milestones and up to $800 million for the achievement of sales milestones. In addition, we are eligible to receive tiered royalties from the mid-teens to mid-20 percent range on net sales. We will achieve the next payment of up to $60 millionfor the license of a medicine under this collaboration.

At the commencement of this collaboration, we identified one 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. 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 2020.

Neurology Collaborations

2018 Strategic Neurology

In April 2018, we and Biogen entered into a new strategic collaboration to develop novel antisense medicines for a broad range of neurological diseases and entered into a 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 for 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 mid-teens 20 percent range on sales from any drugs resulting from each of the three programs.net sales. From inception through December 2016,2018, we have received $43over $1 billion in payments under this collaboration, including $15 million we received in milestone payments and upfront feesthe fourth quarter of 2018 for advancing two targets under this collaboration. We will earnachieve the next milestone payment of up$7.5 million if Biogen designates a target under this collaboration.

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At the commencement of this collaboration, we identified one performance obligation, which was to $10perform 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 continued developmentpremium paid by Biogen for its purchase of IONIS-BIIB4Rx.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. We allocated the transaction price to our single performance obligation. In the fourth quarter of 2018, we received $15 million in milestone payments when we advanced two targets under this collaboration. We added these payments to our transaction price for our R&D services 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 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. In October 2016, we expanded our collaboration to include additional research activities we will perform. If Biogen exercises its option for a drug,medicine, it will assume all further global development, regulatory and commercialization responsibilities and costs for that drug.medicine. We are currently advancing three drugs,five medicines, IONIS-SOD1Rx, IONIS-BIIB5IONIS-C9Rx, IONIS-BIIB6Rx, IONIS-BIIB7Rxand IONIS-BIIB6IONIS-BIIB8Rx under this collaboration. In the fourth quarter of 2018, Biogen will belicensed IONIS-SOD1Rx, and as a result Biogen now is responsible for all of the drug discoveryfurther global development, regulatory and developmentcommercialization activities and costs for drugs using other modalities.IONIS-SOD1Rx.

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 through 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 2018, we have received over $210 million in upfront fees, milestone payments and other payments under this collaboration, not including a $5 million milestone payment we earned in the fourth quarter of 2018 for Biogen’s initiation of a Proof of Concept study for IONIS-SOD1Rx which we received in the first quarter of 2019. 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 one 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. We currently estimate we will satisfy our performance obligation in September 2019. From inception through December 2018, we have included $145 million in total payments in the transaction price for our R&D services performance obligation. In the third quarter of 2018, we earned a $10 million milestone payment when Biogen initiated a Phase 1 study of IONIS-C9Rx. We concluded that the milestone payment was not related to our R&D services performance obligation. Therefore, we recognized this milestone payment in full in the third quarter of 2018 because we do not have any performance obligations related to this milestone payment.

We identified a second performance obligation upon Biogen’s license of IONIS-SOD1Rx in the fourth quarter of 2018 because the license we granted to Biogen is distinct from our other performance obligation. We recognized the $35 million license fee for IONIS-SOD1Rx 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. Additionally, in the fourth quarter of 2018 we earned a $5 million milestone when Biogen initiated a Proof-of-Concept study for IONIS-SOD1Rx. We concluded that the milestone payment was not related to our R&D services performance obligation. Therefore, we recognized this milestone payment in full in the fourth quarter of 2018 because we do not have any performance obligations related to this milestone payment.

Neurology

In December 2012, we and Biogen entered into a collaboration agreement to develop and commercialize novel antisense medicines to up to three 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 under this collaboration. If Biogen exercises its option for a medicine, it will assume all further global development, regulatory and commercialization responsibilities and costs for that medicine. 

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 three programs. From inception through December 2018, we have received $58 million in milestone payments and upfront fees under this collaboration. We will achieve the next payment of $7.5 million if we continue to advance IONIS-MAPTRx.

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At the commencement of this collaboration, we identified one performance obligation, which was to perform R&D services for Biogen. At inception, we determined the transaction price to be the $30 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 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 2020. From inception through December 2018, we have included $40 million in total payments in the transaction price for our R&D services performance obligation.

During the years ended December 31, 2018, 2017 and 2016, we earned the following revenue from our relationship with Biogen (in millions, except percentage amounts):

  Years Ended December 31, 
  2018  2017  2016 
     (as revised) 
SPINRAZA royalties (commercial revenue) $237.9  $112.5  $0.9 
R&D revenue  137.1   150.6   248.8 
Total revenue from our relationship with Biogen  375.0   263.1   249.7 
Percentage of total revenue  63%  51%  67%

Our consolidated balance sheet at December 31, 2018 and 2017 included deferred revenue of $580.9 million and $93.6 million, respectively, related to our relationship with Biogen.

Research, Development and Commercialization Partners

AstraZeneca

Cardiac, Renal and Metabolic Diseases Collaboration

In July 2015, we and AstraZeneca formed a collaboration to discover and develop antisense therapies for treating cardiac, renal and metabolic diseases. Under our collaboration, AstraZeneca has licensed three 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, IONIS-AZ5-2.5Rx, a medicine we designed to treat a genetically associated form of kidney disease and IONIS-AZ6-2.5-LRx, 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 other future medicines AstraZeneca licenses.

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. From inception through December 2018, we have received over $165 million in upfront fees, license fees, milestone payments, and other payments under this collaboration, including a $10 million milestone payment we earned in the third quarter of 2018 when AstraZeneca initiated a Phase 1 trial for IONIS-AZ4-2.5-LRx. We will achieve the next payment of $10 million under this collaboration if we advance a medicine under this collaboration.

At the commencement of this collaboration, we identified one 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 2018, we have included $90 million in payments in the transaction price for our R&D services performance obligation.

We identified separate performance obligations upon AstraZeneca’s license of IONIS-AZ5-2.5Rx and IONIS-AZ6-2.5-LRx in the first quarter of 2018 because the licenses are distinct from our other performance obligation and each other. We recognized each $30 million license fee in the first quarter of 2018 because AstraZeneca had full use of the licenses without any continuing involvement from us. Additionally, we did not have any further performance obligations related to the licenses after we delivered them to AstraZeneca.

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. We concluded that the milestone payment was not related to our R&D services performance obligation. Therefore, we recognized this milestone payment in full in the third quarter of 2018 because we do not have any performance obligations related to this milestone payment.

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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 (formerly IONIS-STAT3-2.5Rx) for the treatment of cancer. AstraZeneca is now 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 drug, 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 for 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 IONIS-AZ7-2.5Rx to our preclinical pipeline, a second drug 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 another medicine 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 2016,2018, we have received $142over $125 million in upfront fees, milestone payments, and other payments under this oncology collaboration, including nearly $30 million in milestone payments we achieved when AstraZeneca advanced danvatirsen and upfront fees under this collaboration.IONIS-AZ7-2.5Rx, in the fourth quarter of 2018. We will earnachieve the next milestone payment of up to $10$25 million if we choose another target to advance a medicine under this collaboration.our cancer research program with AstraZeneca.

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At the commencement of this collaboration, we identified four performance obligations. We determined the transaction price to be the $31 million upfront payments we received. We allocated the transaction price based on the estimated stand-alone selling price of each of our performance obligations and recognized the associated revenue over the period of our performance. We recognized revenue for three of our obligations over our period of performance, which concluded in March 2014. Our remaining performance obligation was to perform R&D services. We allocated $7.6 million to this performance obligation and recognized the associated revenue over the period of our performance, which ended in February 2018. 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.

EachIn the fourth quarter of 2018, we earned a $17.5 million milestone payment and a $10 million milestone payment when AstraZeneca advanced two programs under our agreements with Biogen will continue untilcollaboration. We recognized these milestone payments in full in the earlier offourth quarter because we do not have any performance obligations related to these milestone payments.

During 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, 2018, 2017 and 2016, 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 2016, 2015 and 2014, we earned revenue of $207.9 million, $106.2 million and $123.2 million, respectively, from our relationship with Biogen, which represented 60 percent, 37 percent and 58 percent, respectively, of our total revenue for those periods. AstraZeneca (in millions, except percentage amounts):

  Years Ended December 31, 
  2018  2017  2016 
     (as revised) 
R&D revenue $120.7  $21.6  $41.3 
Percentage of total revenue  20%  4%  11%

Our consolidated balance sheetssheet at December 31, 20162018 and 20152017 included deferred revenue of $67.5$40.1 million and $91.6$57.7 million, respectively, related to our relationship with Biogen.AstraZeneca.

Research, Development and Commercialization Partners
Bayer

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 patientspeople 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 will receivereceived a $75 million payment from Bayer. We plan to conductare conducting a Phase 2b study evaluating IONIS-FXIRx in patientspeople with end-stage renal disease on hemodialysis to finalize dose selection. Additionally, we plan to rapidly developare developing IONIS-FXI-LRx through Phase 1. Following these studies and Bayer'sBayer’s decision to further advance these programs, Bayer will be responsible for all global development, regulatory and commercialization activities and costs for both drugs. medicines. 

We are eligible to receive additional milestone payments as each drugmedicine advances toward the market. In total over the term of ourthis collaboration, we are eligible to receive up to $385 million in license fees, 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 2018, we have received over $175 million from our Bayer collaboration. We will earnachieve the next milestone payment of $10 million if we advance a program advances under this collaboration.

Our agreement with Bayer will continue until
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At the expirationcommencement of allthis collaboration, we identified three performance obligations. We determined the transaction price to be the $100 million upfront payment we received. We allocated the transaction price based on the relative stand-alone selling prices of each of our performance obligations underand recognized the agreement. In addition, the agreement, or any program under the agreement, may terminate early under the following situations:associated revenue as follows:

●
We recognized $91.2 million for the exclusive license of IONIS-FXIRx in May 2015 because Bayer may terminatehad full use of the agreement orlicense without any program at any time by providing written notice to us;continuing involvement from us.
●Either
We recognized $4.3 million for the R&D services for IONIS-FXIRx over the period of our performance, which ended in November 2016.
●We allocated $4.5 million for API, which we or Bayer may terminateare recognizing into revenue as we deliver 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.API.

In February 2017, when we amended our collaboration with Bayer, we identified two new performance obligations, one for the license of IONIS-FXI-LRx and one 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 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 stand-alone selling price. 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 R&D services performance obligation in May 2019.

During 2016the years ended December 31, 2018, 2017 and 20152016, we earned the following revenue of $5.4 million and $93.4 million, respectively, from our relationship with Bayer which represented two percent and 33 percent, respectively, of our total revenue for those periods. (in millions, except percentage amounts):

  Years Ended December 31, 
  2018  2017  2016 
     (as revised) 
R&D revenue $5.0  $67.1  $5.4 
Percentage of total revenue  1%  13%  1%

Our consolidated balance sheet at December 31, 20162018 and 20152017 included deferred revenue of $1.4$4.3 million and $6.7$9.3 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. Our alliance currently comprises four drugs in development, includingUnder the terms of the agreement, we received upfront payments of $35 million.

GSK is advancing two medicines targeting hepatitis B virus, or HBV, under our Phase 3 drug IONIS-TTRRx. We are currently conducting a Phase 3 study for IONIS-TTRcollaboration: IONIS-HBVRx and we plan to report data from this study in the second quarter of 2017.IONIS-HBV-LRx. GSK has the exclusive option to license drugs resulting from this alliance afteris currently conducting Phase 2 proof-of-conceptstudies for a license fee, including IONIS-TTRRx. If GSK exercises its exclusive option for any drugs resulting from this alliance, it will be responsible for all further global development, regulatory and commercialization activities for such drug.

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In October 2012, we and GSK amended the original agreement to reflect an accelerated clinical development plan for IONIS-TTRRx. We have completed enrollment in the Phase 3 study we are conducting in patients with TTR familial amyloid polyneuropathy, or FAP. From inception through December 2016, we have earned $70 million from GSK related to the developmentboth of IONIS-TTRRx, primarily in milestone payments. In addition, under the amended agreement, we and GSK increased the regulatory and commercial milestone payments we can earn should IONIS-TTRRx receive marketing authorization and meet pre-agreed sales targets.

In addition to IONIS-TTRRx, we have three drugs in development with GSK, including two antisense drugsthese medicines, which we designed to reduce the production of viral proteins associated with hepatitis B virus, or HBV infection; IONIS-HBVRx and IONIS-HBV-LRx, a follow-on drug using our LICA technology.infection. GSK is currently developing IONIS-HBVRx and IONIS-HBV-LRx, and if GSK exercises itshas the exclusive option to license the medicines resulting from this alliance at Phase 2 proof-of-concept for either of these drugs, it will be responsible for all further global development, regulatory and commercialization activities. We are also developing IONIS-GSK4-LRx which is an antisense drug we designed to treat an ocular disease.a license fee.

Under the terms of the agreement, we received $38 million in upfront and expansion payments, which we are amortizing through September 2017. Under our agreement, if GSK successfully develops all four drugs for one or more indicationsthese medicines and achieves pre-agreed sales targets, we could receive license fees and substantive milestone payments of up to nearly $900$262 million, including up to $157.5$47.5 million for the achievement of development milestones, up to $338.5$120 million for the achievement of regulatory milestones and up to $255$70 million for the achievement of commercialization milestones. Through December 2016, we have received $155 million in milestone payments and upfront fees under this alliance with GSK. We will earn the next milestone payment of up to $1.5 million if we further advance a program under this collaboration and we will earn a payment of $45 million if GSK licenses IONIS-TTRRx. 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 December 2018, we have received more than $162 million in payments under this alliance with GSK. We will achieve the next payment of up to $25 million if GSK licenses a medicine under this program.

Our allianceAt the commencement of this collaboration, we identified one performance obligation, which was to perform R&D services for GSK. We determined the transaction price to be the $35 million upfront payments 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 March 2015. We do not have any remaining performance obligations under our collaboration with GSK, will continue untilhowever we can still earn additional payments and royalties as GSK advances these medicines.

During the earlier of the date that all of GSK's options to obtain the exclusive licenses under the agreement expire unexercised or, if GSK exercises its option, until 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, 2018, 2017 and 2016, we earned the following situations:

●
GSK may terminate any program, other than the IONIS-TTRRx program, at any time by providing written notice to us;
●
GSK may terminate the IONIS-TTRRx program by providing written notice to us after reviewing specific data from the Phase 3 study for the program; 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 2016, 2015 and 2014, we earned revenue of $12.3 million, $33.3 million and $37.3 million respectively, from our relationship with GSK which represented four percent, 12 percent and 17 percent, respectively, of(in millions, except percentage amounts):

  Years Ended December 31, 
  2018  2017  2016 
     (as revised) 
R&D revenue $1.6  $14.8  $17.5 
Percentage of total revenue  0%  3%  5%

We did not have any deferred revenue from our total revenue for those years. Our balance sheetsrelationship with GSK at December 31, 2016 and 2015 included deferred revenue of $2.1 million and $4.9 million, respectively, related to our relationship with GSK.2018 or December 31, 2017.

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Janssen Biotech, Inc., a pharmaceutical company of Johnson & Johnson

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 gastrointestinal tract. Janssen has the option to license drugsmedicines from us through the designation of a development candidate for up to three programs. Under our collaboration, Janssen licensed IONIS-JBI1-2.5Rx in July 2016 and IONIS-JBI2-2.5Rx in November 2017. Janssen is currently conducting a Phase 1 study of IONIS-JBI1-2.5Rx and IONIS-JBI2-2.5Rx is in preclinical development. Prior to option exercise we are responsible for the discovery activities to identify a development candidate.candidates. If Janssen exercises an option for oneany of the programs, it will be responsible for the global development, regulatory and commercial activities under that program. Under the terms of the agreement, we received $35 million in upfront payments, which we are amortizing through December 2018.payments. We are eligible to receive up to nearlymore than $800 million in license fees and substantive milestone payments for these programs, including up to $175 million for the achievement of development milestones, up to $420$440 million for the achievement of regulatory milestones and up to $180 million for the achievement of commercialization milestones. ThroughFrom inception through December 2016,2018, we have received $47over $75 million, including the $10$15 million in license fee we earned in July 2016fees when Janssen licensed IONIS-JBI1-2.5Rx and IONIS-JBI2-2.5Rxfrom us, which we recognized as revenue in the third quarter of 2016.us. We also earned areceived $5 million milestone payment in December 2016 when Janssen selectedJanuary 2018 for the initiation of a development candidate for a second program.Phase 1 study of IONIS-JBI1-2.5Rx in late 2017. 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.

Our agreement withAt the commencement of this collaboration, we identified one 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.

We identified separate performance obligations each time Janssen will continue untillicensed one of our medicines under our collaboration because the earlierlicenses we granted to Janssen were distinct from our other performance obligations. We recognized the $10 million license fee for IONIS-JBI1-2.5Rx in July 2016 and $5 million for the license of IONIS-JBI2-2.5Rx in November 2017, because Janssen had full use of the date that all of Janssen’s options to obtain the exclusive licenses under the agreement expire unexercised or, if Janssen exercises its option, until the expiration of all payment obligations under the agreement. In addition, the agreement, orwithout any program under the agreement, may terminate early under the following situations:

●Janssen may terminate the agreement or any program at any time by providing written notice to us; and
●Either we or Janssen 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, or the entire agreement if the other party becomes insolvent.

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During 2016 and 2015 we earned revenue of $27.3 million and $8.9 million, respectively,continuing involvement from our relationship with Janssen. During 2014us. Additionally, we did not earnhave any further performance obligations related to the licenses after we delivered them to Janssen.

During the years ended December 31, 2018, 2017 and 2016, we earned the following revenue from our relationship with Janssen. Our balance sheetJanssen (in millions, except percentage amounts):

  Years Ended December 31, 
  2018  2017  2016 
     (as revised) 
R&D revenue $6.6  $36.0  $24.8 
Percentage of total revenue  1%  7%  7%

We did not have any deferred revenue from our relationship with Janssen at December 31, 20162018 and 2015 included deferred revenue of $17.5 million and $26.3 million, respectively, related to our relationship with Janssen.2017.

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, option and license agreement, Novartis has an exclusive option to develop and commercialize these drugs. Akcea is responsible for completing a Phase 2 dose ranging study and conducting an end-of-Phase 2 meeting with the FDA 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 for each drug.

Akcea will receive a $75 million upfront payment, of which Akcea will retain $60 million and will pay us $15 million as a sublicense fee under our license agreement with Akcea. Beginning in 2017, we and Akcea will recognize revenue from this collaboration with Novartis. If Novartis exercises its option for a drug, Novartis will pay Akcea a license fee equal to $150 million for each drug it licenses. In addition, Akcea is eligible to receive up to $600 million and $530 million in milestone payments related to AKCEA-APO(a)-LRx and AKCEA-APOCIII-LRx, respectively. Akcea retains the right to co-commercialize any such drug through its specialized sales force focused on lipid specialists in selected markets. 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.

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 or our patents.

Additionally, in January 2017, we and Akcea entered into a stock purchase agreement, or SPA, with Novartis. Under the SPA, Novartis purchased 1,631,435 shares of our common stock for $100 million. Additionally, the SPA requires Novartis to purchase an additional $50 million of common stock in the future. The additional purchase will be for either our stock or Akcea’s stock.

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 Huntington'sHuntington’s disease, or HD, based on our antisense technology. Roche hashad the option to license the drugsmedicines from us through the completion of the first Phase 1 trial. Under the agreement, we are responsible for the discovery and development of an antisense drugmedicine targeting huntingtin, or HTT, protein. We are currently evaluatingevaluated a drugmedicine targeting HTT, IONIS-HTTRx, in a Phase 1/2 clinical study in patientspeople with early stage HD. If

In December 2017, upon completion of the Phase 1/2 study, Roche exercisesexercised its option it will beto license IONIS-HTTRx and is now responsible for the global development, regulatory and commercialization activities for any drug arising out of the collaboration.IONIS-HTTRx. Under the terms of the agreement, we received an upfront payment of $30 million in April 2013, which we are amortizing through April 2017.2013. In December 2016, we updated development activities for IONIS-HTTRx and as a result we arewere eligible for an additional $3 million payment.payment, which we achieved in 2017. We are eligible to receive up to $365 million in a license fee and substantive milestone payments including up to $70 million for the achievement of development milestones, up to $170 million for the 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 drugmedicine successfully developed. We are also eligible to receive tiered royalties up to the mid-teens on any net sales of any product resulting from this alliance. ThroughFrom inception through December 2016,2018, we have received $53.6over $112 million in upfront fees, milestone payments and license fees for advancing IONIS-HTTRx, not including $35 million in milestone payments and upfront fees under this alliance with Roche.we earned in the first quarter of 2019 when Roche dosed the first patient in a Phase 3 study for IONIS-HTTRx. We will earnachieve the next milestone payment of $10$15 million if Roche initiatesadvances IONIS-HTTRx.

At the commencement of this collaboration, we identified one 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.

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We identified a second performance obligation upon Roche’s license of IONIS-HTTRx in the fourth quarter of 2017 because the license we granted to Roche is distinct from our other performance obligation. We recognized the $45 million license fee for IONIS-HTTRx as revenue at that time because Roche 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 Roche.

We do not have any remaining performance obligations related to IONIS-HTTRx under this collaboration with Roche, however we can still earn additional payments and royalties as Roche advances IONIS-HTTRx.

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. The first indication we plan to pursue is the treatment of patients with Geographic Atrophy, or GA, the advanced stage of dry age-related macular degeneration, or AMD. We are responsible for conducting a Phase 2 trialstudy in patients with dry AMD. In addition, we are exploring the medicine in a severe and rare renal indication. Roche has the option to license IONIS-FB-LRx at the completion of these studies. Upon licensing, Roche will be responsible for IONIS-HTTRx.all further global development, regulatory and commercialization activities and costs.

Our alliance with Roche will continue untilUnder the earlierterms of the date Roche's optionthis agreement, we received a $75 million upfront payment in October 2018. We are eligible to obtain the exclusivereceive up to $684 million in development, regulatory and sales milestone payments and license under the agreement expires unexercised or, if Roche exercises its option, until the expiration of all payment obligations under the agreement.fees. In addition, we are also eligible to receive tiered royalties from the agreement may terminate early underhigh teens to twenty 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 one 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 the years ended December 31, 2018, 2017 and 2016, we 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 2016, 2015 and 2014, we earned revenue of $7.1 million, $31.2 million and $8.7 million, respectively from our relationship with Roche which represented two percent, 11 percent and four percent, respectively, of our total revenue for those years. (in millions, except percentage amounts):

  Years Ended December 31, 
  2018  2017  2016 
     (as revised) 
R&D revenue $8.3  $55.7  $10.7 
Percentage of total revenue  1%  11%  3%

Ourconsolidated balance sheet at December 31, 2016 and 20152018 included deferred revenue of $1.7$72.6 million and $8.8 million, respectively related to our relationship with Roche. We did not have any deferred revenue related to our relationship with Roche at December 31, 2017.

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Akcea Collaborations


The following collaboration agreements relate to Akcea, our majority-owned affiliate. Our consolidated results include all the revenue earned and cash received under these collaboration agreements. We reflect the noncontrolling interest attributable to other owners of Akcea’s common stock in a separate line on the statement of operations and in a separate line within stockholders’ equity in our consolidated balance sheet.

Satellite Company PartnershipsNovartis

Achaogen, Inc.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 further 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 initial quantities of API for each medicine. If Novartis exercises an option for either of these medicines, Novartis will be responsible for all further global development, regulatory and co-commercialization activities and costs for such medicine.

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. In 2006,February 2019, Novartis licensed AKCEA-APO(a)-LRx and we exclusively licensedearned a $150 million license fee. Akcea will pay us $75 million as a sublicense fee in 2.8 million shares of Akcea common stock. Novartis is responsible for conducting and funding all future development, regulatory and commercialization activities for AKCEA-APO(a)-LRx, including a global pivotal cardiovascular outcomes study, for which planning and initiation activities are underway. If Novartis exercises its option for AKCEA-APOCIII-LRx, Novartis will pay Akcea a license fee equal to Achaogen, Inc. specific know-how, patents and patent applications relating$150 million. In addition, for AKCEA-APO(a)-LRx, Akcea is eligible 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$675 million in milestone payments, including $25 million for the achievement of key clinical, regulatory and sales events. In December 2016, Achaogen announced positive data for its CARE Phase 3 study for plazomicin and that its EPIC Phase 3 study met its primary endpoints. Achaogen plans to submit an NDA, which will include EPIC and CARE data, to the FDA in the second half of 2017 and also plans to submit an MAA to the EMA in 2018. Through December 2016, we have earned $7 million ina development milestone, payments from Achaogen, including a $4 million milestone payment we earned in September 2014 when Achaogen initiated a Phase 3 study of plazomicin. 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 and commercialization of plazomicin.

During 2016 and 2015, we did not earn any revenue from our relationship with Achaogen. During 2014, we earned revenue of $4 million from our relationship with Achaogen and we sold all of the Achaogen stock we owned resulting in net proceeds of $1.3 million.

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 $0.4 million if Alnylam initiates a Phase 1 study for a drug in Alnylam’s 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. Through December 2016, we have received over $70 million from Alnylam.

During 2016, 2015 and 2014, we earned revenue from our relationship with Alnylam totaling $1.1 million, $1.3 million and $9.9 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 patients 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, 2016 and 2015, we owned less than 10 percent of ATL’s equity. During 2016, 2015 and 2014, we did not earn any revenue from our relationship with ATL. 

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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 January 2017, Atlantic announced that it received agreement from the FDA to initiate a rolling submission of its NDA for alicaforsen. 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 if Atlantic Pharmaceuticals submits an NDA for alicaforsen with the FDA. In 2010, Atlantic Pharmaceuticals began supplying alicaforsen under international named patient supply regulations for patients 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, 2016 and 2015, we owned approximately 9 percent and 11 percent, respectively, of Atlantic Pharmaceuticals’ equity. Because the payments were made in equity, we did not record any revenue. During 2016 we did not earn any revenue and during 2015 and 2014, 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 will share research responsibilities and to identify a drug candidate. Upon exercising its option to license the drug, Dynacure will assume all responsibility for development and commercialization. Under the terms of the agreement, we obtained a 15 percent equity ownership in Dynacure. 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 including up to $34.5 million for the achievement of development milestones, up to $111$290 million for the achievement of regulatory milestones and up to $60$360 million for the achievement of commercialization milestones. In addition, we arefor AKCEA-APOCIII-LRx, Akcea is eligible to receive royalties on future product sales of the drug under this collaboration. We will receive an additional equity positionup to $530 million in Dynacure if Dynacure initiates a Phase 1 study for a target under this collaboration. During 2016, we did not earn any revenue from our relationship with Dynacure.

OncoGenex Technologies Inc., a subsidiary of OncoGenex Pharmaceuticals Inc.

In January 2005, we entered into an agreement with OncoGenex to allow for the development of an antisense anti-cancer drug, apatorsen. OncoGenex and collaborators are evaluating apatorsen in multiple Phase 2 studies in patients with cancer. OncoGenex is responsible for all development costs and activities. OncoGenex will pay us milestone payments, totaling up to $5.8including $25 million for the achievement of keya development and regulatory milestones, includingmilestone, up to $1.3 million for the achievement of development milestones and up to $4.5$240 million for the achievement of regulatory milestones and up to $265 million for the achievement of commercialization milestones. In addition, we areAkcea is also eligible to receive tiered royalties in the mid-teens to low 20 percent range on future productnet sales of apatorsen. WeAKCEA-APO(a)-LRx and AKCEA-APOCIII-LRx. Akcea will earnpay 50 percent of these license fees, milestone payments and royalties to us as a sublicense fee. In connection with Novartis’ license of AKCEA-APO(a)-LRx, Akcea and Novartis established a more definitive framework under which the nextcompanies 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 paymentpayments based on sales of $1.3 millionAKCEA-APO(a)-LRx. Akcea may co-commercialize IONIS-APOCIII-LRx if OncoGenex initiates a Phase 3 study for apatorsen.licensed and commercialized by Novartis in selected markets through its specialized sales force under terms and conditions to be negotiated with Novartis in the future.

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In early 2017, OncoGenex Pharmaceuticals, Inc.conjunction with this collaboration, we entered into a definitive merger agreement under which OncoGenex will acquire Achieve Life SciencesSPA 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 all-stock transaction. The merger isIPO 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 its IPO at a price per share equal to the IPO price.

At the commencement of this collaboration, we identified four separate performance obligations:

●
R&D services for AKCEA-APO(a)-LRx;
●
R&D services for AKCEA-APOCIII-LRx;
●
API for AKCEA-APO(a)-LRx; and
●
API for AKCEA-APOCIII-LRx.

We determined that the R&D services for each medicine and the API for each medicine were distinct from our other performance obligations.

We determined our transaction price to be $108.4 million, comprised of the following:

●$75 million from the upfront payment;
●$28.4 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 allocated the transaction price based on the estimated stand-alone selling price of each performance obligation as follows:

●
$64.0 million for the R&D services for AKCEA-APO(a)-LRx;
●
$40.1 million for the R&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 revenue related to the R&D services for the AKCEA-APO(a)-LRx and AKCEA-APOCIII-LRx performance obligations as we perform services based on our effort to satisfy our performance obligation relative to our total effort expected to close mid-2017. Upon closing OncoGenex Pharmaceuticals, Inc.satisfy our performance obligation. We satisfied the significant portion of our performance obligation for AKCEA-APO(a)-LRx in December 2018 and we currently estimate we will be renamed Achieve Life Sciences, Inc.satisfy the remainder by mid-2019. We currently estimate we will satisfy the significant portion of our performance obligation for AKCEA-APOCIII-LRx by mid-2020 with the remainder by the end of 2019. We recognized the amount attributed to the API supply for AKCEA-APO(a)-LRx when we delivered it to Novartis in 2017. We recognized the amount attributed to the API supply for AKCEA-APOCIII-LRx when we delivered it to Novartis in May 2018.

Akcea is responsible for the development activities under this collaboration. As such, Akcea is recognizing the associated revenue in its statement of operations, and we reflect all of Akcea’s revenue in our consolidated results. Akcea pays us sublicense fees for payments that it receives under the collaboration 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 this sublicense revenue and expense. Any cash Akcea receives is included in our consolidated balance sheet.

During 2016the years ended December 31, 2018 and 2017, we earned $1.4 million inthe following revenue from our relationship with OncoGenex. During 2015Novartis (in millions, except percentage amounts):

  Years Ended December 31, 
  2018  2017 
     (as revised) 
R&D revenue $50.6  $43.4 
Percentage of total revenue  8%  8%

Our consolidated balance sheet at December 31, 2018 and 2014, we did not earn any2017 included deferred revenue fromof $28.8 million and $70.7 million, respectively, related to our relationship with OncoGenex.

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 focuses its drug discovery and development efforts in numerous therapeutic areas, including cancer, fibrosis, and viral infections. Regulus currently has three drugs in clinical development. Regulus is evaluating RG-101 in a Phase 2 study in patients with HCV and in a Phase 1 study in patients with severe renal insufficiency or end-stage renal disease. Regulus is also evaluating RG-012 in a Phase 1 study to treat patients with Alport syndrome. Regulus and AstraZeneca are also evaluating RG-125 in a Phase 1 study for the treatment of NASH in patients with type 2 diabetes or pre-diabetes. We are eligible to receive royalties on any future product sales of these drugs.

F-35Novartis.

During 2016, 2015 and 2014, we did not earn any revenue from our relationship with Regulus. During 2016, we sold a portion of our Regulus stock for proceeds of $4.5 million. During 2015 and 2014, we sold a portion of our Regulus stock, resulting in a gain of $20.2 million and $19.9 million, respectively, and proceeds of $25.5 million and $22.9 million, respectively. As of December 31, 2016, we owned approximately 1.1 million shares, with a net carrying value of $2.4 million. In January 2017, we sold our remaining investment in Regulus.

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 will work together to validate novel “undruggable” cancer targets selected based on human genomic data. We will lead the drug discovery efforts against mutually agreed upon novel targets and MD Anderson will lead 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. We made payments of $5 million and $3 million to CHDI in 2015 and 2013, respectively, associated with the progression of our Huntington’s disease program. If we achieve pre-specified milestones under our collaboration with Roche, we will make additional research related payments to CHDI up to $4 million, upon completion of our Phase 1/2 study of IONIS-HTTRx. If Roche licenses IONIS-HTTRx,we will make an additional payment to CHDI.

During 2016 and 2014, 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 and we are eligible to receive additional milestone payments 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 $0.5 million if we further advance IONIS-ENAC-2.5Rx.

During 2016 we earned $0.6 million 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.

Intellectual Property Sale and Licensing Agreements

Sales of Intellectual Property

Abbott Molecular Inc.

In January 2009, we sold our former subsidiary, Ibis Biosciences, to Abbott Molecular Inc., or AMI, pursuant to a stock purchase agreement for a total acquisition price of $215 million plus the earn out payments described below.

Under the stock purchase agreement, we are eligible to receive earn out payments from AMI equal to a percentage of Ibis’ revenue related to sales of Ibis systems, which AMI launched in 2014 as IRIDICA, including instruments, assay kits and successor products. Once cumulative net sales reach $140 million, and through December 31, 2025, we are eligible to earn out payments in any year that net sales exceed $50 million for the applicable year. The earn out payments will equal five percent of Ibis’ cumulative net sales over $140 million and up to $2.1 billion, and three percent of Ibis’ cumulative net sales over $2.1 billion. AMI may reduce these earn out payments from five percent to as low as 2.5 percent and from three percent to as low as 1.5 percent, respectively, upon the occurrence of certain events. During 2016, 2015 and 2014, we did not earn any revenue from our relationship with AMI.

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KastlePTC Therapeutics

In May 2016, weAugust 2018, Akcea entered into an exclusive license agreement with Kastle under which Kastle acquired the global rightsPTC Therapeutics to developcommercialize TEGSEDI and commercialize Kynamro. Kynamro is approvedWAYLIVRA in the United States for use in patients with homozygous familial hypercholesterolemia to reduce low density lipoprotein-cholesterol, apolipoprotein B, total cholesterol and non-high density lipoprotein-cholesterol as an adjunct to lipid lowering medications and diet. We previously licensed Kynamro to Sanofi Genzyme. As a result, Sanofi Genzyme earns a three percent royalty on sales of Kynamro and three percent of non-royalty cash payments we receive from Kastle.Latin America. Under the terms of ourlicense agreement, with Kastle, we areAkcea is eligible to receive up to $95$26 million in payments, including $12 million which includes a $15 million upfront payment weit received in May 2016, a $10the third quarter of 2018, $6 million payment we are entitled to receive in May 2019upon the earlier of FDA or EMA approval of WAYLIVRA and up to $70$8 million for regulatory milestones. Akcea is eligible to receive royalties from PTC in the mid-20 percent range on net sales in Latin America for each medicine. PTC’s obligation to pay 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 sales milestones. In December 2016,Latin America. Consistent with the agreements between Ionis and Akcea, the companies will share all payments, including royalties.

At the commencement of this collaboration, we amendedidentified two performance obligations, which were the licenses Akcea granted to PTC to commercialize TEGSEDI and WAYLIVRA in Latin America in the third quarter of 2018. Akcea recognized $12 million in license fee revenue at that time because PTC had full use of both 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 medicines.

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Akcea was responsible for the activities under this collaboration. As such, Akcea is recognizing the associated revenue in its statement of operations, and we reflect all of Akcea’s revenue in our agreement with Kastle. As a resultconsolidated results. Akcea pays us sublicense fees for payments that it receives under the collaboration and we recognize those fees as revenue in our Ionis Core operating segment results and Akcea recognizes the fees as SG&A expense. For example, during the third quarter of 2018, we recognized $7.2 million of sublicense revenue in our Ionis Core operating segment results related to our portion of the amendment, through 2017, Kastle will only pay us the three percent royaltyPTC license fee Akcea paid us. In our consolidated results, we owe Sanofi Genzyme on sales of Kynamro. Beginningeliminate this sublicense revenue and expense. Any cash Akcea receives is included in 2018, we will be eligible to earn tiered royalties on global sales of Kynamro that average in the mid to low teens, increasing slightly in years 2020 and 2021. In addition in May 2016, we received a 10 percent common equity position in Kastle. Because realization of our equity position is uncertain, we recorded a full valuation allowance.consolidated balance sheet.

During 2016, we earned
Our consolidated balance sheet at December 31, 2018 and 2017 did not include any deferred revenue of $15.1 million fromrelated to our relationship with Kastle.PTC.

In-Licensing Arrangements

External Project Funding
University of Massachusetts

We are pursuing discovery and development projects that provide us with new therapeutic applications for antisense medicines. These programs represent opportunities for us and our technology. In some cases, we have a license agreement withfunded these studies through support from our partners or disease advocacy groups and foundations. Our External Project Funding partners include the University of Massachusetts under which we acquired an exclusive license to the University of Massachusetts’ patent rights related to SPINRAZA. We are obligated to pay the University of Massachusetts nominal amounts for license fees and milestone payments we receive and a low single digit royalty on sales of SPINRAZA.following:

Cold Spring Harbor Laboratory
●
CHDI Foundation- Through our development collaboration, CHDI provided financial and scientific support to our Huntington’s disease drug discovery program. We have reimbursed CHDI for its support of our Huntington’s disease program out of the payments we receive from Roche.
●
Cystic Fibrosis Foundation- We received upfront funding from the Cystic Fibrosis Foundation to discover and advance a medicine for the treatment of cystic fibrosis. In exchange for this funding, we are obligated to pay the Cystic Fibrosis Foundation up to $18 million upon achieving specific regulatory and sales events if we advance a medicine under our collaboration.
●
The Ludwig Institute; Center for Neurological Studies- We have a collaboration with the Ludwig Institute, the Center for Neurological Studies and researchers to discover and develop antisense medicines 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 medicines resulting from the collaboration.

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. If we successfully develop and commercialize a drug incorporating the technology we licensed from the Cold Spring Harbor Laboratory, we will pay a portion of any sublicense revenue and post licensing milestone payments we receive in consideration for sublicensing the Cold Spring Harbor Laboratory’s technology up to $11.3 million and a low single digit royalty on sales of SPINRAZA. During 2016, we paid Cold Spring Harbor Laboratory $3.4 million.
In-Licensing Agreements

Our in-licensing arrangements include:

●
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 net 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 net sales of SPINRAZA. Additionally, we owe a low single digit royalty on future sales of SPINRAZA.

7. Segment Information and Concentration of Business Risk

In 2015, we began reporting our financial results inWe have two reportable segments Ionis Core and Akcea Therapeutics, our whollyTherapeutics. At December 31, 2018, we owned subsidiary.approximately 75 percent of Akcea. Segment lossincome (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.

We formed Akcea to developis a biopharmaceutical company focused on developing and commercialize drugscommercializing medicines to treat patients with rare and serious cardiometabolic diseases caused by lipid disorders. Moving our lipid drugs into a company that we own ensures that our core focus at Ionis remains on innovation while allowing us to maintain control over and retain more value from our lipid drugs. Through 2016, Akcea had not earned any revenue, however in 2017, Akcea will begin recognizing revenue related to its collaboration with Novartis..

The following is our segment information for 2016, 2015 and 2014 (in thousands).

2016 Ionis Core  Akcea Therapeutics  Elimination of Intercompany Activity  Total 
Revenue:            
Research and development $338,546  $—  $(12,648) $325,898 
Licensing and royalty  20,722   —   —   20,722 
Total segment revenue $359,268  $—  $(12,648) $346,620 
Income (loss) from operations $37,196  $(83,512) $—  $(46,316)

2015 Ionis Core  Akcea Therapeutics  Elimination of Intercompany Activity  Total 
Revenue:            
Research and development $284,135  $—  $(2,775) $281,360 
Licensing and royalty  2,343   —   —   2,343 
Total segment revenue $286,478  $—  $(2,775) $283,703 
Loss from operations $(23,014) $(52,748) $—  $(75,762)

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The following tables show our segment revenue and income (loss) from operations for 2018, 2017 and 2016 (in thousands), respectively.

2014 Ionis Core  Akcea Therapeutics  Total 
Revenue:         
Research and development $202,514  $—  $202,514 
Licensing and royalty  11,647   —   11,647 
Total segment revenue $214,161  $—  $214,161 
Loss from operations $(26,033) $(21,697) $(47,730)
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 (as revised) 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 

2016 (as revised) Ionis Core  Akcea Therapeutics  
Elimination of
Intercompany Activity
  Total 
Revenue:            
Commercial revenue:            
SPINRAZA royalties $883  $—  $—  $883 
Licensing and other royalty revenue  21,884   —   —   21,884 
Total commercial revenue  22,767   —   —   22,767 
R&D revenue under collaborative agreements  362,657   —   (12,648)  350,009 
Total segment revenue $385,424  $—  $(12,648) $372,776 
Total operating expenses $322,192  $83,512  $(12,768) $392,936 
Income (loss) from operations $63,232  $(83,512) $120  $(20,160)

The following table shows our total assets by segment at December 31, 20162018 and 20152017 (in thousands), respectively.

Total Assets Ionis Core  Akcea Therapeutics  
Elimination of
Intercompany Activity
  Total 
December 31, 2016 $1,067,770  $10,684  $(165,987) $912,467 
December 31, 2015 $994,191  $66,068  $(112,359) $947,900 
Total Assets Ionis Core  Akcea Therapeutics  
Elimination of
Intercompany Activity
  Total 
December 31, 2018 $2,975,491  $365,261  $(672,968) $2,667,784 
December 31, 2017 (as revised) $1,342,578  $268,804  $(288,608) $1,322,774 

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:

 2016 2015 2014
Partner A 60 %  37 %  58 %
Partner B 19 %  2 %  13 %
Partner C 4 %  12 %  17 %
Partner D 2 %  33 %  0 %
Partner E 2 %  11 %  4 %

Contracts receivables at December 31, 20162018 and December 31, 20152017 were comprised of approximately 9299 percent and 9984  percent for each year from four and two significant partners, respectively.

8. Employment Benefits

We have an employee 401(k) salary deferral plan, covering all employees. Employees maycould make contributions by withholding a percentage of their salary up to the IRS annual limit $18,000$18,500 and $24,000$24,500 in 20162018 for employees under 50 years old and employees 50 years old or over, respectively. We made approximately $1.7$5.7 million, $1.5$3.0 million and $1.0$1.7 million in matching contributions for the years ended December 31, 2016, 20152018, 2017 and 2014,2016, respectively.

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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. filed a suit in the United StatesU.S. District Court of Northern District of California related to United StatesU.S. Patent Nos. 7,105,499 and 8,481,712, which are jointly owned by Merck Sharp & Dohme Corp. and Ionis Pharmaceuticals, Inc. In the suit Gilead asked the court to determine that Gilead'sGilead’s activities do not infringe any valid claim of the named patents and that the patents are not valid. We and Merck Sharp & Dohme Corp. filed our answer denying Gilead'sGilead’s noninfringement and invalidity contentions, contending that Gilead'sGilead’s commercial sale and offer for sale of sofosbuvir prior to the expiration of the '499‘499 and '712‘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.decision to the Court of Appeals for the Federal Circuit. Gilead cross-appealed on the issue of validity. The appeal is pending beforeIn April 2018, the Court of Appeals issued its ruling affirming the District Court’s finding of unenforceability based on unclean hands. Having upheld the ruling that the patents are unenforceable against Gilead, the court did not reach the question of validity. In September 2018, we filed a petition requesting a hearing before the Supreme Court, asserting that it was improper for the Federal Circuit.trial court to overturn the jury verdict on the basis of the equitable defense of unclean hands. In January 2019, the Supreme Court denied our petition. Under our agreement with Merck, Merck is responsible for the costs of this suit.

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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, 20162018 and 20152017 are as follows (in thousands, except per share data).

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) (2) (3) $(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 

2015 Quarters 
First
Quarter
  
Second
Quarter
  
Third
Quarter
  
Fourth
Quarter
 
2017 Quarters (as revised) 
First
Quarter
  
Second
Quarter
  
Third
Quarter
  
Fourth
Quarter
 
Revenue $62,583  $120,428  $49,121  $51,571  $115,800  $112,273  $118,314  $167,792 
Operating expenses $71,913  $75,782  $97,259  $114,511  $96,315  $105,823  $107,002  $173,992 
Income (loss) from operations $(9,330) $44,646  $(48,138) $(62,940) $19,485  $6,450  $11,312  $(6,200)
Net income (loss) $(16,717) $35,648  $(35,776) $(71,433) $8,964  $(3,085) $(7,493) $(9,169)
Basic net income (loss) per share (1) $(0.14) $0.30  $(0.30) $(0.59)
Diluted net income (loss) per share (1) (4) $(0.14) $0.29  $(0.30) $(0.59)
Net income (loss) attributable to Ionis Pharmaceutical, Inc. common stockholders  8,964   (3,085)  (2,611)  (2,922)
Basic net income (loss) per share (1) (2) $0.07  $(0.02) $(0.02) $(0.03)
Diluted net income (loss) per share (1) (3) $0.07  $(0.02) $(0.02) $(0.03)


(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. Our basic net income (loss) per share calculation for each of the quarters in 2018 and for the third and fourth quarters of 2017 considered our net income for Ionis on a stand-alone basis plus our share of Akcea’s net loss for the period. To calculate the portion of Akcea’s net loss attributable to our ownership, we multiplied Akcea’s 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.

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Our basic net income (loss) per share for each quarter in 2018 was calculated as follows (in thousands, except per share amounts):

Three Months Ended March 31, 2018 
Weighted
Average Shares
Owned in Akcea
  
Akcea’s
Net Income (Loss)
Per Share
  
Ionis’ Portion of
Akcea’s Net Loss
 
          
Common shares  45,448  $(0.44) $(19,997)
Akcea’s net loss attributable to our ownership         $(19,997)
Ionis’ stand-alone net income          18,785 
Net loss available to Ionis common stockholders         $(1,212)
Weighted average shares outstanding          125,330 
Basic net loss per share         $(0.01)

Three Months Ended June 30, 2018 
Weighted
Average Shares
Owned in Akcea
  
Akcea’s
Net Income (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 Income (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 Income (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 

Prior to Akcea’s IPO in July 2017, 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 the IPO 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 that we owned in our calculation of basic and diluted net income (loss) per share for the three months ended September 30, 2017.

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Our basic net income (loss) per share for the three months ended September 30, 2017 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 Loss
Per Share
  
Ionis’
Portion of
Akcea’s Net Loss
 
          
Common shares  36,556  $(0.33) $(12,063)
Preferred shares  5,651   (0.01)  (57)
Akcea’s net loss attributable to our ownership         $(12,120)
Ionis’ stand-alone net income          10,144 
Net loss available to Ionis common stockholders         $(1,976)
Weighted average shares outstanding          124,370 
Basic net loss per share         $(0.02)

Our basic net income (loss) per share for the three months ended December 30, 2017 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
 
          
Common shares  45,448  $(0.30) $(13,634)
Akcea’s net loss attributable to our ownership         $(13,634)
Ionis’ stand-alone net income          10,510 
Net loss available to Ionis common stockholders         $(3,124)
Weighted average shares outstanding          124,818 
Basic net loss per share         $(0.03)

(3)For the three months ended December 31, 2016,2018, we had net income.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 the period.those periods. Diluted common equivalent shares for the three months ended December 31, 20162018 consisted of the following (in thousands)thousands except per share amounts):

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 
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 DecemberMarch 31, 2016,2017, we owned 100 percent of Akcea. As a result, we did not have to adjust our earnings per share calculation. For the three months ended March 31, 2017, 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 those periods. Diluted common equivalent shares for the three months ended March 31, 2017 consisted of the following (in thousands except per share amounts):

Three Months Ended March 31, 2017 
Income
(Numerator)
  
Shares
(Denominator)
  
Per-Share
Amount
 
          
Net income available to Ionis common stockholders $8,964   122,861  $0.07 
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 Ionis common stockholders $8,964   124,972  $0.07 

For the three months ended March 31, 2017, the calculation excludesexcluded the 1 percent and 2¾ percent notes because the effect on diluted earnings per share would be anti-dilutive.

(3)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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(4)For the three months ended June 30, 2015, 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 June 30, 2015 consisted of the following (in thousands):


Three Months Ended June 30, 2015 
Income
(Numerator)
  
Shares
(Denominator)
  Per-Share Amount 
          
Income available to common shareholders $35,648   119,742  $0.30 
Effect of diluted securities:            
Shares issuable upon exercise of stock options  —   3,974     
Shares issuable upon restricted stock award issuance  —   376     
Shares issuable related to our ESPP  —   4     
Shares issuable related to our 2¾ percent notes  1,047   3,683     
Income available to common shareholders, plus assumed conversions $36,695   127,779  $0.29 

For the three months ended June 30, 2015, the calculation excludes the 1 percent notes because the effect on diluted earnings per share was anti-dilutive.

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