IONIS PHARMACEUTICALS, INC.

FORM 10-Q

INDEX

PART I	FINANCIAL INFORMATION

ITEM 1:	Financial Statements:

	Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2019~~2020 (unaudited) and December 31, ~~2018~~2019	3

	Condensed Consolidated Statements of Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (unaudited)	4

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (unaudited)	5

	Condensed Consolidated Statements of Stockholders’ Equity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (unaudited)	6

	Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (unaudited)	8

	Notes to Condensed Consolidated Financial Statements (unaudited)	9

ITEM 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations:

	Overview	3229

	Results of Operations	3532

	Liquidity and Capital Resources	4138

ITEM 3:	Quantitative and Qualitative Disclosures about Market Risk	4340

ITEM 4:	Controls and Procedures	4341

PART II	OTHER INFORMATION	4442

ITEM 1:	Legal Proceedings	4442

ITEM 1A:	Risk Factors	4442

ITEM 2:	Unregistered Sales of Equity Securities and Use of Proceeds	5456

ITEM 3:	Default upon Senior Securities	5456

ITEM 4:	Mine Safety Disclosures	5456

ITEM 5:	Other Information	5456

ITEM 6:	Exhibits	5556

SIGNATURES		5658

TRADEMARKS

"Ionis," the Ionis logo, and other trademarks or service marks of Ionis Pharmaceuticals, Inc. appearing in this report are the property of Ionis Pharmaceuticals, Inc. "Akcea," the Akcea logo, and other trademarks or service marks appearing in this report, including TEGSEDI (inotersen) and WAYLIVRA (volanesorsen), are the property of Akcea Therapeutics, Inc. This report contains additional trade names, trademarks and service marks of others, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this report may appear without the ® or TM symbols.

IONIS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	September 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
	(Unaudited)						(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	247,939		$	278,820		$	530,181		$	683,287
Short-term investments		1,972,891			1,805,252			1,818,435			1,816,257
Contracts receivable		49,077			12,759			27,834			63,034
Inventories		19,375			8,582			23,722			18,180
Other current assets		118,809			102,473			131,015			139,839
Total current assets		2,408,091			2,207,886			2,531,187			2,720,597
Property, plant and equipment, net		148,717			132,160			172,618			153,651
Patents, net		26,985			24,032			27,700			25,674
Long-term deferred tax assets		284,997			290,796			305,980			305,557
Deposits and other assets		26,199			12,910			41,465			27,633
Total assets	$	2,894,989		$	2,667,784		$	3,078,950		$	3,233,112

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	13,146		$	28,660		$	7,407		$	16,067
Accrued compensation		24,404			29,268			22,822			37,357
Accrued liabilities		52,615			47,503			67,802			66,769
Income taxes payable		1,945			858			27,943			32,514
Current portion of long-term obligations		2,060			13,749
Current portion of long-term obligations and other current liabilities								4,966			2,026
Current portion of deferred contract revenue		137,607			160,256			100,401			118,272
Total current liabilities		231,777			280,294			231,341			273,005
Long-term deferred contract revenue		492,979			567,359			448,576			490,060
0.125 percent convertible senior notes								445,150			434,711
1 percent convertible senior notes		596,355			568,215			284,083			275,333
Long-term obligations, less current portion		16,016			4,914			15,057			15,543
Long-term mortgage debt		59,896			59,842			59,948			59,913
Total liabilities		1,397,023			1,480,624			1,484,155			1,548,565
Stockholders’ equity:
Common stock, $0.001 par value; 300,000,000 shares authorized, 140,636,397 and 137,928,828 shares issued and outstanding at September 30, 2019 (unaudited) and December 31, 2018, respectively		141			138
Common stock, $0.001 par value; 300,000,000 shares authorized, 139,489,405 and 140,339,615 shares issued and outstanding at June 30, 2020 (unaudited) and December 31, 2019, respectively								139			140
Additional paid-in capital		2,219,090			2,047,250			2,271,630			2,203,778
Accumulated other comprehensive loss		(25,375	)		(32,016	)		(16,440	)		(25,290	)
Accumulated deficit		(857,563	)		(967,293	)		(878,154	)		(707,534	)
Total Ionis stockholders’ equity		1,336,293			1,048,079			1,377,175			1,471,094
Noncontrolling interest in Akcea Therapeutics, Inc.		161,673			139,081			217,620			213,453
Total stockholders’ equity		1,497,966			1,187,160			1,594,795			1,684,547
Total liabilities and stockholders’ equity	$	2,894,989		$	2,667,784		$	3,078,950		$	3,233,112

See accompanying notes.

IONIS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except for per share amounts)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Revenue:
Commercial revenue:
SPINRAZA royalties	$	81,672		$	70,010		$	211,884		$	167,743		$	71,746		$	70,502		$	137,754		$	130,212
Product sales, net		11,945			—			28,563			—			16,364			9,865			31,523			16,619
Licensing and other royalty revenue		2,082			12,746			11,638			14,232			1,624			7,932			4,419			9,555
Total commercial revenue		95,699			82,756			252,085			181,975			89,734			88,299			173,696			156,386
Research and development revenue under collaborative agreements		72,193			62,639			376,833			225,584			55,803			75,514			105,209			304,640
Total revenue		167,892			145,395			628,918			407,559			145,537			163,813			278,905			461,026

Expenses:
Cost of products sold		967			—			3,373			—			3,012			1,364			5,561			2,406
Research, development and patent		104,366			95,255			316,948			301,153			122,264			106,165			239,214			212,582
Selling, general and administrative		60,036			68,712			203,368			178,563			72,015			75,111			147,009			143,332
Total operating expenses		165,369			163,967			523,689			479,716			197,291			182,640			391,784			358,320

Income (loss) from operations		2,523			(18,572	)		105,229			(72,157	)		(51,754	)		(18,827	)		(112,879	)		102,706

Other income (expense):
Investment income		13,136			9,963			39,015			18,711			9,243			13,735			19,459			25,880
Interest expense		(12,002	)		(11,282	)		(35,404	)		(33,332	)		(11,173	)		(11,802	)		(22,163	)		(23,402	)
Gain on investments														9,625			—			9,887			—
Other income (expenses)		(140	)		(22	)		(332	)		(145	)		(149	)		(45	)		(249	)		(192	)

Income (loss) before income tax (expense) benefit		3,517			(19,913	)		108,508			(86,923	)		(44,208	)		(16,939	)		(105,945	)		104,992

Income tax (expense) benefit		14,915			(452	)		(9,204	)		(824	)		439			6,927			3,696			(24,119	)

Net income (loss)		18,432			(20,365	)		99,304			(87,747	)		(43,769	)		(10,012	)		(102,249	)		80,873

Net loss attributable to noncontrolling interest in Akcea Therapeutics, Inc.		7,732			15,806			10,426			41,412			11,924			9,136			22,178			2,694

Net income (loss) attributable to Ionis Pharmaceuticals, Inc. common stockholders	$	26,163		$	(4,559	)	$	109,730		$	(46,335	)	$	(31,845	)	$	(876	)	$	(80,071	)	$	83,567

Basic net income (loss) per share	$	0.19		$	(0.03	)	$	0.81		$	(0.33	)	$	(0.23	)	$	(0.01	)	$	(0.58	)	$	0.62
Shares used in computing basic net income (loss) per share		140,551			137,346			139,800			130,507			139,352			140,247			139,391			139,419
Diluted net income (loss) per share	$	0.18		$	(0.03	)	$	0.79		$	(0.33	)	$	(0.23	)	$	(0.01	)	$	(0.58	)	$	0.61
Shares used in computing diluted net income (loss) per share		143,408			137,346			142,821			130,507			139,352			140,247			139,391			142,499

See accompanying notes.

IONIS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019

Net income (loss)	$	18,432		$	(20,365	)	$	99,304		$	(87,747	)	$	(43,769	)	$	(10,012	)	$	(102,249	)	$	80,873
Unrealized gains (losses) on debt securities, net of tax		(1,110	)		133			6,666			(834	)
Unrealized gains on debt securities, net of tax														11,204			3,452			9,251			7,775
Currency translation adjustment		(13	)		(31	)		(25	)		61			74			(96	)		82			(11	)

Comprehensive income (loss)		17,309			(20,263	)		105,945			(88,520	)		(32,491	)		(6,656	)		(92,916	)		88,637

Comprehensive loss attributable to noncontrolling interests		(7,729	)		(13,943	)		(10,423	)		(38,005	)		(11,441	)		(9,136	)		(21,695	)		(2,696	)

Comprehensive income (loss) attributable to Ionis Pharmaceuticals, Inc. stockholders	$	25,038		$	(6,320	)	$	116,368		$	(50,515	)	$	(21,050	)	$	2,480		$	(71,221	)	$	91,333

See accompanying notes.

IONIS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Three Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2019~~2020

(In thousands)

(Unaudited)

	Common Stock					Additional			Accumulated Other			Accumulated			Total Ionis Stockholders’			Noncontrolling Interest in Akcea			Total Stockholders’			Common Stock					Additional			Accumulated Other			Accumulated			Total Ionis Stockholders’			Noncontrolling Interest in Akcea		Total Stockholders’
Description	Shares			Amount		Paid in Capital			Comprehensive Loss			Deficit			Equity			Therapeutics, Inc.			Equity			Shares			Amount		Paid in Capital			Comprehensive Loss			Deficit			Equity			Therapeutics, Inc.		Equity
Balance at June 30, 2018		137,157		$	137	$	2,011,561		$	(32,634	)	$	(1,282,810	)	$	696,254		$	121,181		$	817,436
Net loss attributable to Ionis Pharmaceuticals, Inc. common stockholders		—			—		—			—			(4,559	)		(4,559	)		—			(4,559	)
Change in unrealized gains (losses), net of tax		—			—		—			133			—			133			—			133
Balance at March 31, 2019																									139,624		$	140	$	2,117,969		$	(27,608	)	$	(882,850	)	$	1,207,651		$	179,769	$	1,387,420
Net loss																									—			—		—			—			(876	)		(876	)		—		(876	)
Change in unrealized gains, net of tax																									—			—		—			3,452			—			3,452			—		3,452
Foreign currency translation		—			—		—			(31	)		—			(31	)		—			(31	)		—			—		—			(96	)		—			(96	)		—		(96	)
Issuance of common stock in connection with employee stock plans		350			1		6,225			—			—			6,226			—			6,226			774			—		34,943			—			—			34,943			—		34,943
Stock-based compensation expense		—			—		34,883			—			—			34,883			—			34,883			—			—		41,933			—			—			41,933			—		41,933
Payments of tax withholdings related to vesting of employee stock awards and exercise of employee stock options																									(5	)		—		(438	)		—			—			(438	)		—		(438	)
Noncontrolling interest in Akcea Therapeutics, Inc		—			—		(22,356	)		—			—			(22,356	)		8,413			(13,943	)		—			—		(17,185	)		—			—			(17,185	)		8,049		(9,136	)
Balance at September 30, 2018		137,507		$	138	$	2,030,313		$	(32,532	)	$	(1,287,369	)	$	710,550		$	129,594		$	840,144
Balance at June 30, 2019																									140,393		$	140	$	2,177,222		$	(24,252	)	$	(883,726	)	$	1,269,384		$	187,818	$	1,457,202

Balance at June 30, 2019		140,393		$	140	$	2,177,222		$	(24,252	)	$	(883,726	)	$	1,269,384		$	187,818		$	1,457,202
Net income attributable to Ionis Pharmaceuticals, Inc. common stockholders		—			—		—			—			26,163			26,163			—			26,163
Change in unrealized gains (losses), net of tax		—			—		—			(1,110	)		—			(1,110	)		—			(1,110	)
Balance at March 31, 2020																									139,282		$	139	$	2,233,644		$	(27,235	)	$	(846,309	)	$	1,360,239		$	210,172	$	1,570,411
Net loss																									—			—		—			—			(31,845	)		(31,845	)		—		(31,845	)
Change in unrealized gains, net of tax																									—			—		—			11,204			—			11,204			—		11,204
Foreign currency translation		—			—		—			(13	)		—			(13	)		—			(13	)		—			—		—			74			—			74			—		74
Issuance of common stock in connection with employee stock plans		255			1		10,130			—			—			10,131			—			10,131			214			—		8,800			—			—			8,800			—		8,800
Stock-based compensation expense		—			—		24,126			—			—			24,126			—			24,126			—			—		48,442			—			—			48,442			—		48,442
Payments of tax withholdings related to vesting of employee stock awards and exercise of employee stock options		(11	)		—		(10,804	)		—			—			(10,804	)		—			(10,804	)		(7	)		—		(367	)		—			—			(367	)		—		(367	)
Noncontrolling interest in Akcea Therapeutics, Inc.		—			—		18,416			—			—			18,416			(26,145	)		(7,729	)		—			—		(18,889	)		(483	)		—			(19,372	)		7,448		(11,924	)
Balance at September 30, 2019		140,637		$	141	$	2,219,090		$	(25,375	)	$	(857,563	)	$	1,336,293		$	161,673		$	1,497,966
Balance at June 30, 2020																									139,489		$	139	$	2,271,630		$	(16,440	)	$	(878,154	)	$	1,377,175		$	217,620	$	1,594,795

See accompanying notes.

IONIS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2019~~2020

(In thousands)

(Unaudited)

Common Stock Additional Accumulated Other Accumulated
Total Ionis
Stockholders’

Noncontrolling
Interest in Akcea

Total
Stockholders’

Description Shares Amount Paid in Capital Comprehensive Loss Deficit Equity Therapeutics, Inc. Equity
Balance at December 31, 2017 124,976 $ 125 $ 1,553,681 $ (31,759 ) $ (1,241,034 ) $ 281,013 $ 84,267 $ 365,280
Net loss attributable to Ionis Pharmaceuticals, Inc. common stockholders — — — — (46,335 ) (46,335 ) — (46,335 )
Change in unrealized gains (losses), net of tax — — — (834 ) — (834 ) — (834 )
Foreign currency translation — — — 61 — 61 — 61
Biogen stock purchase 11,502 11 447,954 — — 447,965 — 447,965
Issuance of common stock in connection with employee stock plans 1,029 2 14,800 — — 14,802 — 14,802
Stock-based compensation expense — — 97,210 — — 97,210 — 97,210
Noncontrolling interest in Akcea Therapeutics, Inc — — (83,332 ) — — (83,332 ) 45,327 (38,005 )
Balance at September 30, 2018 137,507 $ 138 $ 2,030,313 $ (32,532 ) $ (1,287,369 ) $ 710,550 $ 129,594 $ 840,144

Balance at December 31, 2018 137,929 $ 138 $ 2,047,250 $ (32,016 ) $ (967,293 ) $ 1,048,079 $ 139,081 $ 1,187,160
Net income attributable to Ionis Pharmaceuticals, Inc. common stockholders — — — — 109,730 109,730 — 109,730
Change in unrealized gains (losses), net of tax — — — 6,666 — 6,666 — 6,666
Foreign currency translation — — — (25 ) — (25 ) — (25 )
Issuance of common stock in connection with employee stock plans 2,855 3 112,132 — — 112,135 — 112,135
Stock-based compensation expense — — 111,564 — — 111,564 — 111,564
Payments of tax withholdings related to vesting of employee stock awards and exercise of employee stock options (147 ) — (18,841 ) — — (18,841 ) — (18,841 )
Noncontrolling interest in Akcea Therapeutics, Inc. — — (33,015 ) — — (33,015 ) 22,592 (10,423 )
Balance at September 30, 2019 140,637 $ 141 $ 2,219,090 $ (25,375 ) $ (857,563 ) $ 1,336,293 $ 161,673 $ 1,497,966

	Common Stock						Additional			Accumulated Other			Accumulated			Total Ionis Stockholders’			Noncontrolling Interest in Akcea		Total Stockholders’
Description	Shares			Amount			Paid in Capital			Comprehensive Loss			Deficit			Equity			Therapeutics, Inc.		Equity
Balance at December 31, 2018		137,929		$	138		$	2,047,250		$	(32,016	)	$	(967,293	)	$	1,048,079		$	139,081	$	1,187,160
Net income		—			—			—			—			83,567			83,567			—		83,567
Change in unrealized gains, net of tax		—			—			—			7,775			—			7,775			—		7,775
Foreign currency translation		—			—			—			(11	)		—			(11	)		—		(11	)
Issuance of common stock in connection with employee stock plans		2,600			2			102,002			—			—			102,004			—		102,004
Stock-based compensation expense		—			—			87,437			—			—			87,437			—		87,437
Payments of tax withholdings related to vesting of employee stock awards and exercise of employee stock options		(136	)		—			(8,034	)		—			—			(8,034	)		—		(8,034	)
Noncontrolling interest in Akcea Therapeutics, Inc.		—			—			(51,433	)		—			—			(51,433	)		48,737		(2,696	)
Balance at June 30, 2019		140,393		$	140		$	2,177,222		$	(24,252	)	$	(883,726	)	$	1,269,384		$	187,818	$	1,457,202

Balance at December 31, 2019		140,340		$	140		$	2,203,778		$	(25,290	)	$	(707,534	)	$	1,471,094		$	213,453	$	1,684,547
Net loss		—			—			—			—			(80,071	)		(80,071	)		—		(80,071	)
Change in unrealized gains, net of tax		—			—			—			9,251			—			9,251			—		9,251
Foreign currency translation		—			—			—			82			—			82			—		82
Issuance of common stock in connection with employee stock plans		821			—			16,451			—			—			16,451			—		16,451
Repurchases and retirements of common stock		(1,478	)		(1	)		—			—			(90,549	)		(90,550	)		—		(90,550	)
Stock-based compensation expense		—			—			89,233			—			—			89,233			—		89,233
Payments of tax withholdings related to vesting of employee stock awards and exercise of employee stock options		(194	)		—			(11,970	)		—			—			(11,970	)		—		(11,970	)
Noncontrolling interest in Akcea Therapeutics, Inc.		—			—			(25,862	)		(483	)		—			(26,345	)		4,167		(22,178	)
Balance at June 30, 2020		139,489		$	139		$	2,271,630		$	(16,440	)	$	(878,154	)	$	1,377,175		$	217,620	$	1,594,795

See accompanying notes.

IONIS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Nine Months Ended September 30,						Six Months Ended June 30,
	2019			2018			2020			2019
Operating activities:
Net income (loss)	$	99,304		$	(87,747	)	$	(102,249	)	$	80,873
Adjustments to reconcile net loss to net cash provided by operating activities:
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation		9,345			7,650			6,360			6,253
Amortization of right-of-use operating lease assets		1,433			—			784			1,035
Amortization of patents		1,139			1,356			999			948
Amortization of premium (discount) on investments, net		(7,064	)		791			3,842			(5,163	)
Amortization of debt issuance costs		1,448			1,343			1,236			957
Amortization of convertible senior notes discount		26,747			24,781			17,807			17,661
Stock-based compensation expense		111,564			97,210			89,233			87,437
Non-cash losses related to patents, licensing and property, plant and equipment		216			482
Gain on investments								(9,887	)		—
Non-cash losses related to patents, licensing and property, plant and equipment and investments								211			203
Provision for deferred income taxes		4,103			—			(2,513	)		14,436
Changes in operating assets and liabilities:
Contracts receivable		(33,716	)		48,223			35,200			(16,255	)
Inventories		(6,606	)		1,604			(3,018	)		(5,736	)
Other current and long-term assets		(23,377	)		(26,573	)		1,064			(6,372	)
Accounts payable		(18,764	)		(13,606	)		(14,939	)		(16,104	)
Accrued compensation		(4,864	)		(892	)		(14,535	)		(9,219	)
Accrued liabilities and deferred rent		3,909			(14,392	)
Other current liabilities								(1,968	)		3,283
Deferred contract revenue		(97,029	)		447,168			(59,355	)		(73,643	)
Net cash provided by operating activities		67,788			487,398
Net cash provided by (used in) operating activities								(51,728	)		80,594

Investing activities:
Purchases of short-term investments		(1,617,726	)		(1,156,335	)		(976,284	)		(1,049,274	)
Proceeds from short-term investments		1,465,600			568,517
Proceeds from sale of short-term investments								982,173			877,966
Purchases of property, plant and equipment		(23,143	)		(12,221	)		(18,178	)		(7,243	)
Acquisition of licenses and other assets, net		(4,196	)		(3,317	)		(3,023	)		(2,310	)
Net cash used in investing activities		(179,465	)		(603,356	)		(15,312	)		(180,861	)

Financing activities:
Proceeds from equity awards		112,137			18,254
Proceeds from issuance of equity, net								16,453			102,004
Payments of tax withholdings related to vesting of employee stock awards and exercise of employee stock options		(18,841	)		—			(11,971	)		(8,034	)
Proceeds from the issuance of common stock to Biogen		—			447,965
Principal payments on debt obligations		(12,500	)		—
Net cash provided by financing activities		80,796			466,219
Repurchases and retirements of common stock								(90,548	)		—
Net cash provided by (used in) financing activities								(86,066	)		93,970

Net increase in cash and cash equivalents		(30,881	)		350,261			(153,106	)		(6,297	)
Cash and cash equivalents at beginning of period		278,820			129,630			683,287			278,820
Cash and cash equivalents at end of period	$	247,939		$	479,891		$	530,181		$	272,523

Supplemental disclosures of cash flow information:
Interest paid	$	5,474		$	5,434		$	3,093		$	4,776
Income taxes paid	$	9,037		$	—		$	49		$	—

Supplemental disclosures of non-cash investing and financing activities:
Right-of-use assets obtained in exchange for lease liabilities	$	14,178		$	—		$	—		$	13,920
Amounts accrued for capital and patent expenditures	$	3,251		$	2,296		$	6,461		$	3,073
Purchases of property, plant and equipment included in long-term obligations	$	—		$	3,596

See accompanying notes.

IONIS PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2019~~2020

(Unaudited)

1. Basis of Presentation

We prepared the unaudited interim condensed consolidated financial statements for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 on the same basis as the audited financial statements for the year ended December 31, ~~2018.~~2019. We included all normal recurring adjustments in the financial statements, which we considered necessary for a fair presentation of our financial position at such dates and our operating results and cash flows for those periods. ~~Results~~Our operating results for the interim periods ~~are~~may not ~~necessarily~~be indicative of ~~the~~what our operating results will be for the entire year. For more complete financial information, these financial statements, and notes thereto, should be read in conjunction with the audited financial statements for the year ended December 31, ~~2018~~2019 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC.

In the condensed consolidated financial statements, we included the accounts of Ionis Pharmaceuticals, Inc. and the consolidated results of our ~~majority owned~~majority-owned affiliate, Akcea Therapeutics, Inc. and its wholly owned subsidiaries. We formed Akcea in December 2014. In July 2017, Akcea completed an initial public offering, or IPO. Since Akcea’s IPO, our ownership has ranged from ~~and therefore, beginning in July 2017, we no longer owned 100~~68 percent ~~of Akcea. In the first quarter of 2019, we received 2.8 million shares~~ to 77 percent. At June 30, 2020, our ownership of Akcea ~~common stock as payment for the sublicense fee Akcea owed us when Novartis licensed AKCEA-APO(a)-L~~_Rx.~~. At September 30, 2019, our ownership~~ was approximately 7576 percent. ~~In the fourth quarter of 2019, we expect to receive an additional 6.9 million shares of Akcea common stock as payment for the sublicense fee Akcea owes us for Pfizer’s license of AKCEA-ANGPTL3-L~~_Rx. We reflect changes in our ownership of Akcea in our financial statements in the period the change occurs. ~~Refer to~~For example, we reflected an increase in our ownership when we received 6.9 million shares of Akcea common stock as payment for the ~~section titled “Noncontrolling Interest~~ sublicense fee Akcea owed us for Pfizer’s license of vupanorsen (formerly AKCEA-ANGPTL3-L_Rx)in ~~Akcea” in Note 2,~~ ~~Significant Accounting Policies,~~ ~~for further information related to our accounting for our investment in Akcea.~~the fourth quarter of 2019.

Unless the context requires otherwise, “Ionis”, “Company,” “we,” “our,” and “us” refers to Ionis Pharmaceuticals, Inc. and its majority owned affiliate, Akcea Therapeutics, Inc. and its wholly owned subsidiaries.

2. Significant Accounting Policies

Revenue Recognition

Our Revenue Sources

We generally recognize revenue when we have satisfied all contractual obligations and are reasonably assured of collecting the resulting receivable. We are often entitled to bill our customers and receive payment from our customers in advance of recognizing the revenue. In the instances in which we have received payment from our customers in advance of recognizing revenue, we include the amounts in deferred revenue on our condensed consolidated balance sheet.

Commercial Revenue: SPINRAZA royalties and Licensing and other royalty revenue

We earn commercial revenue primarily in the form of royalty payments on net sales of SPINRAZA. We will also recognize as commercial revenue ~~future~~ sales milestone payments and royalties we earn in the future under our partnerships.

Commercial Revenue: Product sales, net

We added product sales from TEGSEDI to our commercial revenue in the fourth quarter of 2018 and we added product sales from WAYLIVRA to our commercial revenue in the third quarter of 2019. In the U.S., we distribute TEGSEDI through an exclusive distribution agreement with a third-party logistics company, or 3PL, that takes title to TEGSEDI. The 3PL is our sole customer in the U.S. The 3PL then distributes TEGSEDI to a specialty pharmacy and a specialty distributor, which we collectively refer to as wholesalers, who then distribute TEGSEDI to health care providers and patients. In Europe, prior to the third quarter of 2019 we distributed TEGSEDI through a non-exclusive distribution model with a 3PL that ~~takes~~took title to TEGSEDI. The 3PL was our sole customer in Europe. The 3PL in Europe then distributed TEGSEDI to hospitals and pharmacies. In the third quarter of 2019, we ~~entered into a distribution arrangement with a 3PL and~~ began using distributors to sell both TEGSEDI and WAYLIVRA directly to hospitals and pharmacies in Europe.

Research and development revenue under collaborative agreements

We often enter into collaboration agreements to license and sell our technology on an exclusive or non-exclusive basis. Our collaboration agreements typically contain multiple elements, or performance obligations, including technology licenses or options to obtain technology licenses, research and development, or R&D, services, and manufacturing services.

~~We provide details about our collaboration agreements in~~In Note 7, 6, Collaborative Arrangements and Licensing Agreements, we have included our collaborations with substantive changes during the first half of 2020 from those included in Note 6 of our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~.~~Under each collaboration note we discuss our specific revenue recognition conclusions, including our significant performance obligations under each collaboration.~~2019.

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~~five-step process is as follows:

Identify the contract

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

●

We and our partner approved the contract and we are both committed to perform our obligations;

●

We have identified our rights, our partner’s rights and the payment terms;

●

We have concluded that the contract has commercial substance, meaning that the risk, timing, or amount of our future cash flows is expected to change as a result of the contract; and

●

We believe collectability of the consideration is probable.

Identify the performance obligations

We next identify our performance obligations, which represent the distinct goods and services we are required to provide under the contract. ~~Accounting rules refer to these as our performance obligations.~~ We typically have only 1 performance obligation at the inception of a contract, which is to perform R&D services.

Often times we enter into a collaboration agreement 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~~rights because these items are contingent upon future events that may not occur. When a partner exercises its option to license a medicine or requests additional goods or services, then we identify a new performance obligation for that item.

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

Determine the transaction price

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

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,~~2020, we earned ~~$35~~a $10 million in milestone ~~payments~~payment from ~~Roche~~AstraZeneca when ~~Roche dosed~~AstraZeneca advanced ION532 targeting APOL1 for the ~~first patient in the Phase 3 study~~treatment of ~~IONIS-HTT~~_Rx~~(RG6042)~~kidney disease under our cardiovascular, renal and metabolic diseases collaboration. We did not consider ~~these~~the milestone ~~payments~~payment probable until ~~Roche~~AstraZeneca achieved the milestone event because ~~the dosing of a patient~~advancing ION532 was a contingent event that was not within our control. We recognized the milestone ~~payments~~payment in full in the period the milestone event was achieved because we did not have any remaining performance obligations related to the milestone ~~payments.~~payment.

~~Allocate the transaction price~~

4.Allocate the transaction price

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

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

●

Estimated future product sales;

●

Estimated royalties onwe may receive from future product sales;

●

~~Contractual~~Estimated contractual milestone ~~payments;~~payments we may receive;

●

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.~~

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. For example, in the third quarter of 2019, we updated our estimate of the total effort we ~~expect~~expected to expend to satisfy our performance obligation under our 2013 Strategic Neurology collaboration with Biogen. As of September 30, 2019, we ~~have~~had completed a significant portion of the research and development services. ~~We expect~~In this example, we expected to complete the remainder of our services in 2020. As a result of our change in estimate, in the third quarter of 2019, we recorded a cumulative catch up adjustment of $16.5 million to decrease revenue. ~~We expect to complete the remainder of our services in 2020.~~ Refer to Note 7,6, Collaborative Arrangements and Licensing Agreements, in our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019 for further discussion of the cumulative catch up adjustment we ~~made.~~made in 2019.

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

Commercial Revenue: SPINRAZA royalties and Licensing and other royalty revenue

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

Commercial Revenue: Product sales, net

We recognize product sales in the period when our customer obtains control of our products, which occurs at a point in time upon transfer of title to the customer. We classify payments to customers or other parties in the distribution channel for services that are distinct and priced at fair value as selling, general and administrative, or SG&A, expenses in our condensed consolidated statements of operations. Otherwise, payments to customers or other parties in the distribution channel that do not meet those criteria are classified as a reduction of revenue, as discussed further below. We exclude from revenues taxes collected from customers relating to product sales and remitted to governmental authorities.

Reserves for Product sales

We record product sales at our net sales price, or transaction price. We include in our transaction price estimated reserves for discounts, returns, chargebacks, rebates, co-pay assistance and other allowances that we offer within contracts between us and our customers, wholesalers, health care providers and other indirect customers. We estimate our reserves using the amounts we have earned or what we can claim on the associated sales. We classify our reserves as a reduction of accounts receivable when we are not required to make a payment or as a current liability when we are required to make a payment. In certain cases, our estimates 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 product sales in the respective period.

The following are the components of variable consideration related to product sales:

Chargebacks: In the U.S., we estimate obligations resulting from contractual commitments with the government and other entities to sell products to qualified healthcare providers at prices lower than the list prices charged to our U.S. customer. Our U.S. customer charges us for the difference between what it pays for the product and the selling price to the qualified healthcare providers. We also estimate the amount of chargebacks related to our estimated product remaining in the distribution channel at the end of the reporting period that we expect our customer to sell to healthcare providers in future periods. We record these reserves as an accrued liability on our condensed consolidated balance sheet for ~~these~~the chargebacks related to product sales to our U.S. customer during the reporting period.

Government rebates: We are subject to discount obligations under government programs, including Medicaid and Medicare programs in the U.S. and we record reserves for government rebates based on statutory discount rates and estimated utilization. We estimate Medicaid and Medicare rebates based on a range of possible outcomes that are probability-weighted for the estimated payer mix. We record these reserves as an accrued liability on our condensed consolidated balance sheet with a corresponding offset reducing our product sales in the same period we recognize the related sale. For Medicare, we also estimate the number of patients in the prescription drug coverage gap for whom we will owe an additional liability under the Medicare Part D program. On a quarterly basis, we update our estimates and record any adjustments in the period that we identify the adjustments.

Managed care rebates: We are subject to rebates in connection with value-based agreements with certain of our commercial payers. We record these rebates as an accrual on our condensed consolidated balance sheet in the same period we recognize the related revenue. We estimate our managed care rebates based on our estimated payer mix and the applicable contractual rebate rate.

Trade discounts: We provide customary invoice discounts on product sales to our U.S. customer for prompt payment. We record this discount as a reduction of product sales in the period in which we recognize the related product revenue.

Distribution services: We receive and pay for various distribution services from our U.S. and EU customers and wholesalers in the ~~U.S. For~~U.S.. We classify the costs for services we receive that are either not distinct from the sale of the product or for which we cannot reasonably estimate the fair value ~~we classify the costs for such services~~ as a reduction of product sales. To the extent that the services we receive are distinct from the sale of the product, we classify the costs for such services as ~~selling, general and administration, or~~ SG&A expenses.

Product returns: Our U.S. customer has return rights and the wholesalers have limited return rights primarily related to the product’s expiration date. We estimate the amount of product sales that our customer may return. We record our return estimate as an accrued refund liability on our condensed consolidated balance sheet with a corresponding offset reducing our product sales in the same period we recognize the related sale. Based on our distribution model for product sales, contractual inventory limits with our customer and wholesalers and the price of the product, we have had minimal returns to date and we believe we will continue to have minimal returns. Our EU customers generally only take title to the product after they receive an order from a hospital or pharmacy and therefore they do not maintain excess inventory levels of our products. Accordingly, we have limited return risk in the EU and we do not estimate returns in the EU.

Other incentives: In the U.S., we estimate reserves for other incentives including co-payment assistance we provide to patients with commercial insurance who have coverage and reside in states that allow co-payment assistance. We record a reserve for the amount we estimate we will pay for co-payment assistance. We base our reserve on the number of estimated claims and our estimate of the cost per claim related to product sales that we have recognized as revenue. We record our other incentive reserve estimates as an accrued liability on our condensed consolidated balance sheet with a corresponding offset reducing our product sales in the same period we recognize the related sale.

Research and development revenue under collaboration agreements:

Upfront payments

When we enter into a collaboration agreement with an upfront payment, we typically record the entire upfront payment as deferred revenue if our only performance obligation is for R&D services we will provide in the future. We amortize the upfront payment into revenue as we perform the R&D services. For example, under our collaboration agreement with Roche to develop IONIS-FB-L_Rx for the treatment of complement-mediated diseases, we received a $75 million upfront payment in the fourth quarter of 2018. We allocated the upfront payment to our single performance obligation, R&D services. We are amortizing the $75 million upfront payment using an input method over the estimated period of time we are providing R&D services.

Milestone payments

We are required to include additional consideration in the transaction price when it is probable. We typically include milestone payments for R&D services in the transaction price when they are achieved. We include these milestone payments when they are achieved because there is considerable uncertainty in the research and development processes that trigger these ~~payments under our collaboration agreements.~~payments. Similarly, we include approval milestone payments in the transaction price once the medicine is approved by the applicable regulatory agency. We will recognize sales-based milestone payments in the period in which we achieve the milestone under the sales-based royalty exception allowed under accounting rules.

We recognize milestone payments that relate to an ongoing performance obligation over our period of performance. For example, in the ~~second~~first quarter of ~~2019,~~2020, we achieved a $7.5 million milestone payment from Biogen when we advanced ~~a new target for an unidentified neurological disease~~ IONIS-MAPT_Rxunder our ~~2018 strategic~~2012 neurology collaboration. We added this payment to the transaction price and allocated it to our R&D services performance ~~obligation.~~obligation for IONIS-MAPT_Rx. We are recognizing revenue related to this milestone payment over our estimated period of performance.

Conversely, we recognize in full those milestone payments that we earn based on our partners’ activities when our partner achieves the milestone event and we do not have a performance obligation. For example, in the ~~third~~first quarter of ~~2019,~~2020, we recognized ~~an $8~~a $10 million milestone payment when ~~Biogen initiated a Phase 1/2 study of IONIS-LRRK2~~_Rx ~~(BIIB094)~~AstraZeneca advanced ION532 targeting APOL1 for the treatment of ~~people with Parkinson’s~~kidney disease under our cardiovascular, renal and metabolic diseases collaboration agreement. We concluded that the milestone payment was not related to our R&D services performance obligation. Therefore, we recognized the milestone payment in full in the ~~third~~first quarter of ~~2019.~~2020.

License fees

We generally recognize as revenue the total amount we determine to be the relative stand-alone selling price of a license when we deliver the license to our partner. This is because our partner has full use of the license and we do not have any additional performance obligations related to the license after delivery. For example, in the ~~third~~second quarter of ~~2019,~~2020, we earned a ~~$25~~$13 million license fee from AstraZeneca when ~~GSK~~AstraZeneca licensed ~~our HBV program from us.~~ION736, a medicine targeting FOXP3 to treat cancer.

Sublicense fees

We recognize sublicense fee revenue in the period in which a party, who has already licensed our technology, further licenses the technology to another party because we do not have any performance obligations related to the sublicense. For example, in the second quarter of 2019, we earned a $20 million sublicense fee when Alnylam Pharmaceuticals sublicensed our technology to Regeneron Pharmaceuticals.

Amendments to ~~agreements~~Agreements

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

If the additional goods and/or services are distinct from the other performance obligations in the original agreement; and

If the goods and/or services are at a stand-alone selling price.

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

For example, in May 2015, we entered into an exclusive license agreement with Bayer to develop and commercialize IONIS-FXI_Rx for the prevention of thrombosis. As part of the agreement, Bayer paid us a $100 million upfront payment. At the onset of the agreement, we were responsible for completing a Phase 2 study of IONIS-FXI_Rx 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-FXI_Rx and to initiate development of IONIS-FXI-L_Rx, which Bayer licensed. As part of the 2017 amendment, Bayer paid us $75 million. We are also eligible to receive milestone payments and tiered royalties on gross margins of IONIS-FXI_Rx and IONIS-FXI-L_Rx. Under the 2017 amendment, we concluded we had a new agreement with 3 performance obligations. These performance obligations were to deliver the license of IONIS-FXI-L_Rx, to provide R&D services and to deliver API. We allocated the $75 million transaction price to these performance obligations. Refer to Note 7,6, Collaborative Arrangements and Licensing Agreements, in our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019 for further discussion of ~~our accounting treatment for our~~the Bayer collaboration.

Multiple agreements

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

●

Whether the agreements were negotiated together with a single objective;

●

Whether the amount of consideration in one contract depends on the price or performance of the other agreement; or

●

Whether the goods and/or services promised under the agreements are a single performance obligation.

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

For example, in the second quarter of 2018, we entered into 2 separate agreements with Biogen at the same time: a new strategic neurology collaboration agreement and a stock purchase agreement, or SPA. We evaluated the Biogen agreements to determine whether we should treat the agreements separately or combine them. We considered that the agreements were negotiated concurrently and in contemplation of one another. Based on these facts and circumstances, we concluded that we should evaluate the provisions of the agreements on a combined basis.

Contracts Receivable

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

Unbilled SPINRAZA Royalties

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

Deferred Revenue

We are often entitled to bill our customers and receive payment from our customers in advance of our obligation to provide services or transfer goods to our partners. In these instances, we include the amounts in deferred revenue on our condensed consolidated balance sheet. During the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, we recognized ~~$30.3~~$39.6 million and ~~$37.2~~$46.9 million of revenue from amounts that were in our beginning deferred revenue balance for each respective period. During the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, we recognized ~~$103.5~~$61.9 million and ~~$80.4~~$87.2 million of revenue from amounts that were in our beginning deferred revenue balance for each respective period. For further discussion, refer to our revenue recognition policy above.

Cost of Products Sold

Our cost of products sold includes manufacturing costs, transportation and freight costs and indirect overhead costs associated with the manufacturing and distribution of our products. We also may include certain period costs related to manufacturing services and inventory adjustments in cost of products sold. Prior to obtaining regulatory approval of TEGSEDI in July 2018 and WAYLIVRA in May 2019, we expensed as research and development expenses a significant portion of the costs we incurred to produce the initial commercial launch supply for each ~~medicine we are using in the commercial launch as research and development expense.~~ ~~We previously expensed $0.2~~ ~~million and $0.5~~ ~~million of costs to produce our products related to the product sales revenue we recognized in the~~ ~~three and nine months ended September 30, 2019, respectively.~~medicine.

Noncontrolling Interest in Akcea Therapeutics, Inc.

Prior to Akcea’s IPO in July 2017, we owned 100 percent of Akcea. ~~From the closing of~~Since 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-L_Rx ~~to Akcea, increasing~~ our ownership ~~percentage~~has ranged from 68 percent to ~~approximately 75 percent. In the first quarter of 2019, we received 2.8 million shares of Akcea common stock as payment for the sublicense fee Akcea owed us when Novartis licensed AKCEA-APO(a)-L~~_Rx~~, increasing~~77 percent. At June 30, 2020, our ownership ~~to approximately 76 percent at March 31, 2019. At September 30, 2019, our ownership in~~of Akcea was approximately 7576 percent. ~~In the fourth quarter of 2019, we expect to receive an additional 6.9 million shares of Akcea common stock as payment for the sublicense fee Akcea owes us for Pfizer’s license of AKCEA-ANGPTL3-L~~_Rx. We reflect changes in our ownership ~~of Akcea~~percentage in our financial statements as an adjustment to noncontrolling interest in the period the change occurs. During 2019, we received the following additional shares of Akcea common stock:

●

2.8 million shares in the first quarter of 2019 as payment for the sublicense fee Akcea owed us for Novartis’s license of AKCEA-APO(a)-L_Rx, and

●

6.9 million shares in the fourth quarter of 2019 as payment for the sublicense fee Akcea owed us for Pfizer’s license of vupanorsen.

The shares third parties own represent an interest in Akcea’s equity that ~~is not controlled by us.~~we do control. However, as we continue to maintain overall control of Akcea through our voting interest, we reflect the assets, liabilities and results of operations of Akcea in our condensed 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 condensed 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.

Cash, Cash ~~equivalents~~Equivalents and 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 on the last day of the fiscal 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 publicly and privately held biotechnology companies that we received as part of a technology license or partner agreement. At ~~September~~June 30, ~~2019,~~2020, we held equity investments in 2 publicly held companies, ProQR Therapeutics N.V., or ProQR, and Antisense Therapeutics Limited, or ATL. We also held equity investments in 45 privately-held companies, Atlantic Pharmaceuticals Limited, Dynacure SAS, Empirico, Inc., Seventh Sense Biosystems and Suzhou Ribo Life Science Co, Ltd.

We are required to measure and record our equity investments at fair value and to recognize the changes in fair value in our condensed consolidated statement of operations. We account 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. For example, during the second quarter of 2020, we revalued our investments in two privately-held companies, Dynacure and Ribo because the companies sold additional equity securities that were similar to those we own. These observable price changes resulted in us recognizing a $6.3 million gain on our investment in Dynacure and a $3 million gain on our investment in Ribo in our condensed consolidated statement of operations during the three months ended June 30, 2020.

Inventory Valuation

We reflect our inventory on our condensed consolidated balance sheet at the lower of cost or market value under the first-in, first-out method, or FIFO. We capitalize the costs of raw materials that we purchase for use in producing our medicines because until we use these raw materials, they have alternative future ~~uses.~~uses, which we refer to as clinical raw materials. We include in inventory raw material costs for medicines 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 medicine. For example, if one of our medicines failed, we could use the raw materials for that medicine to manufacture our other medicines. We expense these costs as R&D expenses when we begin to manufacture API for a particular medicine if the medicine has not been approved for marketing by a regulatory agency.

We obtained the first regulatory approval for TEGSEDI in July 2018 and for WAYLIVRA in May ~~2019 for WAYLIVRA.~~2019. At ~~September~~June 30, ~~2019,~~2020, our physical inventory for TEGSEDI and WAYLIVRA included API that we produced prior to when we obtained regulatory approval. As such, this API has no cost basis as we had previously expensed the 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 based on forecasted demand compared to quantities on hand. We consider several factors in estimating the net realizable value, including shelf life of our inventory, alternative uses for our medicines in development and historical write-offs. We did 0tnot record any material inventory write-offs for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020. Total inventory was $~~19.4~~23.7 million and $~~8.6~~18.2 million as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019, ~~respectively.~~respectively, and consisted of the following (in thousands):

~~Leases~~

~~Topic 842 Adoption~~

In February 2016, the Financial Accounting Standards Board, or FASB, issued amended accounting guidance related to lease accounting. This guidance supersedes the lease requirements we previously followed in Accounting Standards Codification, or ASC, Topic 840, ~~Leases, or Topic 840, and created a new lease accounting standard, Topic 842,~~ ~~Leases~~, or Topic 842. Under Topic 842, an entity will record on its balance sheet all leases with a term longer than one year. Further, an entity will record a liability with a value equal to the present value of payments it will make over the life of the lease (lease liability) and an asset representing the underlying leased asset (right-of-use asset). The new accounting guidance requires entities to determine if its leases are operating or financing leases. Entities will recognize expense for operating leases on a straight-line basis as an operating expense. If an entity determines a lease is a financing lease, it will record both interest and amortization expense and generally the expense will be higher in the earlier periods of the lease. We adopted Topic 842 on January 1, 2019 and adjusted our opening balance sheet on that date for our right-of-use operating lease assets and operating lease liabilities. At adoption, we recorded $13.5 million in right-of-use operating lease assets and $18.5 million in operating lease liabilities, of which we classified $2 million as a current liability. We adopted Topic 842 using the available practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification of those leases we had in place as of January 1, 2019. ~~The adoption did not have an impact on our condensed consolidated statement of operations.~~

	June 30, 2020		December 31, 2019
Raw materials:
Raw materials- clinical	$	9,967	$	9,363
Raw materials- commercial		9,543		6,520
Total raw materials		19,510		15,883
Work in process		3,471		2,039
Finished goods		741		258
Total inventory	$	23,722	$	18,180

Leases

We determine if an arrangement contains a lease at inception. We currently only have operating leases. We recognize a right-of-use operating lease asset and associated short- and long-term operating lease liability on our condensed consolidated balance sheet for operating leases greater than one year. Our right-of-use assets represent our right to use an underlying asset for the lease term and our lease liabilities represent our obligation to make lease payments arising from the lease arrangement. We recognize our right-of-use operating lease assets and lease liabilities based on the present value of the future minimum lease payments we will pay over the lease term. We determined the lease term at the inception of the lease, and in certain cases our lease term could include renewal options if we concluded we were reasonably certain that we will exercise the renewal option.

As our current leases do not provide an interest rate implicit in the lease, we used our ~~or Akcea’s~~ incremental borrowing rate, based on the information available on the date we adopted Topic 842 (January 2019) or as of the lease inception date in determining the present value of future payments. ~~Our right-of-use operating lease asset also includes any lease payments we made and excludes any tenant improvement allowances we received.~~ We recognize rent expense for our minimum lease payments on a straight-line basis over the expected term of our lease. We recognize period expenses, such as common area maintenance expenses, in the period we incur the expense.

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 condensed consolidated balance sheet and we expense them as the services are provided.

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 States~~U.S. Patent and Trademark Office, or foreign equivalent, issues the patent. We review our capitalized patent costs regularly to ensure that they include costs for patents and patent applications that have future value. ~~We evaluate~~When we identify patents and patent applications that we are not actively pursuing, ~~and~~we write off any associated ~~costs.~~costs.

Income Taxes

We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. In addition, deferred tax assets are recorded for the future benefit of utilizing net operating losses and research and development credit carryforwards. We record a valuation allowance when necessary to reduce our net deferred tax assets to the amount expected to be realized.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017, or the Tax Act. The Tax Act created a new requirement on global intangible low-taxed income, or GILTI, earned by foreign subsidiaries for tax years beginning on or after January 1, 2018. The GILTI provisions require foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s assets to be included in our U.S. income tax return. Under U.S. GAAP, we are permitted to make an accounting policy election to either treat taxes due on future inclusions in U.S. taxable income related to GILTI as a current-period expense when incurred or to factor such amounts into our measurement of deferred taxes. We have made the election to account for GILTI as a component of current taxes incurred rather than as a component of deferred taxes.

Long-lived Assets

We evaluate long-lived assets, which include property, plant and equipment ~~right-of-use operating lease assets~~ and patent costs, ~~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.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the ~~United States~~U.S. requires usmanagement to make estimates and assumptions that affect the amounts reported in ~~our~~the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Basic and Diluted Net Income (Loss) Per Share

Basic net income (loss) per share

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

The calculation of total net income (loss) attributable to our common stockholders for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 considered our net income (loss) for Ionis on a stand-alone basis plus our share of Akcea’s net ~~loss~~income (loss) for the period. To calculate the portion of Akcea’s net loss attributable to our ownership, we multiplied Akcea’s ~~loss~~net income (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 condensed consolidated statements of operations.

Our basic net ~~income~~loss per share for the three months ended ~~September~~June 30, 2020, was calculated as follows (in thousands, except per share amounts):

Three months ended June 30, 2020	Weighted Average Shares Owned in Akcea		Akcea’s Net Loss Per Share			Basic Net Loss Per Share Calculation
Ionis’ portion of Akcea’s net loss		77,095	$	(0.49	)	$	(37,665	)
Akcea’s net loss attributable to our ownership						$	(37,665	)
Ionis’ stand-alone net income							5,807
Net loss available to Ionis common stockholders						$	(31,858	)
Weighted average shares outstanding							139,352
Basic net loss per share						$	(0.23	)

Our basic net loss per share for the six months endedJune 30, 2020, was calculated as follows (in thousands, except per share amounts):

Six months ended June 30, 2020	Weighted Average Shares Owned in Akcea		Akcea’s Net Loss Per Share			Basic Net Loss Per Share Calculation
Ionis’ portion of Akcea’s net loss		77,095	$	(0.91	)	$	(70,348	)
Akcea’s net loss attributable to our ownership						$	(70,348	)
Ionis’ stand-alone net loss							(9,822	)
Net loss available to Ionis common stockholders						$	(80,170	)
Weighted average shares outstanding							139,391
Basic net loss per share						$	(0.58	)

Our basic net loss per share for the three months ended June 30, 2019, was calculated as follows (in thousands, except per share amounts):

Three months ended June 30, 2019	Weighted Average Shares Owned in Akcea		Akcea’s Net Income Per Share			Basic Net Loss Per Share Calculation
Ionis’ portion of Akcea’s net loss		70,221	$	(0.40	)	$	(28,244	)
Akcea’s net loss attributable to our ownership						$	(28,244	)
Ionis’ stand-alone net income							27,311
Net loss available to Ionis common stockholders						$	(933	)
Weighted average shares outstanding							140,247
Basic net loss per share						$	(0.01	)

Three months ended September 30, 2019
Weighted
Average Shares
Owned in Akcea

Akcea’s
Net Loss
Per Share

Ionis’ Portion of
Akcea’s Net Loss

Common shares 70,221 $ (0.34 ) $ (23,772 )
Akcea’s net loss attributable to our ownership $ (23,772 )
Ionis’ stand-alone net income 49,930
Net income available to Ionis common stockholders $ 26,158
Weighted average shares outstanding 140,551
Basic net income per share $ 0.19

Our basic net income per share for the ~~nine~~six months ended ~~September~~June 30, 2019, was calculated as follows (in thousands, except per share amounts):

Nine months ended September 30, 2019
Weighted
Average Shares
Owned in Akcea

Akcea’s
Net Loss
Per Share

Ionis’ Portion of
Akcea’s Net Loss

Common shares 69,681 $ (0.40 ) $ (28,174 )
Akcea’s net loss attributable to our ownership $ (28,174 )
Ionis’ stand-alone net income 140,938
Net income available to Ionis common stockholders $ 112,764
Weighted average shares outstanding 139,800
Basic net income per share $ 0.81

~~Our basic net loss per share for the three months ended September 30, 2018, was calculated as follows (in thousands, except per share amounts):~~

Three months ended September 30, 2018
Weighted
Average Shares
Owned in Akcea

Akcea’s
Net Loss
Per Share

Ionis’ Portion of
Akcea’s Net Loss

Common shares 65,538 $ (0.73 ) $ (47,843 )
Akcea’s net loss attributable to our ownership $ (47,843 )
Ionis’ stand-alone net income 43,226
Net loss available to Ionis common stockholders $ (4,617 )
Weighted average shares outstanding 137,346
Basic net loss per share $ (0.03 )

Six months ended June 30, 2019	Weighted Average Shares Owned in Akcea		Akcea’s Net Loss Per Share			Basic Net Income Per Share Calculation
Ionis’ portion of Akcea’s net loss		69,406	$	(0.06	)	$	(4,380	)
Akcea’s net loss attributable to our ownership						$	(4,380	)
Ionis’ stand-alone net income							91,008
Net income available to Ionis common stockholders						$	86,628
Weighted average shares outstanding							139,419
Basic net income per share						$	0.62

~~Our basic net loss per share for the nine months endedSeptember 30, 2018, was calculated as follows (in thousands, except per share amounts):~~

Nine months ended September 30, 2018
Weighted
Average Shares
Owned in Akcea

Akcea’s
Net Loss
Per Share

Ionis’ Portion of
Akcea’s Net Loss

Common shares 57,347 $ (1.93 ) $ (110,680 )
Akcea’s net loss attributable to our ownership $ (110,680 )
Ionis’ stand-alone net income 67,517
Net loss available to Ionis common stockholders $ (43,163 )
Weighted average shares outstanding 130,507
Basic net loss per share $ (0.33 )

~~Dilutive~~Diluted net income ~~(loss~~(loss) per ~~share)~~share

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2019, 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~~2020 and ~~dilutive common equivalent shares outstanding during the period.~~

~~We calculated our diluted net income per share for~~ the three months ended ~~September~~June 30, 2019, ~~as follows (in thousands except per share amounts):~~

Three months ended September 30, 2019
Income
(Numerator)

Shares
(Denominator)

Per-Share
Amount

Net income available to Ionis common stockholders $ 26,158 140,551 $ 0.19
Effect of dilutive securities:
Shares issuable upon exercise of stock options — 1,993
Shares issuable upon restricted stock award issuance — 844
Shares issuable related to our Employee Stock Purchase Plan — 20
Income available to Ionis common stockholders $ 26,158 143,408 $ 0.18

~~We calculated our diluted net income per share for the nine months ended September 30, 2019 as follows (in thousands except per share amounts):~~

Nine months ended September 30, 2019
Income
(Numerator)

Shares
(Denominator)

Per-Share
Amount

Net income available to Ionis common stockholders $ 112,764 139,800 $ 0.81
Effect of dilutive securities:
Shares issuable upon exercise of stock options — 2,208
Shares issuable upon restricted stock award issuance — 793
Shares issuable related to our Employee Stock Purchase Plan — 20
Income available to Ionis common stockholders $ 112,764 142,821 $ 0.79

~~For the three and nine months ended September 30, 2019, the calculation excluded the 1 percent notes because the effect on diluted earnings per share was anti-dilutive.~~

~~For the three and nine months ended September 30, 2018,~~ we incurred a net 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:

●

0.125 percent convertible senior notes (for the three and six months ended June 30, 2020);

●

1 percent convertible senior notes;

●

Dilutive stock options;

●

Unvested restricted stock units; and

●

Employee Stock Purchase Plan, or ESPP.

For the six months ended June 30, 2019, 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 the period.

We calculated our diluted net income per share for the six months ended June 30, 2019 as follows (in thousands except per share amounts):

Six months ended June 30, 2019	Income (Numerator)		Shares (Denominator)		Per-Share Amount
Net income available to Ionis common stockholders	$	86,628		139,419	$	0.62
Effect of dilutive securities:
Shares issuable upon exercise of stock options		—		2,327
Shares issuable upon restricted stock award issuance		—		745
Shares issuable related to our Employee Stock Purchase Plan		—		8
Income available to Ionis common stockholders	$	86,628		142,499	$	0.61

For the six months ended June 30, 2019, the calculation excluded our 1 percent convertible senior notes, or 1% Notes, because the effect on diluted earnings per share was anti-dilutive. For the six months ended June 30, 2019, we did not have our 0.125 percent convertible senior notes.

Convertible Debt

~~We account~~At issuance, we accounted for our convertible debt instruments, including our 0.125 percent senior convertible notes, or 0.125% Notes, and 1% 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~~rate on the ~~carrying amount~~date the notes were issued. In reviewing debt issuances, we were not able to identify any comparable companies that issued non-convertible debt instruments at the time of the issuance of the convertible notes. Therefore, we estimated the fair value of the liability component ~~by measuring the fair value~~ of ~~similar debt instruments that do not have the conversion feature. If no similar debt instrument exists, we estimate fair value~~our notes by using assumptions that market participants would use in pricing a debt instrument, including market interest rates, credit standing, yield curves and volatilities. To determine the fair value of the debt component we are required to use accounting estimates and assumptions. These estimates and assumptions are judgmental in nature and could have a significant impact on the determination of the debt component, and the associated non-cash interest expense.

We assigned a value to the debt component of our convertible notes equal to the estimated fair value of similar debt instruments without the conversion feature, which resulted in us recording our debt at a discount. We are amortizing our debt issuance costs and debt discount over the life of the convertible notes as additional non-cash interest expense utilizing the effective interest method.

Segment Information

We have 2 operating segments, our Ionis Core segment and Akcea Therapeutics, our majority-owned affiliate. Akcea is a biopharmaceutical company focused on developing and commercializing medicines to treat patients with ~~rare~~serious and ~~serious~~rare diseases. We provide segment financial information and results for our Ionis Core segment and our Akcea Therapeutics segment based on the segregation of revenues and expenses that our chief decision maker reviews to assess operating performance and to make operating decisions. We allocate a portion of Ionis’ development, R&D support and general and administrative expenses to Akcea for work Ionis performs on behalf of ~~Akcea.~~Akcea and we bill Akcea for these expenses.

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 condensed 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 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 historical exercise patterns. For the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, we used the following weighted-average assumptions in our Black-Scholes calculations:

Ionis Employee Stock Options:

Nine Months Ended
September 30,

2019 2018
Risk-free interest rate 2.3 % 2.3 %
Dividend yield 0.0 % 0.0 %
Volatility 60.3 % 63.1 %
Expected life 4.6 years 4.6 years

~~Ionis Board of Director Stock Options:~~

	Nine Months Ended September 30,						Six Months Ended June 30,
	2019			2018			2020			2019
Risk-free interest rate		1.9	%		2.8	%		1.6	%		2.4	%
Dividend yield		0.0	%		0.0	%		0.0	%		0.0	%
Volatility		60.7	%		61.5	%		58.9	%		60.3	%
Expected life	6.6 years			6.6 years			4.7 years			4.6 years

Ionis ESPP:

	Nine Months Ended September 30,						Six Months Ended June 30,
	2019			2018			2020			2019
Risk-free interest rate		2.4	%		1.8	%		1.1	%		2.5	%
Dividend yield		0.0	%		0.0	%		0.0	%		0.0	%
Volatility		45.6	%		47.3	%		47.2	%		45.5	%
Expected life	6 months			6 months			6 months			6 months

Ionis RSU’s:

The fair value of RSUs is based on the market price of our common stock on the date of grant. RSUs vest annually over a four-year period. The weighted-average grant date fair value of RSUs granted to employees for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was ~~$59.79 per share. The weighted-average grant date fair value of RSUs granted to our board of directors for the nine months ended September 30, 2019 was $64.65~~$64.31 per share.

In addition to our stock plans, Akcea has its own stock plan under which it grants stock 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 ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~

2019:

Akcea Employee Stock Options:

	Nine Months Ended September 30,						Six Months Ended June 30,
	2019			2018			2020			2019
Risk-free interest rate		2.3	%		2.7	%		1.3	%		2.5	%
Dividend yield		0.0	%		0.0	%		0.0	%		0.0	%
Volatility		75.6	%		77.1	%		74.5	%		76.3	%
Expected life	6.1 years			6.1 years			6.1 years			6.1 years

Akcea Board of Directors Stock Options:

	Nine Months Ended September 30,						Six Months Ended June 30,
	2019			2018			2020			2019
Risk-free interest rate		1.8	%		2.9	%		0.8	%		1.9	%
Dividend yield		0.0	%		0.0	%		0.0	%		0.0	%
Volatility		73.8	%		78.2	%		75.3	%		74.3	%
Expected life	6.3 years			6.4 years			5.7 years			6.3 years

Akcea ESPP:

	Nine Months Ended September 30,						Six Months Ended June 30,
	2019			2018			2020			2019
Risk-free interest rate		2.4	%		1.9	%		1.0	%		2.5	%
Dividend yield		0.0	%		0.0	%		0.0	%		0.0	%
Volatility		60.0	%		64.2	%		71.9	%		64.1	%
Expected life	6 months			6 months			6 months			6 months

Akcea RSU’s:

The fair value of RSUs is based on the market price of Akcea’s common stock on the date of grant. Akcea has granted RSUs with various vesting terms between six months and four years. The weighted-average grant date fair value of RSUs granted to employees for the six months ended June 30, 2020 was $15.76 per share.

The following table summarizes stock-based compensation expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (in thousands).

Three Months Ended
September 30,

Nine Months Ended
September 30,

2019 2018 2019 2018
Cost of products sold $ 127 $ — $ 383 $ —
Research, development and patent 23,744 18,780 71,935 57,698
Selling, general and administrative 255 16,103 39,246 39,512
Total non-cash stock-based compensation expense $ 24,126 $ 34,883 $ 111,564 $ 97,210

~~In the third quarter of 2019, 3 Akcea executive officers terminated their employment~~ Our non-cash stock-based compensation expense included $16.1 million and ~~entered into separation agreements with Akcea. As a result, in the third quarter of 2019, Akcea reversed $19.1~~$23.4 million of stock-based compensation expense ~~it had previously recognized related~~for Akcea employees for the three and six months ended June 30, 2020, respectively, compared to $14.4 million and $32.9 million for the ~~executive officers’ stock options and RSUs that were no longer going to vest.~~same periods in 2019.

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Cost of products sold	$	350	$	137	$	587	$	255
Research, development and patent		26,016		23,756		51,573		48,191
Selling, general and administrative		22,076		18,040		37,073		38,991
Total non-cash stock-based compensation expense	$	48,442	$	41,933	$	89,233	$	87,437

As of ~~September~~June 30, ~~2019,~~2020, total unrecognized estimated non-cash stock-based compensation expense related to non-vested stock options and RSUs was ~~$143.9~~$137.8 million and ~~$71.3~~$103.7 million, respectively. Our actual expenses may differ from these estimates because we will adjust our unrecognized non-cash stock-based compensation expense for future forfeitures. We expect to recognize the cost of non-cash stock-based compensation expense related to non-vested stock options and RSUs over a weighted average amortization period of ~~1.2~~1.3 years and ~~1.6~~1.7 years, respectively.

~~Amendment~~Amendments to Equity Plan

In June ~~2019,~~2020, after receiving approval from our stockholders, we amended our ~~2011 Equity Incentive Plan to increase the total number of shares reserved for issuance under the plan from 16 million to 23 million shares.~~2002 Non-Employee Directors’ Stock Option Plan. The amendments included:

●

An increase to the total number of shares reserved for issuance under the plan from 2 million to 2.8 million shares;

●

A reduction to the amount of the automatic awards under the plan;

●

A revision to the vesting schedule of awards; and

●

An extension of the term of the plan.

Share Repurchase Program

In September 2019, our board of directors approved an initial share repurchase program of up to ~~$125~~$125 million of our common stock. ~~Our stock repurchase program has no expiration date. To date,~~In 2019, we ~~have 0t~~ repurchased ~~any~~535,000 shares for $34.4 million. In the first quarter of ~~our common stock.~~2020, we repurchased an additional 1.5 million shares for $90.6 million.

Impact of Recently Issued Accounting Standards

In June 2016, the FASB issued guidance that changes the measurement of credit losses for most financial assets and certain other instruments. If we have credit losses, this updated guidance requires us to record allowances for these instruments under a new expected credit loss model. This model requires us to estimate the expected credit loss of an instrument over its lifetime, which represents the portion of the amortized cost basis we do not expect to collect. The new guidance requires us to remeasure our allowance in each reporting period we have credit losses. ~~The~~We adopted this 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 do~~This guidance did not ~~anticipate this guidance will~~ have ~~a significant~~an impact on our condensed consolidated financial ~~statements and disclosures.~~statements.

In August 2018, the FASB issued clarifying guidance on how to account for implementation costs related to cloud-servicing arrangements. The guidance states that if these fees qualify to be capitalized and amortized over the service period, they need to be expensed in the same line item as the service expense and recognized in the same balance sheet category. The update can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. ~~The updated guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.~~ We ~~plan to adopt~~adopted this guidance on January 1, 2020 on a prospective basis. ~~We do~~This guidance did not ~~anticipate this guidance will~~ have ~~a significant~~an impact on our condensed consolidated financial ~~statements and disclosures.~~statements.

In August 2018, the FASB updated its disclosure requirements related to Level 1, 2 and 3 fair value measurements. The update included deletion and modification of certain disclosure requirements and additional disclosure related to Level 3 measurements. The guidance is effective for fiscal years beginning after December 31, 2019 and early adoption is permitted. We adopted this updated guidance on January 1, 2019 and it did not have a significant impact on our disclosures.

In November 2018, the FASB issued clarifying guidance of the interaction between the collaboration accounting guidance and the new revenue recognition guidance we adopted on January 1, 2018 (Topic 606). Below is the clarifying guidance and how we ~~will implement~~implemented it (in italics):

When a participant is considered a customer in a collaborative arrangement, all of the associated accounting under Topic 606 should be applied

●

We ~~will apply~~are applying all of the associated accounting under Topic 606 when we determine a participant in a collaborative arrangement is a customer

Adds “unit of account” concept to collaboration accounting guidance to align with Topic 606. The “unit of account” concept is used to determine if revenue is recognized or if a contra expense is recognized from consideration received under a collaboration

●

We ~~will~~ use the “unit of account” concept when we receive consideration under a collaborative arrangement to determine when we recognize revenue or a contra expense

The clarifying guidance precludes us from recognizing revenue under Topic 606 when we determine a transaction with a collaborative partner is not a customer and is not directly related to the sales to third parties

●

When we conclude a collaboration partner is not a customer and is not directly related to the sales to third parties, we ~~will~~do not recognize revenue for the transaction

~~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~~adopted this new guidance on January 1, 2020. ~~We are currently assessing the effects it could~~This guidance did not have a significant impact on our condensed consolidated financial ~~statements and disclosures.~~statements.

3. Investments

As of September 30, 2019, we had invested our excess cash primarily 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 ~~September~~June 30, ~~2019:~~2020:

One year or less	69	%
After one year but within two years	2223	%
After two years but within three years	98	%
Total	100	%

As illustrated above, at ~~September~~June 30, ~~2019, 91~~2020, 92 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.

We invest in available-for-sale securities with strong credit ratings and an investment grade rating at or above A-1, P-1 or F-1 by Standard & Poor’s, or S&P, Moody’s or Fitch, respectively.

At ~~September~~June 30, ~~2019,~~2020, we had an ownership interest of less than 20 percent in 45 private companies and 2 public companies with which we conduct business. The privately-held companies are Atlantic Pharmaceuticals Limited, Dynacure SAS, Empirico, Inc., Seventh Sense Biosystems and Suzhou Ribo Life Science Co, Ltd. The publicly-traded companies are ~~ProQR~~ATL and ~~ATL.~~ProQR.

2221

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

			Gross Unrealized					Estimated				Gross Unrealized					Estimated
September 30, 2019	Cost (1)		Gains		Losses			Fair Value
June 30, 2020										Cost (1)		Gains		Losses			Fair Value
Available-for-sale securities:
Corporate debt securities (2)	$	752,495	$	1,484	$	(148	)	$	753,831	$	652,555	$	4,275	$	(17	)	$	656,813
Debt securities issued by U.S. government agencies		176,589		321		(45	)		176,865		139,810		673		(9	)		140,474
Debt securities issued by the U.S. Treasury (2)		331,371		264		(17	)		331,618		325,925		815		(7	)		326,733
Debt securities issued by states of the U.S. and political subdivisions of the states		33,986		4		(27	)		33,963		68,651		214		(3	)		68,862
Other municipal debt securities		2,948		—		—			2,948		902		7		—			909
Total securities with a maturity of one year or less		1,297,389		2,073		(237	)		1,299,225		1,187,843		5,984		(36	)		1,193,791
Corporate debt securities		539,820		3,108		(161	)		542,767		485,487		8,780		(121	)		494,146
Debt securities issued by U.S. government agencies		106,536		101		(137	)		106,500		118,538		521		(28	)		119,031
Debt securities issued by the U.S. Treasury		34,692		—		(38	)		34,654		58,334		588		(4	)		58,918
Debt securities issued by states of the U.S. and political subdivisions of the states		9,283		25		(6	)		9,302		50,514		371		(3	)		50,882
Total securities with a maturity of more than one year		690,331		3,234		(342	)		693,223		712,873		10,260		(156	)		722,977
Total available-for-sale securities	$	1,987,720	$	5,307	$	(579	)	$	1,992,448	$	1,900,716	$	16,244	$	(192	)	$	1,916,768
Equity securities:
Total equity securities included in other current assets (3)	$	1,212	$	—	$	(606	)	$	606	$	4,712	$	—	$	(2,322	)	$	2,390
Total equity securities included in deposits and other assets (4)											15,019		9,318		—			24,337
Total equity securities											19,731		9,318		(2,322	)		26,727
Total available-for-sale and equity securities	$	1,988,932	$	5,307	$	(1,185	)	$	1,993,054	$	1,920,447	$	25,562	$	(2,514	)	$	1,943,495

			Gross Unrealized					Estimated				Gross Unrealized					Estimated
December 31, 2018	Cost (1)		Gains		Losses			Fair Value
December 31, 2019										Cost (1)		Gains		Losses			Fair Value
Available-for-sale securities:
Corporate debt securities(2)	$	956,879	$	13	$	(1,858	)	$	955,034	$	669,665	$	1,451	$	(43	)	$	671,073
Debt securities issued by U.S. government agencies		168,839		3		(104	)		168,738		188,216		303		(43	)		188,476
Debt securities issued by the U.S. Treasury(2)		244,640		15		(77	)		244,578		327,670		232		(27	)		327,875
Debt securities issued by states of the U.S. and political subdivisions of the states (2)		63,572		—		(323	)		63,249		21,065		26		(5	)		21,086
Total securities with a maturity of one year or less		1,433,930		31		(2,362	)		1,431,599		1,206,616		2,012		(118	)		1,208,510
Corporate debt securities		299,018		194		(1,286	)		297,926		428,627		2,911		(43	)		431,495
Debt securities issued by U.S. government agencies		107,789		194		(109	)		107,874		140,988		57		(117	)		140,928
Debt securities issued by the U.S. Treasury		15,600		—		(24	)		15,576		35,822		9		(12	)		35,819
Debt securities issued by states of the U.S. and political subdivisions of the states		16,980		—		(287	)		16,693		19,309		18		(6	)		19,321
Total securities with a maturity of more than one year		439,387		388		(1,706	)		438,069		624,746		2,995		(178	)		627,563
Total available-for-sale securities	$	1,873,317	$	419	$	(4,068	)	$	1,869,668	$	1,831,362	$	5,007	$	(296	)	$	1,836,073
Equity securities:
Total equity securities included in other current assets (3)		1,212		137		—			1,349		4,712		—		(870	)		3,842
Total equity securities included in deposits and other assets (4)											10,000		—		—			10,000
Total equity securities											14,712		—		(870	)		13,842
Total available-for-sale and equity securities	$	1,874,529	$	556	$	(4,068	)	$	1,871,017	$	1,846,074	$	5,007	$	(1,166	)	$	1,849,915

(1)	~~Our~~We hold our available-for-sale securities ~~are held~~ at amortized cost.

(2)	Includes investments classified as cash equivalents on our condensed consolidated balance sheet.

(3)	Our equity securities included in other current assets consisted of our investments in publicly-traded companies. We recognize publicly-traded equity securities at fair value.

(4)

Our equity securities included in deposits and other assets consisted of our investments in privately-held companies. We recognize our private company equity securities at cost minus impairments, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer on our condensed consolidated balance sheet.

2322

The following is a summary of our investments we consider to be temporarily impaired at ~~September~~June 30, ~~2019.~~2020 (in thousands). We believe that the decline in value of these securities is temporary and is 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 our debt securities to maturity. Therefore, we anticipate full recovery of our debt securities’ amortized cost basis at maturity.

			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
(In thousands)	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		104	$	304,705	$	(268	)	$	31,675	$	(41	)	$	336,380	$	(309	)		37	$	87,460	$	(138	)	$	—	$	—		$	87,460	$	(138	)
Debt securities issued by U.S. government agencies		28		102,733		(156	)		22,974		(26	)		125,707		(182	)		10		44,389		(33	)		26,997		(4	)		71,386		(37	)
Debt securities issued by the U.S. Treasury		9		77,918		(55	)		—		—			77,918		(55	)		9		110,067		(11	)		—		—			110,067		(11	)
Debt securities issued by states of the U.S. and political subdivisions of the states		13		1,498		(1	)		15,597		(32	)		17,095		(33	)		22		7,763		(6	)		—		—			7,763		(6	)
Total temporarily impaired securities		154	$	486,854	$	(480	)	$	70,246	$	(99	)	$	557,100	$	(579	)		78	$	249,679	$	(188	)	$	26,997	$	(4	)	$	276,676	$	(192	)

4. Fair Value Measurements

We use a three-tier fair value hierarchy to prioritize the inputs used in our fair value measurements. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets, which includes our money market funds and treasury securities classified as available-for-sale securities and our investment in equity securities in publicly-held biotechnology companies; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable, which includes our fixed income securities and commercial paper classified as available-for-sale securities; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring us to develop our own assumptions. We classify ~~the majority~~most of our securities as Level 2. We obtain the fair value of our Level 2 investments from our custodian bank or from a professional pricing service. We validate the fair value of our Level 2 investments by understanding the pricing model used by the custodian banks or professional pricing service provider and comparing that fair value to the fair value based on observable market prices.

The following tables present the major security types we held at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 that we regularly measure and carry at fair value. At ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019, a portion of our ProQR investment was subject to trading restrictions that extend to the fourth quarter of ~~2019;~~2020; as a result, we included a lack of marketability discount in valuing this investment, which is a Level 3 input. The amount we owned in ProQR did not change from December 31, ~~2018~~2019 to ~~September~~June 30, ~~2019~~2020. The tables below 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
September 30, 2019

Quoted Prices in
Active Markets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable Inputs
(Level 3)

Cash equivalents (1) $ 202,904 $ 202,904 $ — $ —
Corporate debt securities (2) 1,296,598 — 1,296,598 —
Debt securities issued by U.S. government agencies (3) 283,365 — 283,365 —
Debt securities issued by the U.S. Treasury (4) 366,272 366,272 — —
Debt securities issued by states of the U.S. and political subdivisions of the states (3) 43,265 — 43,265
—

Other municipal debt securities (3)
2,948 — 2,948 —
Investment in ProQR Therapeutics N.V. (5)
606 — — 606
Total $ 2,195,958 $ 569,176 $ 1,626,176 $ 606

	At June 30, 2020		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents (1)	$	363,019	$	363,019	$	—	$	—
Corporate debt securities (2)		1,150,959		—		1,150,959		—
Debt securities issued by U.S. government agencies (3)		259,505		—		259,505		—
Debt securities issued by the U.S. Treasury (4)		385,651		385,651		—		—
Debt securities issued by states of the U.S. and political subdivisions of the states (5)		119,744		—		119,744		—
Other municipal debt securities (3)		909		—		909		—
Investment in ProQR Therapeutics N.V. (6)		2,390		684		—		1,706
Total	$	2,282,177	$	749,354	$	1,531,117	$	1,706

2423

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 (6) 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 (7) 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, 2019		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents (1)	$	418,406	$	418,406	$	—	$	—
Corporate debt securities (7)		1,102,568		—		1,102,568		—
Debt securities issued by U.S. government agencies (8)		329,404		—		329,404		—
Debt securities issued by the U.S. Treasury (3)		363,694		363,694		—		—
Debt securities issued by states of the U.S. and political subdivisions of the states (3)		40,407		—		40,407		—
Investment in ProQR Therapeutics N.V. (6)		4,506		—		—		4,506
Total	$	2,258,985	$	782,100	$	1,472,379	$	4,506

The following footnotes reference lines on our condensed consolidated balance sheet:

(1)	Included in cash and cash equivalents.

(2)	$~~16.6~~32.4 million was included in cash and cash equivalents, with the difference included in short-term investments.

(3)	Included in short-term investments.

(4)	$~~3.0~~59.7 million was included in cash and cash equivalents, with the difference included in short-term investments.

(5)	~~Included in other current assets.~~

~~(6)~~

$~~50.2~~6.2 million was included in cash and cash equivalents, with the difference included in short-term investments.

(6)	Included in other current assets.

(7)	$~~14.2~~19.0 million was included in cash and cash equivalents, with the difference included in short-term investments.

(8)	$0.8 million was included in cash and cash equivalents, with the difference included in short-term investments.

Convertible Notes

Our ~~1 percent notes~~1% Notes and 0.125% Notes had a fair value of ~~$783.7~~$340.5 million and $536.5 million at ~~September~~June 30, ~~2019.~~2020, respectively. We determine the fair value of our notes based on quoted market prices for these notes, which are Level 2 measurements because the notes do not trade regularly.

5. ~~Operating Leases~~Income Taxes

The Coronavirus Aid, Relief, and Economic Security, or CARES, Act was enacted in March 2020. We ~~lease a facility adjacent~~considered our ability to estimate annual effective tax rates based on our ~~manufacturing facility that has laboratory~~pre-tax income projections, the income tax effects of the CARES Act, the realizability of our net deferred tax assets and ~~office space that we use to support~~the appropriateness of our ~~manufacturing facility. We lease this space under a non-cancelable operating lease with an initial term ending in June 2021 and an option to extend the lease for up to 2 five-year periods.~~valuation allowances.

~~We also lease additional office space~~ Under the Tax Cut and ~~we sublease a portion~~Jobs Act of 2017, the utilization of federal net operating losses was limited to 80 percent of taxable income. The CARES Act temporarily removed this ~~space~~limitation and provides for the utilization of net operating loss carryforwards to ~~Akcea. We lease this space under a non-cancelable operating lease with an initial term ending~~offset 100 percent of taxable income. The 80 percent limitation enacted by the Tax Act is reinstated for tax years beginning in ~~June 2023 and an option to extend the lease for 1 five-year period. The sublease with Akcea is eliminated in our condensed consolidated financial statements.~~2021.

In 2019, we recorded income tax expense related to Akcea ~~entered into an~~due to the 80 percent limitation on the utilization of net operating ~~lease agreement for office space located~~losses in ~~Boston, Massachusetts for its new corporate headquarters~~effect at the time. As a result of the temporary change in tax law provided by the CARES Act, we recorded a $1.7 million tax benefit in the ~~second~~first quarter of ~~2018. The lease commencement date was in August 2018 and Akcea took occupancy in September 2018. Akcea is leasing this space under~~2020 as we will now utilize federal net operating loss carryforwards to offset 100 percent of Akcea’s taxable income for 2019. We recorded the tax benefit as 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 leasediscrete item in the ~~initial amount~~first quarter of ~~$2.4 million, to be reduced to $1.8 million on~~2020 because that was when the ~~third anniversary of the rent commencement date and to $1.2 million on the fifth anniversary of the rent commencement date if Akcea meets certain conditions set forth in the lease at each such time.~~

~~When we determined our lease term for our operating lease right-of-use assets and lease liabilities for these leases, we did not include the extension options for these leases.~~

~~Amounts related to our operating leases were as follows (dollar amounts in millions):~~

At September 30, 2019

Right-of-use operating lease assets (1) $ 13.0
Operating lease liabilities (2) $ 17.7
Weighted average remaining lease term 8.3 years
Weighted average discount rate 7.5 %

~~(1)~~

~~Included in deposits and other assets on our condensed consolidated balance sheet.~~

~~(2)~~

~~Current portion of $2.1 million was included in current portion of long-term obligations on our condensed consolidated balance sheet, with the difference included in long-term obligations.~~

~~During the nine months ended September 30, 2019, we paid $2.9 million of rent payments, which~~CARES Act was ~~included in operating activities in our condensed consolidated statement of cash flows.~~

~~As of September 30, 2019, the payments for our operating lease liabilities are as follows (in thousands):~~

Operating Leases
Remainder of 2019 $ 801
Years ending December 31,
2020 3,282
2021 3,019
2022 2,781
2023 2,520
Thereafter 11,861
Total minimum lease payments 24,264
Less:
Imputed interest (6,533 )
Total operating lease liabilities $ 17,731

Rent expense was $0.8 million and $1.0 million for the three months ended September 30, 2019 and 2018, respectively. Rent expense was $2.7 million and $1.8 million for the nine months ended September 30, 2019 and 2018, respectively.

~~6. Income Taxes~~enacted.

We recorded an income tax benefit of ~~$14.9~~$0.4 million and ~~an income tax expense of $9.2~~$3.7 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively, compared to an income tax benefit of $6.9 million and income tax expense of ~~$0.5 million and $0.8~~$24.1 million for the same periods in ~~2018, respectively. The~~2019. We recorded an income tax benefit ~~recorded~~ for the ~~three months ended September 30, 2019 varies~~first half of 2020 primarily due to Ionis’ pre-tax loss for the period and the $1.7 million tax benefit related to Akcea. We did not record a tax benefit as a result of Akcea’s pre-tax loss in the first half of 2020 because Akcea maintains a full valuation allowance against its deferred tax assets.

Our effective tax rate may vary from ~~what we would have recorded using~~ the U.S. federal statutory rate due to the change in the mix of earnings in tax jurisdictions with different statutory rates, benefits related to tax credits, the tax impact of non-deductible expenses and other permanent differences between income before taxes and taxable income, and changes to tax laws or rates. Our effective income tax rate of 3.5 percent for the six months ended June 30, 2020 differed from the U.S. federal statutory rate of 21 percent primarily due to ~~a state~~Ionis’ pre-tax loss for the period and the $1.7 million tax ~~benefit resulting from our combined state tax filings with Akcea, estimated R&D and orphan drug credits, excess tax benefits related to share-based compensation and a~~ benefit related to a change in the estimated tax value of Akcea shares we received in 2018. The increase in our income tax expense for the nine months ended September 30, 2019, compared to the same period in 2018, was primarily due to our expectation that we will generate U.S. federal and state taxable income in 2019. We expect to utilize our deferred tax assets to partially offset our U.S. federal taxable income.Akcea.

7.6. Collaborative Arrangements and Licensing Agreements

Below, we have included our collaborations with substantive changes during the first ~~nine~~six months of ~~2019~~2020 from those included in Note 6 of our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~

2019.

Strategic Partnership

Biogen

We have several strategic collaborations with Biogen focused on using antisense technology to advance the treatment of neurological disorders. These collaborations combine our expertise in creating antisense medicines with Biogen’s expertise in developing therapies for neurological disorders. We developed and licensed to Biogen SPINRAZA, our approved medicine to treat people with spinal muscular atrophy, or SMA. In December 2017, we entered into a collaboration with Biogen to identify new antisense medicines for the treatment of SMA. We and Biogen are currently developing 8 medicines to treat neurodegenerative diseases under these collaborations, including medicines to treat people with ALS, Alzheimer’s diseaseand Parkinson’s disease. In addition to these medicines, our collaborations with Biogen include a substantial research pipeline that addresses a broad range of neurological diseases. From inception through ~~September 2019,~~June 2020, we have received more than $~~2.3~~2.6 billion from our Biogen ~~collaborations, including $~~1 ~~billion we received from Biogen in the second quarter of 2018 for our 2018 strategic neurology collaboration.~~collaborations.

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, we earned the following revenue from our relationship with Biogen (in millions, except percentage amounts):

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
SPINRAZA royalties (commercial revenue)	$	81.7		$	70.0		$	211.9		$	167.7		$	71.7		$	70.5		$	137.8		$	130.2
R&D revenue		25.5			34.8			81.9			66.9			26.0			31.9			47.4			56.4
Total revenue from our relationship with Biogen	$	107.2		$	104.8		$	293.8		$	234.6		$	97.7		$	102.4		$	185.2		$	186.6
Percentage of total revenue		64	%		72	%		47	%		58	%		67	%		63	%		66	%		41	%

~~Neurology Collaborations~~During the first six months of 2020, we did not have any changes to our performance obligations or the timing in which we expect to recognize revenue under our Biogen collaborations, except as noted below.

~~2018 Strategic Neurology~~

~~In the second quarter~~Our condensed consolidated balance sheet at June 30, 2020 and December 31, 2019included deferred revenue of ~~2019, we achieved 2 $7.5~~$486.6 million ~~milestone payments from Biogen when we advanced 2 new targets for unidentified neurological diseases~~under this collaboration. These milestone payments did not create new performance obligations because they are part of our original R&D services performance obligation. Therefore, we included these amounts in our transaction price for our R&D services performance obligation. We are recognizing revenue for our R&D services performance obligation based on the percentage of completion. From inception through September 2019, we have included $582and $525.8 million, ~~in payments in the transaction price for our R&D services performance obligation under this collaboration. We currently estimate we will satisfy our performance obligation in June 2028.~~

~~We will achieve the next payment of $7.5 million if Biogen designates another target under this collaboration.~~

~~2013 Strategic Neurology~~

~~In the third quarter of 2019, we achieved an $8 million milestone payment when Biogen initiated a Phase 1/2 study of ION859 (IONIS-LRRK2~~_Rx) ~~for the treatment of people with Parkinson’s disease~~ ~~under this collaboration. We concluded that this milestone payment was not~~respectively, related to our R&D services performance obligation. Therefore, we recognized the $8 million milestone payment in full in the third quarter of 2019 because we do not have any performance obligations related to this payment.relationship with Biogen.

From inception through September 2019, we have included $145 million in total payments in the transaction price for our R&D services performance obligation under this collaboration that we are recognizing over our estimated period of performance. We are recognizing revenue as we perform services based on our effort to satisfy our performance obligation relative to the total effort expected to satisfy our performance obligation. In the third quarter of 2019, we updated our estimate of the total effort we expect to expend to satisfy our performance obligation. As of September 30, 2019, we have completed a ~~significant portion of the research and development services. We expect to complete the remainder of our services in 2020.~~ As a result, we recorded a cumulative catch up adjustment of $16.5 million to decrease revenue in the third quarter of 2019. We will recognize this amount over the estimated remaining period we will perform services.

2012 Neurology

In the ~~second~~first quarter of ~~2019,~~2020, we achieved a $7.5 million milestone payment from Biogen when we advanced IONIS-MAPT_Rx~~for Alzheimer’s disease~~ ~~under this collaboration.~~ in development. This milestone payment did not create a new performance obligation because it is part of our performance obligation to conduct development of IONIS-MAPT_Rx. Therefore, we included the $7.5 million milestone payment in our transaction price for our IONIS-MAPT_Rx development performance obligation. We are recognizing revenue for our IONIS-MAPT_Rx development performance obligation based on the percentage of completion. From inception through ~~September 2019,~~June 2020, we have included ~~$25.5~~$45.0 million in the transaction price for our IONIS-MAPT_Rx development performance obligation. We currently estimate we will satisfy our performance obligation in ~~September 2020.~~2022. In August 2020, we achieved a $12 million milestone payment from Biogen when we advanced IONIS-MAPT_Rx. We will achieve the next payment of up to $25 million if we continue to advance IONIS-MAPT_Rx.

We also have a separate performance obligation to perform R&D services under this collaboration. We have allocated $40 million in total payments to the transaction price for our R&D services performance obligation. In the third quarter of 2019, we completed our R&D services performance obligation when we designated a development candidate and Biogen accepted the development candidate. Biogen’s decision to accept the development candidate was not within our control. We were recognizing revenue as we performed services based on our effort to satisfy our performance obligation relative to the total effort expected to satisfy our performance obligation. Because Biogen accepted the development candidate, we recognized $6.3 million of accelerated revenue in the third quarter of 2019.2013 Strategic Neurology

In July 2020, we achieved $18 million in milestone payments from Biogen when Biogen initiated a Phase 1/2 trial for ION464, a medicine targeting alpha-synuclein to treat patients with multiple system atrophy. We will achieve the next payment of up to $10 million if ~~we advance a program~~Biogen advances 1 of the medicines under this collaboration.

Research, Development and Commercialization Partners

AstraZeneca

We have 2 collaborations with AstraZeneca, 1 focused on the treatment of cardiovascular, renal and metabolic diseases and a second focused on the treatment of oncology diseases. We and AstraZeneca are currently developing several medicines under these collaborations, including medicines to treat people with cardiovascular disease, a genetically associated form of kidney disease, nonalcoholic steatohepatitis, or NASH and cancer. From inception through June 2020, we have received more than $300 million from our AstraZeneca collaborations.

During the ~~nine~~three and six months ended June 30, 2020 and 2019, we earned the following revenue from our relationship with AstraZeneca (in millions, except percentage amounts):

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
R&D revenue	$	16.8		$	3.8		$	30.5		$	7.8
Percentage of total revenue		12	%		2	%		11	%		2	%

Our condensed consolidated balance sheet at June 30, 2020 and December 31, 2019 included deferred revenue of $17.5 million and $25.0 million, respectively, related to our relationship with AstraZeneca.

During the first six months of ~~2019,~~2020, we did not have any changes to our performance obligations or the timing in which we expect to recognize revenue under our ~~Biogen~~AstraZeneca collaborations, except as noted ~~above.~~below.

~~Our condensed consolidated balance sheet at September 30, 2019~~Cardiovascular, Renal and ~~December 31, 2018included deferred revenue of $532.4 million and $580.9 million, respectively, related to our relationship with Biogen.~~

~~Research, Development and Commercialization Partners~~Metabolic Diseases Collaboration

~~Bayer~~

In ~~May 2015,~~the first quarter of 2020, we ~~entered into an exclusive license agreement with Bayer to develop and commercialize our programs~~achieved a $10 million milestone payment from AstraZeneca when AstraZeneca advanced ION532, a medicine targeting ~~FXI~~APOL1 for the treatment of ~~clotting disorders. In October 2019, Bayer decided it would advance IONIS-FXI-L~~_Rx ~~following positive clinical results and~~kidney disease, in development. We concluded that this milestone payment was not related to our R&D services performance obligation. Therefore, we ~~earned a $10~~recognized the $10 million milestone ~~payment. At September 30, 2019, we determined that it was not probable that we could earn this milestone payment. As such,~~payment in full in the first quarter of 2020 because we did not ~~recognize~~have any revenue associated with it during the third quarter of 2019. Bayer is now responsible for all global development, regulatory and commercialization activities and costs for the FXI program. From inception through September 2019, we have received over $175 million from our Bayer collaboration, not including the $10 million milestone payment we earned in the fourth quarter of 2019. performance obligations related to this payment. We will achieve the next payment of ~~$20 million when Bayer initiates~~up to $30 millionif AstraZeneca advances a ~~Phase 3 study~~medicine under ~~the FXI program.~~this collaboration.

~~GSK~~

Oncology Collaboration

In March 2010, we entered into an alliance with GSK using our antisense drug discovery platform to discover and develop new drugs against targets for rare and serious diseases, including infectious diseases and some conditions causing blindness. Our collaboration with GSK includes 2 drugs targeting hepatitis B virus, or HBV: IONIS-HBV_Rx ~~and IONIS-HBV-L~~_Rx~~, which we designed to reduce~~ the ~~production of viral proteins associated with HBV infection. In the third~~second quarter of ~~2019, following positive Phase 2 results, GSK licensed our HBV program, for which~~2020, we earned a ~~$25 million license fee. From inception through September 2019, we have received more than $164 million in payments under our collaboration with GSK, not including the $25~~$13 million license fee ~~which we expect~~when AstraZeneca licensed ION736, a medicine targeting FOXP3 to ~~receive in the fourth quarter of 2019.~~treat cancer. We ~~will achieve the next payment of $15 million when GSK initiates a Phase 3 study for a drug under this program.~~

~~We identified a new performance obligation when we granted GSK~~determined that the license ~~of the HBV program and assignment of related intellectual property rights in the third quarter of 2019 because the license is~~was distinct from our other performance obligations. We recognized the ~~$25 million~~ license fee for ~~the HBV program~~ION736 as revenue ~~at that time~~in the second quarter of 2020 because ~~GSK~~AstraZeneca 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 ~~GSK.~~AstraZeneca in the second quarter of 2020.We will achieve the next payment of $12 millionwhen AstraZeneca advances ION736 in development.

~~During the three and nine months ended September 30, 2019 and 2018, we earned the following revenue from our relationship with GSK (in millions, except percentage amounts):~~

Three Months Ended
September 30,

Nine Months Ended
September 30,

2019 2018 2019 2018
R&D revenue $ 25.1 $ 0.1 $ 25.3 $ 1.5
Percentage of total revenue 15 % 0 % 4 % 0 %

~~We did 0t have any deferred revenue from our relationship with GSK at September 30, 2019 or December 31, 2018.~~Janssen Biotech, Inc.

~~Roche~~

We have 2 ~~collaborations~~a collaboration with ~~Roche,~~ 1Janssen Biotech, Inc. to discover and develop ~~treatments for Huntington's disease,~~antisense drugs that can be locally administered, including oral delivery, to treat immune-mediated diseases of the gastrointestinal tract, or ~~HD, and~~ 1 to ~~develop IONIS-FB-L~~_RxGI. Janssen is currently advancing ION253, a medicine for the treatment of ~~complement-mediated diseases.~~ immune-mediated GI disease, under this collaboration.

In ~~December 2017, upon completion of the Phase 1/2 study of IONIS-HTT~~_Rx~~, Roche exercised its option to license IONIS-HTT~~_Rx~~and is now responsible for the global development, regulatory and commercialization activities for IONIS-HTT~~_Rx~~. In October 2018,~~July 2020, we ~~entered into~~achieved a ~~collaboration agreement with Roche to~~ ~~develop IONIS-FB-L~~_Rx 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$5 million milestone payment from Janssen when Janssen initiated a Phase ~~2 study in patients with dry AMD. In addition, we plan to evaluate the medicine~~1 trial for ~~a severe and rare renal indication.~~ ~~Roche~~ ~~has the option to license IONIS-FB-L~~_Rx ~~at the completion of these studies. Upon licensing,~~ ~~Roche~~ ~~will be responsible for all further global development, regulatory and commercialization activities and costs.From inception through June 2019, we have received over $220~~ ~~million from our Roche collaborations, including $~~35 ~~million in milestone payments we earned in the first quarter of 2019 when Roche dosed the first patient in a Phase 3 study for IONIS-HTT~~_Rx.ION253. We will achieve the next payment of $15$5 million if ~~Roche~~Janssen advances ~~IONIS-HTT~~_Rx.

~~During the three and nine months ended September 30, 2019 and 2018, we earned the following revenue from our relationship with Roche (in millions, except percentage amounts):~~

Three Months Ended
September 30,

Nine Months Ended
September 30,

2019 2018 2019 2018
R&D revenue $ 4.7 $ 1.8 $ 52.3 $ 5.4
Percentage of total revenue 3 % 1 % 8 % 1 %

~~Our revenue~~ION253 in ~~the first nine months of 2019 included $35 million of milestone payments we earned when Roche dosed the first patient in the Phase 3 study of IONIS-HTT~~_Rx in the first quarter of 2019. We recognized these milestone payments in full in the first quarter of 2019 because we do not have any performance obligations related to these milestone payments, as Roche is conducting the Phase 3 study of IONIS-HTT_Rx.

~~During the first nine months of 2019, we did not have any changes to our performance obligations or the timing in which we expect to recognize revenue under our Roche collaborations.~~

~~Our condensed consolidated balance sheet at September 30, 2019 and December 31, 2018included deferred revenue of $56.7 million and $72.6 million, respectively, related to our relationship with Roche.~~

~~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 this collaboration agreement. 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 condensed consolidated balance sheet.

~~Novartis~~

~~In January 2017, we and Akcea initiated a collaboration with Novartis to develop and commercialize AKCEA-APO(a)-L~~_Rx ~~and AKCEA-APOCIII-L~~_Rx.~~Under the collaboration agreement, Novartis has an exclusive option to further develop and commercialize AKCEA-APO(a)-L~~_Rx ~~and AKCEA-APOCIII-L~~_Rx. 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. ~~In the first quarter of 2019, Novartis licensed AKCEA-APO(a)-L~~_Rx~~. Novartis is responsible for conducting and funding all future development, regulatory and commercialization activities for AKCEA-APO(a)-L~~_Rx~~, including a global pivotal cardiovascular outcomes study, for which planning and initiation activities are underway.~~ ~~From inception through September 2019, we have received over $343~~ ~~million from our Novartis collaboration, including $150~~ ~~million we earned from Novartis in the first quarter of 2019 for the license of AKCEA-APO(a)-L~~_Rx~~. Akcea paid us $75 million as a sublicense fee in 2.8 million shares of Akcea common stock.~~

~~We identified a new performance obligation when we granted Novartis the license of AKCEA-APO(a)-L~~_Rx ~~in the first quarter of 2019 because the license is distinct from our other performance obligations. We recognized the $150 million license fee for AKCEA-APO(a)-L~~_Rx as revenue at that time because Novartis 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 Novartis.

~~Novartis has the option to purchase additional API of AKCEA-APO(a)-L~~_Rx ~~in the future at agreed upon terms and conditions under our collaboration agreement. We identified a new performance obligation when we delivered additional AKCEA-APO(a)-L~~_Rx API to Novartis in the third quarter of 2019 because the delivery of the API is distinct from our other performance obligations. We recognized $5.5 million in revenue for the API we sold to Novartis in the third quarter of 2019.

development.

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 condensed consolidated balance sheet.

~~During the three and nine months ended September 30, 2019 and 2018, we earned the following revenue from our relationship with Novartis (in millions, except percentage amounts):~~

Three Months Ended
September 30,

Nine Months Ended
September 30,

2019 2018 2019 2018
R&D revenue $ 8.5 $ 7.2 $ 176.3 $ 42.7
Percentage of total revenue 5 % 5 % 28 % 10 %

During the first nine months of 2019, we did not have any changes to our performance obligations, except as noted above, or the timing in which we expect to recognize revenue under our Novartis collaboration.

Our condensed consolidated balance sheet at September 30, 2019 and December 31, 2018 included deferred revenue of $10.8 million and $28.8 million, respectively, related to our relationship with Novartis.

~~Pfizer~~

~~In October 2019, Akcea initiated a collaboration with Pfizer for the license of AKCEA-ANGPTL3-L~~_Rx ~~to treat people with cardiovascular and metabolic diseases. Akcea is currently conducting a Phase 2 study of AKCEA-ANGPTL3-L~~_Rx ~~for the treatment of non-alcoholic fatty liver disease, or NAFLD. Pfizer is responsible for all development and regulatory activities and costs beyond those associated with the ongoing Phase 2 study.~~

~~Under the terms of the agreement, Akcea will receive a $250~~ million upfront license fee, upon closing the transaction, including receiving Hart-Scott Rodino clearance. Akcea is also eligible to receive development, regulatory and sales milestone payments of up to $~~1.3~~ ~~billion and tiered royalties in the mid-teens to low-20 percent~~ ~~range on annual worldwide net sales. Akcea has retained the rights to co-commercialize AKCEA-ANGPTL3-L~~_Rx ~~in the U.S. and certain additional markets. The license fee, milestone payments and royalties will be split equally between us and Akcea. Upon receipt of the upfront payment from Pfizer, Akcea expects to pay us its $125 million sublicense fee in 6.9 million shares of Akcea common stock.~~

8.7. Segment Information

We have 2 reportable segments, Ionis Core and Akcea Therapeutics. At ~~September~~June 30, ~~2019~~2020 we owned approximately 7576 percent of Akcea. Segment income (loss) from operations includes revenue less operating expenses attributable to each segment.

In our Ionis Core segment we are exploiting our antisense technology to generate a broad pipeline of first-in-class and/or best-in-class medicines for us and our partners. Our Ionis Core segment generates revenue from a multifaceted partnering strategy.

Akcea is a biopharmaceutical company focused on developing and commercializing medicines to treat patients with ~~rare~~serious and ~~serious~~rare diseases. Akcea generates revenue from TEGSEDI and WAYLIVRA product sales and from its collaborations.

The following tables show our segment revenue and income (loss) from operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (in thousands), respectively.

Three Months Ended June 30, 2020	Ionis Core			Akcea Therapeutics			Elimination of Intercompany Activity			Total
Revenue:
Commercial revenue:
SPINRAZA royalties	$	71,746		$	—		$	—		$	71,746
Product sales, net		—			16,364			—			16,364
Licensing and other royalty revenue		2,237			—			(613	)		1,624
Total commercial revenue		73,983			16,364			(613	)		89,734
R&D revenue under collaborative agreements		55,070			6,013			(5,280	)		55,803
Total segment revenue	$	129,053		$	22,377		$	(5,893	)	$	145,537
Total operating expenses	$	131,177		$	73,468		$	(7,354	)	$	197,291
Loss from operations	$	(2,124	)	$	(51,091	)	$	1,461		$	(51,754	)

Three Months Ended September 30, 2019	Ionis Core		Akcea Therapeutics			Elimination of Intercompany Activity			Total
Three Months Ended June 30, 2019											Ionis Core		Akcea Therapeutics		��	Elimination of Intercompany Activity			Total
Revenue:
Commercial revenue:
SPINRAZA royalties	$	81,672	$	—		$	—		$	81,672	$	70,502	$	—		$	—		$	70,502
Product sales, net		—		11,945			—			11,945		—		9,865			—			9,865
Licensing and other royalty revenue		1,946		136			—			2,082		4,896		6,036			(3,000	)		7,932
Total commercial revenue		83,618		12,081			—			95,699		75,398		15,901			(3,000	)		88,299
R&D revenue under collaborative agreements		69,165		8,543			(5,515	)		72,193		64,791		10,723			—			75,514
Total segment revenue	$	152,783	$	20,624		$	(5,515	)	$	167,892	$	140,189	$	26,624		$	(3,000	)	$	163,813
Total operating expenses	$	119,147	$	53,215		$	(6,993	)	$	165,369	$	121,774	$	65,328		$	(4,462	)	$	182,640
Income (loss) from operations	$	33,636	$	(32,591	)	$	1,478		$	2,523	$	18,415	$	(38,704	)	$	1,462		$	(18,827	)

Six Months Ended June 30, 2020	Ionis Core			Akcea Therapeutics			Elimination of Intercompany Activity			Total
Revenue:
Commercial revenue:
SPINRAZA royalties	$	137,754		$	—		$	—		$	137,754
Product sales, net		—			31,523			—			31,523
Licensing and other royalty revenue		5,835			—			(1,416	)		4,419
Total commercial revenue		143,589			31,523			(1,416	)		173,696
R&D revenue under collaborative agreements		103,561			6,928			(5,280	)		105,209
Total segment revenue	$	247,150		$	38,451		$	(6,696	)	$	278,905
Total operating expenses	$	266,602		$	134,800		$	(9,618	)	$	391,784
Loss from operations	$	(19,452	)	$	(96,349	)	$	2,922		$	(112,879	)

Six Months Ended June 30, 2019	Ionis Core		Akcea Therapeutics			Elimination of Intercompany Activity			Total
Revenue:
Commercial revenue:
SPINRAZA royalties	$	130,212	$	—		$	—		$	130,212
Product sales, net		—		16,619			—			16,619
Licensing and other royalty revenue		6,519		6,036			(3,000	)		9,555
Total commercial revenue		136,731		22,655			(3,000	)		156,386
R&D revenue under collaborative agreements		225,347		167,785			(88,492	)		304,640
Total segment revenue	$	362,078	$	190,440		$	(91,492	)	$	461,026
Total operating expenses	$	236,290	$	202,938		$	(80,908	)	$	358,320
Income (loss) from operations	$	125,788	$	(12,498	)	$	(10,584	)	$	102,706

3027

Three Months Ended September 30, 2018 Ionis Core Akcea Therapeutics
Elimination of
Intercompany Activity
Total
Revenue:
Commercial revenue:
SPINRAZA royalties $ 70,010 $ — $ — $ 70,010
Licensing and other royalty revenue 7,946 12,000 (7,200 ) 12,746
Total commercial revenue 77,956 12,000 (7,200 ) 82,756
R&D revenue under collaborative agreements 100,105 7,241 (44,707 ) 62,639
Total segment revenue $ 178,061 $ 19,241 $ (51,907 ) $ 145,395
Total operating expenses $ 87,664 $ 84,249 $ (7,946 ) $ 163,967
Income (loss) from operations $ 90,397 $ (65,008 ) $ (43,961 ) $ (18,572 )

Nine Months Ended September 30, 2019 Ionis Core Akcea Therapeutics
Elimination of
Intercompany Activity
Total
Revenue:
Commercial revenue:
SPINRAZA royalties $ 211,884 $ — $ — $ 211,884
Product sales, net — 28,563 — 28,563
Licensing and other royalty revenue 8,466 6,172 (3,000 ) 11,638
Total commercial revenue 220,350 34,735 (3,000 ) 252,085
R&D revenue under collaborative agreements 294,512 176,328 (94,007 ) 376,833
Total segment revenue $ 514,862 $ 211,063 $ (97,007 ) $ 628,918
Total operating expenses $ 355,437 $ 256,152 $ (87,900 ) $ 523,689
Income (loss) from operations $ 159,425 $ (45,089 ) $ (9,107 ) $ 105,229

Nine Months Ended September 30, 2018 Ionis Core Akcea Therapeutics
Elimination of
Intercompany Activity
Total
Revenue:
Commercial revenue:
SPINRAZA royalties $ 167,743 $ — $ — $ 167,743
Licensing and other royalty revenue 9,432 12,000 (7,200 ) 14,232
Total commercial revenue 177,175 12,000 (7,200 ) 181,975
R&D revenue under collaborative agreements 232,850 42,670 (49,936 ) 225,584
Total segment revenue $ 410,025 $ 54,670 $ (57,136 ) $ 407,559
Total operating expenses $ 279,084 $ 213,428 $ (12,796 ) $ 479,716
Income (loss) from operations $ 130,941 $ (158,758 ) $ (44,340 ) $ (72,157 )

The following table shows our total assets by segment at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands), respectively.

Total Assets Ionis Core Akcea Therapeutics
Elimination of
Intercompany Activity
Total
September 30, 2019 $ 3,233,175 $ 383,167 $ (721,353 ) $ 2,894,989
December 31, 2018 $ 2,975,491 $ 365,261 $ (672,968 ) $ 2,667,784

Total Assets	Ionis Core		Akcea Therapeutics		Elimination of Intercompany Activity			Total
June 30, 2020	$	3,397,604	$	527,937	$	(846,591	)	$	3,078,950
December 31, 2019	$	3,478,081	$	599,250	$	(844,219	)	$	3,233,112

3128

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In this Report on Form 10-Q, unless the context requires otherwise, “Ionis,” “Company,” “we,” “our,” and “us,” means Ionis Pharmaceuticals, Inc. and its majority owned affiliate, Akcea Therapeutics, Inc.

Forward-Looking Statements

In addition to historical information contained in this Report on Form 10-Q, the Report includes forward-looking statements regarding our business and the therapeutic and commercial potential of SPINRAZA (nusinersen), TEGSEDI (inotersen), WAYLIVRA (volanesorsen) and our technologies and products in development, including the business of Akcea Therapeutics, Inc., our 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, including those related to the impact COVID-19 could have on our business, and including but not limited to those related to our commercial products and the medicines in our pipeline, and particularly those inherent in the process of discovering, developing and commercializing ~~drugs~~medicines that are safe and effective for use as human therapeutics, and in the endeavor of building a business around such ~~drugs.~~medicines. Our forward-looking statements also involve assumptions that, if they never materialize or prove correct, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this report and described in additional detail in our annual report on Form 10-K for the year ended December 31, ~~2018,~~2019, which is on file with the U.S. Securities and Exchange Commission and is available from us, and those identified within Part II Item 1A. Risk Factors of this Report. Although our forward-looking statements reflect the good faith judgment of our management, these statements are based only on facts and factors currently known by us. As a result, you are cautioned not to rely on these forward-looking statements.

Overview

We are a leader in discovering and developing RNA-targeted ~~therapeutics with sustained and growing revenues.~~therapeutics. We have created an efficient and broadly applicable drug discovery platform leveraging our expertise in antisense oligonucleotide therapeutics that we believe has fundamentally changed medicine and transformed the lives of people with devastating ~~and often deadly~~ diseases. Our large, diverse and ~~advanced~~advancing pipeline ofhas over 40 potential first-in-class and/or best-in-class medicines ~~addresses diseases across~~designed to address a broad range of ~~therapeutic areas, targeting small, medium~~diseases, including neurological, cardio-renal, metabolic, infectious and ~~large patient populations.~~

pulmonary diseases. The medicines in our pipeline address patients with diseases ranging from rare to common.We have three commercial medicines approved in major markets around the world, SPINRAZA, TEGSEDI and WAYLIVRA. We have ~~two~~four medicines in ~~Phase 3~~pivotal studies, ~~IONIS-HTT~~_Rx,tominersen for Huntington’s disease, tofersen for SOD1-ALS, AKCEA-APO(a)-L_Rx for cardiovascular disease, or CVD, and ~~tofersen~~AKCEA-TTR-L_{, Rx}for ~~SOD1-ALS. We also~~TTR amyloidosis.

With our strong financial position, we have the resources to continue to execute on our plan to invest in areas of our business that we believe have the potential to create value for ~~two more medicines to begin Phase 3 studies this year~~patients and ~~additional medicines to begin Phase 3 studies by~~shareholders. By the end of ~~2020. These medicines, along with~~this year, we plan to have six pivotal studies underway and report clinical proof-of-concept data for six medicines. We also plan to expand the ~~more than 30~~reach of our antisense technology by optimizing additional ~~medicines~~routes of administration, such as oral and pulmonary for which we expect clinical data this year. Additionally, this year, we are continuing to prioritize the growth and advancement of our Ionis-owned pipeline. Building on our achievements to date, we believe that continued advances in our pipeline ~~represent multiple potential drivers~~and technology will enable us to achieve our goal of ~~value for years to come. We believe our efficient~~10 or more new drug ~~discovery platform, coupled with our innovation-centric business model, provides us with~~applications through the ~~flexibility~~end of 2025.

Our goal is to determine the optimal development and commercialization strategy ~~to maximize the commercial opportunity~~ for each ofmedicine in our ~~medicines~~pipeline, while ensuring we remain focused on innovation and ~~ensure that we continue to produce transformative medicines for patients who need them. We believe we are positioned to drive~~delivering substantial value for patients in need and shareholders. With this goal firmly in mind, this year we plan to further develop our commercial strategy and capabilities to ensure we maximize the value of each of our medicines.

AsBy building on our strong foundation and continuing to focus on our strategic priorities, we believe we are achieving our vision of ~~September 2019,~~becoming one of the most successful and innovative companies in the healthcare industry. We intend to continue to pursue our vision by executing on our strategic priorities: advancing our Ionis-owned pipeline, further developing our commercial strategies and capabilities, and expanding the reach of our antisense technology.

Commercial Medicines

SPINRAZA is a global foundation-of-care for the treatment of patients of all ages with spinal muscular atrophy, or SMA, a progressive, debilitating and often fatal genetic disease. Biogen, our partner responsible for commercializing SPINRAZA worldwide, reported that as of June 30, 2020, over 11,000 patients were on SPINRAZA therapy in markets around the world. Additionally, as of June 30, 2020, SPINRAZA was approved in over 50 countries around the world, and our partner Biogen, who is responsible for global SPINRAZA commercial activities, reported that more than 9,300 patients were on SPINRAZA therapy. SPINRAZA was the first approved medicine for the treatment of SMA. SPINRAZA is the established foundation-of-care for patients of all ages and all SMA types with ~~this progressive, debilitating and often fatal genetic disease. SPINRAZA has been recognized with several Prix Galien awards. Through September~~formal reimbursement in over 40 countries. From inception through June 30, ~~2019,~~2020, we have earned more than ~~$560~~ $1.2 billion in revenues from our SPINRAZA collaboration, including more than $780 million in ~~commercial revenues from~~ royalties on sales of SPINRAZA.

TEGSEDI, a once weekly, self-administered subcutaneous medicine, was approved in 2018 in the U.S., EU and Canada for the treatment of patients with polyneuropathy caused by hereditary TTR amyloidosis, or hATTR, ~~in adult patients. hATTR is~~ a debilitating, progressive, and fatal disease. Akcea, our majority-owned affiliate focused on developing and commercializing medicines to treat patients with ~~rare~~serious and ~~serious~~rare diseases, launched TEGSEDI in the U.S. and EU in late 2018. ~~Our aim is~~As of the end of July 2020, TEGSEDI was commercially available in 15 countries. Akcea plans to ~~make~~expand the global launch of TEGSEDI ~~available globally. We plan to achieve this~~by launching in ~~part~~additional countries. In Latin America, PTC Therapeutics, or PTC, through ~~Akcea’s~~its exclusive license ~~agreement with PTC to commercialize~~from Akcea, is launching TEGSEDI in Brazil and is working towards access in additional Latin America. In October 2019, TEGSEDI was approved in Brazil. PTC announced that it intends to start launching activities for TEGSEDI immediately in Brazil. In conjunction with the approval, we earned $4 million from PTC. We have earned more than $30 million in TEGSEDI product sales since launching late last year.American countries.

WAYLIVRA, a once weekly, self-administered, subcutaneous medicine, received conditional marketing authorization in May 2019 from the European Commission, or EC, as an adjunct to diet in adult patients with genetically confirmed familial chylomicronemia syndrome, or FCS, and at high risk for pancreatitis. Akcea launched WAYLIVRA in the EU in the third quarter of 2019 and is ~~also focused on regulatory discussions in the U.S. and Canada. Akcea is~~ leveraging its existing commercial infrastructure in Europe to market WAYLIVRA. PTC, through its exclusive license agreement with Akcea, is ~~continuing~~working to ~~conduct open-label extension and early~~expand access ~~programs.~~ ~~We and Akcea also conducted a study of~~to WAYLIVRA for the treatment of people with familial partial lipodystrophy, or FPL. This study is called the BROADEN study. People with FPL lack subcutaneous adipose tissue and have abnormal subcutaneous fat distribution causing increased incidence of potentially life-threatening pancreatitis, diabetes, extreme insulin resistance and increased liver fat. In August 2019, we and Akcea announced topline results from the BROADEN study.across Latin America, beginning in Brazil. In the second quarter of 2020, PTC submitted the WAYLIVRA marketing application for approval in Brazil to ANVISA.

Medicines in Pivotal Phase 3 Studies

Our medicines in pivotal studies include tominersen for Huntington’s disease, tofersen for SOD1-ALS, AKCEA-APO(a)-L_Rx for cardiovascular disease, or CVD, and AKCEA-TTR-L_Rx for TTR amyloidosis. In April 2020, Roche completed enrollment of the Phase 3 study ~~WAYLIVRA met its primary endpoint demonstrating~~ ~~a statistically significant reduction~~for tominersen. Tominersen has been granted orphan drug designation in ~~triglyceride levels. WAYLIVRA also met an important secondary endpoint with a statistically significant reduction~~the U.S. and EU and PRIME designation in ~~liver fat.~~the EU. Additionally, ~~WAYLIVRA demonstrated a good safety and tolerability profile~~the Phase 3 study for tofersen continues to progress in patients with ~~FPL~~SOD1-ALS. Tofersen has been granted orphan drug designation in the ~~BROADEN study.~~U.S. and EU. In January 2020, Novartis began enrollment in the HORIZON Phase 3 cardiovascular outcome study of AKCEA-APO(a)-L_Rx in patients with established cardiovascular disease and elevated Lp(a). AKCEA-APO(a)-L_Rx was recently granted Fast Track Designation by the FDA as a potential treatment for people at significant risk for cardiovascular disease due to elevated levels of lipoprotein(a), or Lp(a). Our broad Phase 3 program for AKCEA-TTR-L_Rxis also progressing.

COVID-19

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

~~In addition to commercializing TEGSEDI and WAYLIVRA, Akcea has four other clinical-stage~~the medicines in ~~its pipeline: AKCEA-APO(a)-L~~_Rx~~(TQJ230), AKCEA-ANGPTL3-L~~_Rx~~, AKCEA-APOCIII-L~~_Rx ~~and AKCEA-TTR-L~~_Rx~~, each of which could potentially treat multiple patient populations. Moving these medicines into Akcea ensures~~ our ~~core focus remains on innovation while enabling us to retain substantial value from these medicines. As of September 2019, we owned approximately 75 percent of Akcea.~~

~~In October 2019, Akcea initiated a collaboration with Pfizer for the license of AKCEA-ANGPTL3-L~~_Rx ~~to treat people with cardiovascular and metabolic diseases. Under the terms of the agreement, Akcea will receive a $250~~ ~~million upfront license fee, upon closing the transaction, including receiving Hart-Scott Rodino clearance.~~ ~~Akcea is also eligible to receive development, regulatory and sales milestone payments of up to $1.3 billion and tiered royalties~~ ~~in the mid-teens to low-20 percent range~~ on annual worldwide net sales. Akcea will pay us 50 percent of the license fee, milestone payments and royalties. Pfizer is responsible for all development and regulatory activities and costs beyond those associated with the ongoing Phase 2 study. ~~Upon receipt of the upfront payment from Pfizer, Akcea expects to pay us its $125 million sublicense fee in 6.9 million shares of Akcea common stock.~~

We are continuously advancing our technology and pipeline to provide the most value to patients. We have a pipeline of over 40 medicines that, like SPINRAZA, TEGSEDI and WAYLIVRA, 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.

We have a distinct partnering strategy based on each specific medicine and the expertise and resources we and our potential partners may bring to a collaboration. We may also develop and commercialize some medicines through affiliates. In general, these are medicines, like TEGSEDI and WAYLIVRA, that can benefit from our internal expertise and infrastructure, have manageable development plans and 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 medicines, advancing our technology, preparing to commercialize our medicines and selling our medicines. Our partners include the following companies, among others: AstraZeneca, Bayer, Biogen, GSK, Janssen, Novartis, Pfizer and Roche. Our partners bring resources and expertise that augment and build upon our internal capabilities. ~~We have the potential to earn over $20 billion in future milestone payments and licensing fees from our existing partnerships.~~pipeline.

Financial Highlights

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

	Three Months Ended					Nine Months Ended					Three Months Ended						Six Months Ended
	September 30,					September 30,					June 30,						June 30,
	2019		2018			2019		2018			2020			2019			2020			2019
Total revenue	$	167,892	$	145,395		$	628,918	$	407,559		$	145,537		$	163,813		$	278,905		$	461,026
Total operating expenses	$	165,369	$	163,967		$	523,689	$	479,716		$	197,291		$	182,640		$	391,784		$	358,320
Income (loss) from operations	$	2,523	$	(18,572	)	$	105,229	$	(72,157	)	$	(51,754	)	$	(18,827	)	$	(112,879	)	$	102,706
Net income (loss)	$	18,432	$	(20,365	)	$	99,304	$	(87,747	)	$	(43,769	)	$	(10,012	)	$	(102,249	)	$	80,873
Net income (loss) attributable to Ionis Pharmaceuticals, Inc. common stockholders	$	26,163	$	(4,559	)	$	109,730	$	(46,335	)	$	(31,845	)	$	(876	)	$	(80,071	)	$	83,567

~~Our~~Commercial revenue from SPINRAZA royalties increased to $72 million and $138 million for the ~~first nine~~three and six months ~~of 2019 increased more than 50 percent,~~ended June 30, 2020, respectively, compared to the same ~~period~~periods in ~~2018, primarily due~~2019. Product sales from TEGSEDI and WAYLIVRA increased to ~~a more than 25 percent increase~~$16 million and $32 million for the three and six months ended June 30, 2020, respectively, compared to the same periods in ~~commercial~~2019. R&D revenue ~~from SPINRAZA royalties~~was $56 million and ~~increasing~~$105 million for the three and six months ended June 30, 2020, respectively. Our R&D ~~revenues~~revenue in the six months ended June 30, 2019 included $185 million from two large items, including ~~the~~a $150 million license fee we earned from Novartis when it licensed AKCEA-APO(a)-L_Rx. We anticipate our R&D revenue will be higher in the second half of 2020, compared to the first half of 2020.

Our operating expenses for the ~~first nine~~three and six months ~~of 2019~~endedJune 30, 2020 were $197.3 million and $391.8 million, respectively, and increased ~~compared to~~over the same ~~period~~periods in ~~2018,~~2019, principally due to our investments in our strategic priorities, including the ~~global launches~~Phase 3 program for AKCEA-TTR-L_Rx and our Ionis-owned pipeline.We expect our operating expenses to continue to increase during the second half of ~~TEGSEDI and WAYLIVRA~~.2020 as we continue to advance our strategic priorities.

~~During~~

We ended the first nine months of 2019 we received more than $480 million in payments from our partners, including $230 million from Biogen, $156 million from Novartis, $36 million from Roche and $22 million from Alnylam. This is compared to more than $1.3 billion received in the first nine months of 2018, which included $1 billion from Biogen for our 2018 strategic neurology collaboration. Already in the fourthsecond quarter of ~~2019, we have generated $260 million~~2020, with $2.3 billion in ~~payments from Pfizer~~cash and ~~Bayer.~~short-term investments. We believe our strong financial position should enable us to continue to execute on our corporate goals throughout ~~2019~~2020 and beyond.

Recent Business Highlights ~~(Q3 2019~~(Q2 2020 and subsequent activities)

Commercial Medicine Highlights

●

~~SPINRAZA –~~SPINRAZA: a global foundation-of-care for the treatment of SMA patients of all ages ~~with spinal muscular atrophy (SMA)~~

~~Worldwide~~$495 million in worldwide sales ~~of SPINRAZA~~ in the ~~first nine months~~second quarter of ~~2019 increased by nearly 25 percent to over $1.5 billion compared to last year.~~this year

~~Patients~~More than 11,000 patients were on SPINRAZA treatment ~~increased by approximately 11 percent compared to last~~worldwide at the end of the second quarter, ~~to approximately 9,300~~including patients across ~~global~~ commercial, ~~clinical and~~ expanded access ~~settings.~~and clinical trial settings

~~Biogen plans~~

The Phase 4 RESPOND study to ~~initiate the Phase 2/3~~evaluate SPINRAZA benefit in patients with a suboptimal clinical response to Zolgensma^® (onasemnogene abeparvovec) is expected to begin early next year

The DEVOTE study evaluating ~~the safety and potential to achieve increased efficacy with~~ a higher dose of SPINRAZA with the potential to deliver even greater efficacy in SMA patients of all ages ~~including adults.~~is progressing

~~Biogen presented new long-term follow up~~New clinical data from the NURTURE and SHINE ~~adding to the body of evidence underscoring~~studies, as well as new real-world data, further support SPINRAZA’s durable efficacy and established safety profile across ~~a broad range~~SMA patients of ~~SMA patients.~~all ages

◾●

NURTURE: Data from pre-symptomatic infants treated for up to nearly four years demonstrating consistent safety and unprecedented motor milestone achievement compared to natural history were published online in ~~Neuromuscular Disorders~~

◾

SHINE: Data demonstrating continuing improvement or stabilization in one or more measures of motor function in patients with later-onset SMA treated with SPINRAZA for up to nearly six years were presented atTEGSEDI: the ~~annual Congress of the European Pediatric Neurology Society~~

●

~~TEGSEDI – launched in multiple markets~~only approved at-home subcutaneous therapy for the treatment ~~of polyneuropathy~~ of hereditary transthyretin amyloidosis (hATTR) with polyneuropathy in adult patients

o	Commercially available in 15 countries

~~Approved~~Reimbursement approved in ~~Brazil~~Portugal, Spain, Italy and p~~reparing to launch through PTC Therapeutics~~

Austria

~~First~~Expanding commercial ~~patients treated in the United Kingdom following acceptance by the National Institute for Health and Care Excellence, or NICE, and the~~ ~~Scottish Medicines Consortium, or SMC~~

~~Successfully completed pricing negotiations in Germany~~

~~Launched in Sweden and Austria following successful completion of reimbursement negotiations~~

~~Preparing to launch~~availability in additional EU countries and in Latin America
this year

●

~~WAYLIVRA – launched~~WAYLIVRA: the only approved treatment in the EU for ~~the treatment of~~ adults with genetically confirmed familial chylomicronemia syndrome (FCS) at high risk for pancreatitis

~~First commercial patients treated~~Launch progressing in Germany, Austria, Greece and ~~a reimbursed early access program (ATU) launched~~through the ATU in ~~France~~

France; launching in additional EU countries this year

~~Preparing to launch~~Filed for marketing approval in ~~additional EU countries~~Brazil; refiling new drug application for U.S. marketing authorization

Second Quarter 2020 and Recent Pipeline Highlights

●

Completed enrollment in the global GENERATION HD1 Phase 3 study of tominersen in patients with Huntington’s disease

●

Progressed multiple neurological disease medicines under our broad Biogen collaboration

Published ~~results from Phase 3 APPROACH study in patients with FCS in~~ ~~The New England Journal of Medicine, or NEJM~~

~~Reported top-line results from the BROADEN study of WAYLIVRA in patients with FPL, which met the primary endpoint and a key secondary endpoint~~

●

~~Biogen Collaboration – Developing robust pipeline of medicines for the treatment of neurological diseases~~

~~Dosed the first patient in a Phase 1/2 study targeting LRRK2 for the treatment of people with Parkinson’s disease.~~

~~Advanced multiple programs, with eight programs now in development.~~

●

~~We and Akcea generated $250 million when Pfizer licensed AKCEA-ANGPTL3-L~~_Rx ~~to treat patients with certain cardiovascular and metabolic diseases.~~

~~We are eligible to receive up to $1.3 billion in milestone payments plus tiered double-digit royalties on worldwide net sales.~~

~~Our 50 percent portion of the $250 million license fee is expected to be settled in Akcea common stock, demonstrating our confidence in the future of Akcea.~~

●

~~We earned a $25 million license fee from GSK to develop and commercialize our program for the treatment of people with chronic hepatitis B virus infection.~~

●

~~We generated $10 million from Bayer to advance IONIS-FXI-L~~_Rx ~~for the treatment of people with clotting disorders.~~

●

~~We and Akcea presented~~ data from the Phase 1/2 study of ~~AKCEA-TTR-L~~_Rxtofersen in ~~healthy volunteers demonstrating >90 percent target reduction and a positive safety profile at~~ the ~~European ATTR Amyloidosis meeting and at the Heart Failure Society~~New England Journal of ~~America.~~Medicine

●o

~~Roche expanded enrollment in~~Progressed the ~~GENERATION HD1 Phase 3 study of IONIS-HTT~~IONIS-MAPT_Rx ~~(RG6042)~~long-term extension study in patients with ~~Huntington’s~~Alzheimer’s disease ~~or HD.~~and achieved a $12 million milestone payment

●o

~~We initiated~~Advanced ION464 into a Phase 1/2 study ~~of IONIS-FB-L~~_Rx in patients with ~~IgA nephropathy,~~multiple system atrophy and achieved an $18 million milestone payment

●

Advanced medicines for the ~~second~~treatment of cancer and immune-mediated GI disease ~~indication under our collaboration with Roche to develop the medicine for complement-mediated diseases.~~

Licensed ION736 to AstraZeneca for the treatment of cancer and achieved a $13 million license fee

Initiated a Phase 1 study of ION253 for the treatment of immune-mediated GI disease and achieved a $5 million milestone payment from Janssen

●

Expanded the Ionis-owned pipeline with the addition of ION363 for the treatment of FUS-ALS

Critical Accounting ~~Policies~~Estimates

We prepare our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States. As such, we make certain estimates, judgments and assumptions that we believe are reasonable, based upon the information available to us. These judgments involve making estimates about the effect of matters that are inherently uncertain and may significantly impact our quarterly or annual results of operations and financial condition. Each quarter, our senior management reviews the development, selection and disclosure of such estimates with ~~our~~the audit committee of our board of directors. In the following paragraphs, we describe the specific risks associated with these critical accounting ~~policies~~estimates 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,~~estimates, which we believe are the most critical to aid in fully understanding and evaluating our reported financial ~~results, require the following:~~results:

●

Assessing the propriety of revenue recognition and associated deferred revenue;

●

~~Valuing premiums received under our collaborations;~~

●

Determining the appropriate cost estimates for unbilled preclinical studies and clinical development activities; and

●

~~Accounting for~~Estimating our income ~~taxes.~~taxes

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Results of Operations

Revenue

Our revenue was as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Revenue:
Commercial revenue:
SPINRAZA royalties	$	81,672	$	70,010	$	211,884	$	167,743	$	71,746	$	70,502	$	137,754	$	130,212
Product sales, net		11,945		—		28,563		—		16,364		9,865		31,523		16,619
Licensing and other royalty revenue		2,082		12,746		11,638		14,232		1,624		7,932		4,419		9,555
Total commercial revenue		95,699		82,756		252,085		181,975		89,734		88,299		173,696		156,386
R&D revenue:
Amortization from upfront payments		23,918		31,066		99,263		92,185		27,925		40,556		49,071		75,345
Milestone payments		11,981		26,194		64,013		44,583		6,737		12,016		29,856		52,032
License fees		25,523		1,649		198,212		64,227		14,669		21,626		14,669		172,689
Other services		10,771		3,730		15,345		24,589		6,472		1,316		11,613		4,574
Total R&D revenue		72,193		62,639		376,833		225,584		55,803		75,514		105,209		304,640
Total revenue	$	167,892	$	145,395	$	628,918	$	407,559	$	145,537	$	163,813	$	278,905	$	461,026

~~We significantly increased both commercial and R&D revenue in~~In the first ~~nine months~~half of ~~2019,~~2020, our commercial revenue increased over 10 percent, compared to the same period in ~~2018.~~2019. Commercial revenue ~~increased over 35 percent primarily due to increased~~from SPINRAZA royalties increased six percent and ~~TEGSEDI product sales. We also added WAYLIVRA~~ product sales from TEGSEDI and WAYLIVRA nearly doubled, compared to the same period in 2019.

We earn our R&D revenue from multiple sources. Our R&D revenue can fluctuate depending on the timing of events. Our R&D revenue in the ~~third~~six months ended June 30, 2020 included more than $50 million from our neurology disease franchise and more than $25 million from our cardio-renal franchise. Additionally, in the second quarter of ~~2019.~~2020, we earned $13 million from AstraZeneca under our oncology collaboration. We anticipate our R&D revenue will be higher in the second half of 2020, compared to the first half of 2020.

Our R&D revenue ~~substantially increased~~ in the ~~first nine~~six months ofended June 30, 2019 included $185 million from two large items, including a $150 million license fee we earned from Novartis when it licensed AKCEA-APO(a)-L_Rx. Additionally, our amortization from upfront payments for the six months ended June 30, 2019, was higher compared to the same period in ~~2018 primarily due to the following:~~2020 because it included amortization from collaborations for which we have completed our R&D services performance obligations.

●

~~$150 million we earned from Novartis when Novartis licensed AKCEA-APO(a)-L~~_Rx;

●

~~$35 million we earned from Roche when Roche enrolled the first patient in the Phase 3 study of IONIS-HTT~~_Rx ~~in patients with Huntington's disease;~~

●

~~$25 million we earned from GSK when GSK licensed our HBV program; and~~

●

~~$20 million we earned from Alnylam when Alnylam licensed our technology to Regeneron.~~

~~We expect~~Already in the third quarter of 2020, we have generated several milestone payments, including $18 million from Biogen when Biogen advanced ION464, a medicine targeting alpha-synuclein to ~~recognize revenue related Pfizer’s license of AKCEA-ANGPTL3-L~~treat patients with multiple system atrophy, into a Phase 1/2 study, $12 million from Biogen for continuing to advance IONIS-MAPT_Rxin ~~the fourth quarter of 2019. We will also recognize $10~~development and a $5 million ~~of revenue~~milestone payment from ~~Bayer~~Janssen when Janssen initiated a Phase 1 trial for ~~advancing IONIS-FXI-L~~_Rx ~~in our fourth quarter.~~

ION253.

Operating Expenses

Operating expenses for the three and six months ended June 30, 2020 were $197.3 million and $391.8 million, respectively, and increased compared to $182.6 million and $358.3 million for the same periods in 2019. The increase was principally due to our investments in our strategic priorities, including the Phase 3 program for AKCEA-TTR-L_Rx and our Ionis-owned pipeline. We expect our operating expenses, excluding non-cash compensation expense related to equity awards, to continue to increase during the second half of 2020 as we continue to advance our strategic priorities.

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Ionis Core	$	95,671		$	82,739		$	190,689		$	161,254
Akcea Therapeutics		60,795			62,430			121,897			190,536
Elimination of intercompany activity		(7,353	)		(4,462	)		(9,618	)		(80,908	)
Subtotal		149,113			140,707			302,968			270,882
Non-cash compensation expense related to equity awards		48,442			41,933			89,233			87,438
Total operating expenses	$	197,555		$	182,640		$	392,201		$	358,320

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

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

Three Months Ended
September 30,

Nine Months Ended
September 30,

2019 2018 2019 2018
Ionis Core $ 82,667 $ 65,512 $ 243,920 $ 213,114
Akcea Therapeutics 65,569 71,518 256,105 182,188
Elimination of intercompany activity (6,993 ) (7,946 ) (87,900 ) (12,796 )
Subtotal 141,243 129,084 412,125 382,506
Non-cash compensation expense related to equity awards 24,126 34,883 111,564 97,210
Total operating expenses $ 165,369 $ 163,967 $ 523,689 $ 479,716

Our operating expenses, excluding non-cash compensation expense related to equity awards, increased for both the three and nine months ended September 30, 2019, compared to the same periods last year principally due to our investment in the global launches of TEGSEDI and WAYLIVRA. Stock-based compensation expense increased in the first nine months of 2019, compared to the same period last year primarily due to the increase in the grant date fair value of Akcea stock options granted and from stock option grants made to new employees as Akcea continued to build out its organization. This increase was offset by a reversal of $19.1 million of stock-based compensation expense for three terminated executive officers in the third quarter of 2019. The stock-based compensation expense reversal related to amounts we ~~previously recognized related to these executive officers’ stock option and RSU grants that were no longer going to vest.~~

Cost of Products Sold

Our cost of products sold consisted of manufacturing costs, including certain fixed costs, transportation and freight, indirect overhead costs associated with the manufacturing and distribution of TEGSEDI and WAYLIVRA ~~(beginning in the third quarter of 2019)~~ and certain associated period costs. ~~We do not expect our fixed costs will increase in direct correlation to TEGSEDI and WAYLIVRA product sales.~~ Prior to the regulatory approval of TEGSEDI and WAYLIVRA, we expensed as R&D expense a significant portion of the cost of producing TEGSEDI and WAYLIVRA that Akcea is using in the commercial launches. We expect cost of products sold to increase as we deplete these inventories.

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

	September 30, 2019						Three Months Ended June 30,						Six Months Ended June 30,
	Three Months Ended			Nine Months Ended			2020			2019			2020			2019
Ionis Core	$	—		$	—		$	—		$	—		$	—		$	—
Akcea Therapeutics		2,275			10,247			4,693			5,645			9,239			7,972
Elimination of intercompany activity		(1,435	)		(7,256	)		(2,031	)		(4,419	)		(4,253	)		(5,822	)
Subtotal		840			2,991			2,662			1,227			4,986			2,151
Non-cash compensation expense related to equity awards		127			382			350			137			587			255
Total cost of products sold	$	967		$	3,373
Total operating expenses							$	3,012		$	1,364		$	5,573		$	2,406

We began recognizing cost of products sold for TEGSEDI in the third quarter of 2018 when TEGSEDI was approved and for WAYLIVRA in the second quarter of 2019 when WAYLIVRA was approved. We previously expensed $0.2 million and $0.5 million of costs to produce the amount of TEGSEDI and WAYLIVRA we sold in the three and nine months ended September 30, 2019, respectively. We recognized these costs in prior periods because we incurred these costs before we obtained regulatory approval. We did not haveOur cost of products sold increased in six months ended June 30, 2020, compared to the ~~first nine months~~same period in 2019, primarily due to the increase in commercial product sales. In its cost of ~~2018.~~products sold 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.~~TEGSEDI. Akcea is recognizing this amortization over TEGSEDI’s remaining estimated patent life. We eliminate this amortization in our consolidated results. All amounts exclude non-cash compensation expense related to equity awards.

Research, Development and Patent Expenses

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

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

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Research, development and patent expenses, excluding non-cash compensation expense related to equity awards	$	80,622	$	76,475	$	245,013	$	243,455	$	96,248	$	82,409	$	187,642	$	164,391
Non-cash compensation expense related to equity awards		23,744		18,780		71,935		57,698		26,016		23,756		51,572		48,191
Total research, development and patent expenses	$	104,366	$	95,255	$	316,948	$	301,153	$	122,264	$	106,165	$	239,214	$	212,582

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

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Ionis Core	$	64,197		$	49,452		$	190,269		$	158,860		$	75,323		$	64,745		$	150,754		$	126,072
Akcea Therapeutics		21,983			27,068			135,388			89,940			26,247			17,707			42,253			113,405
Elimination of intercompany activity		(5,558	)		(45	)		(80,644	)		(5,345	)		(5,322	)		(43	)		(5,365	)		(75,086	)
Subtotal		80,622			76,475			245,013			243,455			96,248			82,409			187,644			164,391
Non-cash compensation expense related to equity awards		23,744			18,780			71,935			57,698			26,016			23,756			51,572			48,191
Total research, development and patent expenses	$	104,366		$	95,255		$	316,948		$	301,153		$	122,264		$	106,165		$	239,214		$	212,582

Antisense Drug Discovery

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

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

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

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Antisense drug discovery expenses, excluding non-cash compensation expense related to equity awards	$	16,072	$	14,475	$	46,397	$	41,970	$	18,751	$	15,693	$	37,117	$	30,325
Non-cash compensation expense related to equity awards		5,015		4,379		15,805		13,204		6,090		5,297		12,396		10,790
Total antisense drug discovery expenses	$	21,087	$	18,854	$	62,202	$	55,174	$	24,841	$	20,990	$	49,513	$	41,115

Antisense drug discovery expenses ~~were slightly higher~~increased for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, compared to the same periods in ~~2018,~~2019, due to expenses we incurred related to advancing and expanding our research ~~programs.~~programs, including investments we made in complementary technologies to expand the reach of antisense technology. All amounts exclude non-cash compensation expense related to equity awards.

Antisense Drug Development

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

Three Months Ended
September 30,

Nine Months Ended
September 30,

2019 2018 2019 2018
WAYLIVRA $ 2,324 $ 3,469 $ 7,429 $ 15,919
TEGSEDI 5,044 3,373 13,161 14,404
Other antisense development projects 21,233 21,413 69,121 62,580
Development overhead expenses 17,557 17,648 53,351 55,286
Total antisense drug development, excluding non-cash compensation expense related to equity awards 46,158 45,903 143,062 148,189
Non-cash compensation expense related to equity awards 11,391 8,434 34,743 25,922
Total antisense drug development expenses $ 57,549 $ 54,337 $ 177,805 $ 174,111

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
AKCEA TTR-L_Rx	$	5,847	$	1,599	$	11,426	$	2,540
WAYLIVRA		2,272		3,134		3,277		5,105
TEGSEDI		3,483		3,426		7,796		8,117
Other antisense development projects		24,491		23,979		46,608		45,348
Development overhead expenses		17,828		16,850		35,761		35,794
Total antisense drug development, excluding non-cash compensation expense related to equity awards		53,921		48,988		104,868		96,904
Non-cash compensation expense related to equity awards		14,019		11,118		25,806		23,352
Total antisense drug development expenses	$	67,940	$	60,106	$	130,674	$	120,256

Our development expenses ~~decreased~~increased for the ~~nine~~three and six months ended ~~September~~June 30, ~~2019~~2020 compared to the same periods in 2019. The increase in development expenses primarily ~~from WAYLIVRA, TEGSEDI and because Akcea has transitioned all further development of AKCEA-APO(a)-L~~related to our broad Phase 3 program for AKCEA-TTR-L_Rx ~~to Novartis.~~, which we initiated in late 2019 and other medicines in our Ionis-owned pipeline. These increases were slightly offset by decreases in expenses for WAYLIVRA and vupanorsen, for which Akcea completed the Phase 2 studies in early 2020. All amounts exclude non-cash compensation expense related to equity awards.

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

	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019			2018		2020		2019		2020		2019
Ionis Core	$	32,970	$	20,821	$	96,992		$	71,767	$	40,847	$	34,952	$	79,949	$	64,022
Akcea Therapeutics		13,188		25,082		121,070			76,422		13,074		14,036		24,919		107,882
Elimination of intercompany activity		—		—		(75,000	)		—		—		—		—		(75,000	)
Subtotal		46,158		45,903		143,062			148,189		53,921		48,988		104,868		96,904
Non-cash compensation expense related to equity awards		11,391		8,434		34,743			25,922		14,019		11,118		25,806		23,352
Total antisense drug development expenses	$	57,549	$	54,337	$	177,805		$	174,111	$	67,940	$	60,106	$	130,674	$	120,256

InAkcea’s development expenses in the first ~~quarter~~six months of 2019 ~~we received 2.8 million shares of Akcea common stock as payment for the~~included a $75 million sublicense fee ~~Akcea owed~~it paid us ~~when Novartis licensed~~related to Novartis’ license of AKCEA-APO(a)-L_Rx. ~~Akcea recognized the $75 million sublicense fee in its R&D development expenses.~~ We eliminated this expense in our consolidated results. ~~We expect to receive 6.9 million shares~~Excluding this fee, Akcea's development expenses decreased primarily because Akcea completed the Phase 2 study of ~~Akcea common stock as payment for the $125 million sublicense fee Akcea will owe us once the Pfizer license of AKCEA-ANGPTL3-L~~_Rx ~~closes. We expect Akcea will recognize the $125 million sublicense fee~~vupanorsen in ~~its R&D expenses in the fourth quarter of 2019. We will eliminate this expense in our consolidated results.~~early 2020.

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~~medicines are in Phase 1 or Phase 2 clinical trials, they are in a dynamic state in which we may adjust the development strategy for each ~~product.~~medicine. Although we may characterize a ~~product~~medicine as “in Phase 1” or “in Phase 2,” it does not mean that we are conducting a single, well-defined study with dedicated resources. Instead, we allocate our internal resources on a shared basis across numerous ~~products~~medicines based on each ~~product’s~~medicine’s particular needs at that time. This means we are constantly shifting resources among ~~products.~~medicines. Therefore, what we spend on each ~~product~~medicine during a particular period is usually a function of what is required to keep the ~~products~~medicines progressing in clinical development, not what ~~products~~medicines we think are most important. For example, the number of people required to start a new study is large, the number of people required to keep a study going is modest and the number of people required to finish a study is large. However, such fluctuations are not indicative of a shift in our emphasis from one ~~product~~medicine to another and cannot be used to accurately predict future costs for each ~~product.~~medicine. And, because we always have numerous medicines in preclinical and early stage clinical research, the fluctuations in expenses from medicine to medicine, in large part, offset one another. If we partner a medicine, it may affect the size of a trial, its timing, its total cost and the timing of the related costs.

Manufacturing and ~~Operations~~Development Chemistry

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

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

Three Months Ended
September 30,

Nine Months Ended
September 30,

2019 2018 2019 2018
Manufacturing and operations expenses, excluding non-cash compensation expense related to equity awards $ 9,582 $ 8,085 $ 29,064 $ 30,083
Non-cash compensation expense related to equity awards 2,441 2,236 7,022 7,024
Total manufacturing and operations expenses $ 12,023 $ 10,321 $ 36,086 $ 37,107

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Manufacturing and development chemistry expenses, excluding non-cash compensation expense related to equity awards	$	13,880	$	9,328	$	25,863	$	19,482
Non-cash compensation expense related to equity awards		2,832		2,524		5,664		4,581
Total manufacturing and development chemistry expenses	$	16,712	$	11,852	$	31,527	$	24,063

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

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

Three Months Ended
September 30,

Nine Months Ended
September 30,

2019 2018 2019 2018
Ionis Core $ 8,059 $ 6,931 $ 24,919 $ 24,659
Akcea Therapeutics 7,038 1,154 9,659 10,653
Elimination of intercompany activity (5,515 ) — (5,515 ) (5,229 )
Subtotal 9,582 8,085 29,064 30,083
Non-cash compensation expense related to equity awards 2,441 2,236 7,022 7,024
Total manufacturing and operations expenses $ 12,023 $ 10,321 $ 36,086 $ 37,107

	Three Months Ended June 30,					Six Months Ended June 30,
	2020			2019		2020			2019
Ionis Core	$	10,458		$	8,062	$	20,768		$	16,860
Akcea Therapeutics		8,702			1,266		10,374			2,621
Elimination of intercompany activity		(5,280	)		—		(5,280	)		—
Subtotal		13,880			9,328		25,862			19,482
Non-cash compensation expense related to equity awards		2,832			2,524		5,664			4,581
Total manufacturing and development chemistry expenses	$	16,712		$	11,852	$	31,527		$	24,063

R&D Support

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

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

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Personnel costs	$	3,666	$	3,259	$	10,990	$	9,456	$	3,505	$	3,414	$	7,343	$	7,324
Occupancy		2,463		2,379		6,894		6,281		2,439		2,254		4,881		4,431
Patent expenses		600		513		1,796		1,745		559		673		1,231		1,196
Depreciation and amortization		130		115		389		315		163		138		325		259
Insurance		498		364		1,321		1,230		619		412		1,229		823
Other		1,454		1,382		5,101		4,186		2,411		1,509		4,787		3,647
Total R&D support expenses, excluding non-cash compensation expense related to equity awards		8,811		8,012		26,491		23,213		9,696		8,400		19,796		17,680
Non-cash compensation expense related to equity awards		4,897		3,731		14,364		11,548		3,075		4,816		7,706		9,467
Total R&D support expenses	$	13,708	$	11,743	$	40,855	$	34,761	$	12,771	$	13,216	$	27,502	$	27,147

R&D support expenses ~~were slightly higher~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020 increased slightly compared to the same ~~period~~periods in ~~2018, primarily due to costs associated with the growth of our business.~~2019. All amounts exclude non-cash compensation expense related to equity awards.

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

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Ionis Core	$	7,097		$	7,225		$	21,961		$	20,464		$	5,267		$	6,038		$	12,920		$	14,864
Akcea Therapeutics		1,757			832			4,659			2,865			4,471			2,405			6,960			2,902
Elimination of intercompany activity		(43	)		(45	)		(129	)		(116	)		(42	)		(43	)		(85	)		(86	)
Subtotal		8,811			8,012			26,491			23,213			9,696			8,400			19,795			17,680
Non-cash compensation expense related to equity awards		4,897			3,731			14,364			11,548			3,075			4,816			7,706			9,467
Total R&D support expenses	$	13,708		$	11,743		$	40,855		$	34,761		$	12,771		$	13,216		$	27,502		$	27,147

Selling, General and Administrative Expenses

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

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

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Selling, general and administrative expenses, excluding non-cash compensation expense related to equity awards	$	59,781	$	52,609	$	164,122	$	139,051	$	50,203	$	57,071	$	110,341	$	104,341
Non-cash compensation expense related to equity awards		255		16,103		39,246		39,512		22,076		18,040		37,073		38,991
Total selling, general and administrative expenses	$	60,036	$	68,712	$	203,368	$	178,563	$	72,279	$	75,111	$	147,414	$	143,332

SG&A expenses were ~~higher~~lower for the three ~~and nine~~ months ended ~~September~~June 30, ~~2019,~~2020, compared to the same ~~periods~~period in ~~2018~~,2019, principally due to reductions in travel and marketing events for Akcea as a result of the ~~cost~~COVID-19 pandemic. SG&A expenses were higher for the six months endedJune 30, 2020, compared to the same period in 2019,principally due to our investments in the global launches of ~~commercializing~~ TEGSEDI and ~~WAYLIVRA.~~WAYLIVRA to support expansion into new countries. All amounts exclude non-cash compensation expense related to equity awards.

Our ~~selling, general and administrative~~SG&A expenses by segment were as follows (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018			2019		2018			2020		2019		2020		2019
Ionis Core	$	18,470	$	16,060		$	53,651	$	54,254		$	20,348	$	17,994	$	39,935	$	35,181
Akcea Therapeutics		41,311		44,450			110,470		92,248			29,855		39,077		70,406		69,159
Elimination of intercompany activity		—		(7,901	)		—		(7,451	)
Subtotal		59,781		52,609			164,121		139,051			50,203		57,071		110,341		104,340
Non-cash compensation expense related to equity awards		255		16,103			39,247		39,512			22,076		18,040		37,073		38,992
Total selling, general and administrative expenses	$	60,036	$	68,712		$	203,368	$	178,563		$	72,279	$	75,111	$	147,414	$	143,332

Akcea Therapeutics, Inc.

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

	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018		2019			2018		2020			2019			2020			2019
Cost of products sold	$	2,275		$	—	$	10,246		$	—	$	4,693		$	5,645		$	9,238		$	7,971
Development and patent expenses		21,983			27,068		135,388			89,940		26,247			17,707			42,253			38,406
Sublicense fee to Ionis												—			—			—			75,000
Selling, general and administrative expenses		41,311			44,450		110,470			92,248		29,855			39,077			70,406			69,159
Profit (loss) share for TEGSEDI commercialization activities		(8,889	)		—		(29,410	)		—		(3,447	)		(11,465	)		(10,498	)		(20,521	)
Total operating expenses, excluding non-cash compensation expense related to equity awards		56,680			71,518		226,694			182,188		57,348			50,965			111,399			170,015
Non-cash compensation expense related to equity awards		(3,465	)		12,731		29,458			31,240		16,120			14,363			23,402			32,923
Total Akcea Therapeutics operating expenses	$	53,215		$	84,249	$	256,152		$	213,428	$	73,468		$	65,328		$	134,801		$	202,938

InSee discussion of fluctuations in Akcea operating expenses in the ~~third quarter of 2018, Akcea began recognizing cost of products sold expenses after the approval of TEGSEDI.~~operating expense sections above.

~~Akcea’s development and patent expenses increased for the~~ ~~nine months endedSeptember 30, 2019~~, compared to the same period in 2018 as a result of the one-time $75 million sublicense fee it paid to Ionis in Akcea common stock for Ionis' portion of the license fee Akcea received from Novartis in the first quarter of 2019. Excluding this one-time sublicense fee, Akcea's development expenses decreased primarily because Akcea has transitioned all further development of AKCEA-APO(a)-L_Rx ~~to Novartis. In the fourth quarter of 2019, we expect Akcea’s development expenses to increase as a result of the one-time $125 million sublicense fee Akcea expects to pay to Ionis once the Pfizer license of AKCEA-ANGPTL3-L~~_Rx ~~closes.~~ ~~The sublicense fees Akcea pays Ionis are eliminated in our consolidated results.~~

~~Akcea’s SG&A expenses increased in the three and nine months ended September 30, 2019 compared to the same periods in 2018, primarily due to Akcea’s commercialization of TEGSEDI and WAYLIVRA.~~ For each period presented, we allocated a portion of Ionis’ SG&A expenses to Akcea for work we performed on Akcea’s ~~behalf.~~behalf and we bill Akcea for these expenses. We ~~include~~included these allocated expenses in Akcea’s SG&A expenses in the table above. All amounts exclude non-cash compensation expense related to equity awards.

In the first quarter of 2019, we began sharing profits and losses for TEGSEDI with Akcea under our TTR licensing agreement. As Akcea is the principal for all commercial activities related to the TTR License Agreement, Akcea records all activities related to TEGSEDI on a gross basis in its statement of operations based on the nature of the activity, including revenues, cost of products sold and sales and marketing expenses. Ionis’ share of the net profit/loss from commercializing TEGSEDI is separately presented on Akcea’s statement of operations on the line titled “Profit (loss) share for TEGSEDI commercialization activities”. Since TEGSEDI is currently generating a loss, this represents the amount Ionis owes Akcea under the licensing agreement for ~~its~~Ionis’ share of the net loss of TEGSEDI commercialization activities during the period. ~~For the three and nine months ended September 30, 2019, our share of losses for TEGSEDI commercialization activities was $8.9 million and $29.4 million, respectively.~~ With the launch of WAYLIVRA in the third quarter of 2019, Akcea ~~will now pay~~began paying Ionis royalties on WAYLIVRA product sales. We eliminate these amounts in our consolidated results.

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

Investment Income

Investment income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was ~~$13.1~~$9.2 million and ~~$39.0~~$19.5 million, respectively, compared to ~~$10.0~~$13.7 million and ~~$18.7~~$25.9 million for the same periods in ~~2018.~~2019. The ~~increase~~decrease in investment income was primarily due to ~~our significantly higher average cash balance~~a decline in interest rates during the ~~first nine~~six months ~~of 2019~~ended June 30, 2020 compared to the same ~~period~~periods in ~~2018.~~

2019.

Interest Expense

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

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Convertible notes:
Non-cash amortization of the debt discount and debt issuance costs	$	9,558	$	8,856	$	28,140	$	26,072	$	9,594	$	9,382	$	19,006	$	18,582
Interest expense payable in cash		1,714		1,714		5,141		5,141		946		1,714		1,892		3,428
Interest on mortgage for primary R&D and manufacturing facilities		607		607		1,790		1,802		601		601		1,201		1,183
Other		123		105		333		317		32		105		64		209
Total interest expense	$	12,002	$	11,282	$	35,404	$	33,332	$	11,173	$	11,802	$	22,163	$	23,402

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

Gain on Investments

We recorded a gain on investments of $9.9 million for the six months ended June 30, 2020. During the second quarter of 2020, we revalued our investments in two privately-held companies, Dynacure and Ribo because the companies sold additional equity securities that were similar to those we own. These observable price changes resulted in us recognizing a $6.3 million gain on our investment in Dynacure and a $3 million gain on our investment in Ribo in our condensed consolidated statement of operations during the three months ended June 30, 2020.

Income Tax Benefit (Expense)

We recorded an income tax benefit of ~~$14.9~~$0.4 million and ~~an income tax expense of $9.2~~$3.7 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019, compared to~~2020, respectively. We recorded an income tax ~~expense~~benefit of ~~$0.5~~$6.9 million ~~and $0.8 million for the same periods in 2018, respectively. The tax benefit recorded~~ for the three months ended ~~September~~June 30, 2019 ~~varies from what we would have~~and income tax expense of $24.1 million for the six months ended June 30, 2019. We recorded ~~using~~an income tax benefit in the ~~U.S. federal statutory rate~~first half of 2020 primarily due to ~~a state tax benefit resulting from our combined state tax filings with Akcea, estimated R&D and orphan drug credits, excess tax benefits related to share-based compensation~~Ionis’ pre-tax loss for the period and a $1.7 million tax benefit related to Akcea. We did not record a ~~change~~tax benefit as a result of Akcea’s pre-tax loss in the ~~estimated tax value~~first half of 2020 because Akcea shares we received in 2018. The increase in our income tax expense for the nine months ended September 30, 2019, compared to the same period in 2018, was primarily due to our expectation that we will generate U.S. federal and state taxable income in 2019. We expect to utilize ourmaintains a full valuation allowance against its deferred tax ~~assets to partially offset our U.S. federal taxable income.~~assets.

Net Income (Loss)

We ~~had~~generated a net loss of ~~$18.4~~$43.8 million and ~~net income of $99.3~~$102.2 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively, compared to a net loss of ~~$20.4~~$10.0 million and ~~$87.7~~net income of $80.9 million for the same periods in ~~2018.~~2019. Our net ~~income~~loss for the six months ended June 30, 2020 was primarily due to ~~increased~~decreased revenue ~~year-over-year.~~year-over-year, as discussed above in the revenue section.

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

At ~~September~~June 30, ~~2019,~~2020, we owned approximately 7576 percent of Akcea. The shares of Akcea ~~that~~ 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 condensed 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 the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, was a loss of ~~$7.7~~$11.9 million and ~~$10.4~~$22.2 million, respectively, compared to ~~$15.8~~$9.1 million and ~~$41.4~~$2.7 million for the same periods in ~~2018.~~2019.

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

We had ~~net income attributable to our common stockholders’ of $26.2 million for the three months ended September 30, 2019, compared to~~ a net loss attributable to our common stockholders’ of ~~$4.6~~$31.8 million for the three months ended June 30, 2020 compared to $0.9 million for the same period in ~~2018.~~2019. For the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 we reported ~~net income attributable to our common stockholders of $109.7 million, compared to~~ a net loss attributable to our common stockholders of ~~$46.3~~$80.1 million compared to net income attributable to our common stockholders of $83.6 million for the same period in ~~2018. The increase was primarily due to increases in revenue.~~2019.

~~For~~Basic and diluted net loss per share for the three months ended ~~September~~June 30, ~~2019,~~2020 were $0.23 compared to $0.01 for the same period in 2019. For the six months ended June 30, 2020, basic and diluted net loss per share were ~~$0.19 and $0.18, respectively, compared to $0.03 for the same period in 2018. For the nine months ended September 30, 2019, basic~~$0.58. Basic and diluted net income per share ~~were $0.81 and $0.79, respectively, compared to $0.33~~ for the ~~same period in 2018.~~six months ended June 30, 2019 were $0.62 and $0.61, respectively.

Liquidity and Capital Resources

We have financed our operations primarily from research and development collaborative agreements. We also finance our operations from commercial revenue from SPINRAZA royalties and product sales. From our inception through ~~September~~June 30, ~~2019,~~2020, we have earned approximately ~~$3.8~~$4.4 billion in revenue. We ~~have~~ also financed our operations through the sale of our equity securities and the issuance of long-term debt. From the time we were founded through ~~September~~June 30, ~~2019,~~2020, we have raised net proceeds of approximately ~~$1.8~~$2.0 billion from the sale of our equity ~~securities, not including the $182.4 million Akcea received in net proceeds from its IPO in July 2017.~~securities. Additionally, we have borrowed approximately ~~$1.4~~$1.5 billion under long-term debt arrangements to finance a portion of our operations over the same time period.

~~At September 30, 2019, we had~~Our key liquidity metrics and capital resources, including our cash, cash equivalents and short-term investments, ~~of $2.2 billion~~working capital and ~~stockholders’ equity of $1.5 billion. In comparison, we had cash, cash equivalents and short-term investments of $2.1 billion and stockholders’ equity of $1.2 billion~~debt obligations did not change significantly at June 30, 2020 compared to December 31, 2018. Our cash, cash equivalents and short-term investments increased in the first nine months of 2019 primarily from payments we received from Biogen, Novartis and Roche. We expect to receive $260 million in payments we generated from Pfizer and Bayer so far in the fourth quarter of 2019.

In September 2019, our board of directors approved an initial share repurchase program of up to $125 million of our common stock. Our stock repurchase program has no expiration date. To date, we have not repurchased any shares of our common stock. We plan to make stock repurchases under this program over time in open market transactions. ~~We may consider additional share repurchases in the future as part of our overall capital allocation strategy.~~

At September 30, 2019, we had consolidated working capital of $2.2 billion compared to $1.9 billion at December 31, 2018. As of September 30, 2019, our debt and other obligations totaled $763.4 million compared to $763.9 million at December 31, 2018. The increase in our debt and other obligations is from the operating lease liability we added to our balance sheet when we adopted the new accounting guidance for leases on January 1, 2019.

The following table summarizes our contractual obligations as of ~~September~~June 30, ~~2019.~~2020. The table provides a breakdown of when obligations become due. We provide a more detailed description of the major components of our debt in the paragraphs following the table:

Contractual Obligations	Payments Due by Period (in millions)										Payments Due by Period (in millions)
(selected balances described below)	Total		Less than 1 year		1-3 years		3-5 years		After 5 years		Total		Less than 1 year		1-3 years		3-5 years		After 5 years
Convertible senior notes (principal and interest payable)	$	702.6	$	6.9	$	695.7	$	—	$	—
0.125% Notes (principal and interest payable)											$	551.9	$	0.7	$	1.3	$	549.9	$	—
1% Notes (principal and interest payable)											$	314.5	$	3.1	$	311.4	$	—	$	—
Building mortgage payments	$	78.8	$	2.4	$	4.9	$	6.9	$	64.6	$	77.1	$	2.4	$	5.7	$	6.9	$	62.1
Operating leases											$	21.8	$	3.2	$	5.5	$	4.8	$	8.3
Other obligations (principal and interest payable)	$	1.0	$	0.1	$	0.1	$	0.1	$	0.7	$	1.0	$	0.1	$	0.1	$	0.1	$	0.7
Operating leases	$	24.3	$	3.3	$	5.9	$	5.0	$	10.1
Total	$	806.7	$	12.7	$	706.6	$	12.0	$	75.4	$	966.3	$	9.5	$	324.0	$	561.7	$	71.1

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

0.125 Percent Convertible Senior Notes and Call Spread

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

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

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

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

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

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

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

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~~1% Notes to repurchase $140 million in principal of our 2¾ percent convertible senior ~~notes. As a result, the principal balance of the~~notes, or 2¾ ~~percent notes following the repurchase in November 2014 was $61.2 million.~~

% Notes. In December 2016, we issued an additional $185.5 million of ~~1 percent convertible senior notes~~1% Notes in exchange for the redemption of $61.1 million of our 2¾ ~~percent convertible senior notes. At September 30,~~% Notes. In December 2019, we ~~had~~exchanged a ~~nominal amount~~portion of our ~~2¾ percent convertible senior notes outstanding.~~ 1% Notes for new 0.125% Notes. As a result, the principal balance of the 1% Notes following the exchange was $309.9 million.

At ~~September~~June 30, ~~2019,~~2020, we had the following ~~1 percent convertible senior notes~~1% Notes outstanding (amounts in millions except price per share data):

	1 Percent Convertible Senior Notes		1% Notes
Outstanding principal balance	$	685.5	$	309.9
Original issue date ($500 million of principal)	November 2014
Additional issue date ($185.5 million of principal)	December 2016
Maturity date	November 2021		November 2021
Interest rate	1 percent		1 percent
Conversion price per share	$	66.81	$	66.81
Total shares of common stock subject to conversion		10.3		4.6

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

~~Financing 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, which we amended in February 2016. Under the amended credit agreement, Morgan Stanley provided a maximum of $30 million of revolving credit for general working capital purposes. During the third quarter of 2019, we paid off our total outstanding borrowings of $12.5 million under the agreement and subsequently terminated the 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. We purchased~~million and our manufacturing facility ~~in July 2017~~ for $14.0 million. We financed the purchase of ~~our primary R&D facility and manufacturing facility,~~these two facilities with mortgage debt of ~~$51.3~~$60.4 million ~~and $9.1 million, respectively.~~in total. Our primary R&D facility mortgage has an interest rate of 3.88 percent. Our manufacturing facility mortgage has an interest rate of 4.20 percent. During the first five years of both mortgages, we are only required to make interest payments. Both mortgages mature in August 2027.

Other Obligations

In addition to contractual obligations, we had outstanding purchase orders as of ~~September~~June 30, ~~2019~~2020 for the purchase of services, capital equipment and materials as part of our normal course of business.

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

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to changes in interest rates primarily from our ~~long-term debt arrangements and, secondarily,~~ investments in certain short-term investments. We primarily invest our excess cash in highly liquid short-term investments of the U.S. Treasury and reputable financial institutions, corporations, and U.S. government agencies with strong credit ratings. We typically hold our investments for the duration of the term of the respective instrument. We do not utilize derivative financial instruments, derivative commodity instruments or other market risk sensitive instruments, positions or transactions to manage exposure to interest rate changes. Accordingly, we believe that, while the securities we hold are subject to changes in the financial standing of the issuer of such securities, we are not subject to any material risks arising from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices or other market changes that affect market risk sensitive instruments.

We are also exposed to changes in foreign currency exchange rates as we have foreign subsidiaries with functional currencies other than the U.S. dollar. We translate our subsidiaries’ functional currencies into our reporting currency, the U.S. dollar. As a result, our financial position, results of operations and cash flows can be affected by market fluctuations in the foreign currencies to U.S. dollar exchange rate, which are difficult to predict. A hypothetical 10 percent change in foreign exchange rates during any of the periods presented would not have had a material impact on our condensed consolidated financial statements. Our business strategy incorporates potentially significant international expansion, particularly related to TEGSEDI and WAYLIVRA, therefore we expect that the impact of foreign currency exchange rate fluctuations may become more substantial in the future.

ITEM 4.

CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures 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 design 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 our most recently completed fiscal year and as of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, under the supervision 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 ~~September~~June 30, ~~2019.~~2020. There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to ~~September~~June 30, ~~2019.~~

2020.

We also performed an evaluation of any changes in our internal controls over financial reporting that occurred during our last fiscal quarter and that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. We conducted this evaluation under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. That evaluation did not identify any changes in our internal controls over financial reporting that occurred during our latest fiscal quarter and that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II — OTHER INFORMATION

ITEM 1.

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.

~~Not applicable.~~On July 16, 2020, a purported stockholder of Akcea filed an action in the Delaware Court of Chancery captioned John Makris, et al. v. Stanley T. Crooke, et al., C.A. No. 2020-0587, or the “Delaware Action.” The plaintiff in the Delaware Action asserts claims against (i) current and former members of Akcea’s board of directors; and (ii) Ionis, or collectively, the Defendants. The plaintiff asserts derivative claims on behalf of Akcea, which is a nominal defendant in the Delaware Action, as well as putatively direct claims on behalf of a purported class of Akcea’s stockholders. The plaintiff in the Delaware action asserts that the Defendants breached their fiduciary duties in connection with the licensing transaction that we and Akcea entered into regarding TEGSEDI and AKCEA-TTR-L_Rx. The plaintiff also asserts an unjust enrichment claim against Ionis. The plaintiff’s claims are similar to those asserted in a prior action in the Delaware Court of Chancery captioned City of Cambridge Retirement System v. Crooke, et al., C.A. No. 2019-0905, which was dismissed with prejudice to the named plaintiff only on April 8, 2020. We believe that the claims asserted in the Delaware Action are without merit and anticipate filing a motion to dismiss the claims.

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. We have marked with an asterisk those risk factors that reflect substantive changes from the risk factors included in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Risks Related to the COVID-19 Pandemic

Our business could be materially adversely affected by the effects of health epidemics. To date, we believe the impacts of the recent COVID-19 pandemic on our business are limited and manageable.*

Our business could be materially adversely affected by health epidemics in regions where we or our partners are commercializing our medicines, have concentrations of clinical trial sites or other business operations, and could cause significant disruption in the operations of third-party manufacturers and contract research organizations upon whom we rely. For example, since December 2019, a novel strain of coronavirus, SARS-CoV-2, causing a disease referred to as COVID-19, has spread worldwide. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, or the COVID-19 Pandemic, and the U.S. government-imposed travel restrictions on travel between the U.S., Europe and certain other countries. In addition, the Governor of the State of California and the Governor of the Commonwealth of Massachusetts, the states in which our and Akcea’s headquarters are located, respectively, each declared a state of emergency related to the spread of COVID-19 and issued executive orders that directed residents to stay at home.

In response to these public health directives and orders, we implemented work-from-home policies for most of our employees and generally suspended business-related travel. Akcea has also implemented work-from-home policies for its employees globally and generally suspended business-related travel. During the second quarter of 2020, some states began lifting restrictions and permitting certain offices to reopen, including the State of California and Commonwealth of Massachusetts. However, out of an abundance of caution and to protect the health and welfare of our employees, we continue to maintain work-from-home policies for most of our employees. The effects of these work-from-home and travel policies have thus far had a limited impact on our business.

These public health directives and orders have also impacted Akcea’s sales efforts. For example, some physician and hospital policies that have been put in place as a result of the COVID-19 Pandemic restrict in-person access by third parties, which has in some cases impacted Akcea’s commercialization efforts for TEGSEDI and WAYLIVRA. These and similar, and perhaps more severe, disruptions in our commercial operations could materially impact our business, operating results and financial condition in the future.

Quarantines, shelter-in-place, executive and similar government orders, or the perception that such orders, shutdowns or other restrictions on the conduct of business operations could occur, could impact personnel at third-party manufacturing facilities in the U.S. and other countries, or the availability or cost of materials, which would disrupt our supply chain.

We have experienced impacts to our clinical trial operations due to the COVID-19 Pandemic; however, we believe such impacts are limited and manageable. Some examples of these impacts include:

●

we have experienced some impact on clinical site initiation and patient enrollment due to restrictions imposed as a result of the COVID-19 Pandemic;

For example, in March 2020, Akcea instituted a temporary suspension of enrollment for new subjects in its Phase 3 studies of AKCEA-TTR-L_Rx based on advice from Akcea’s trial advisory committee; however, enrollment has resumed as sites have come back online as local and regional restrictions have eased.

●

some patients have not been able to comply with clinical trial protocols as quarantines have impeded patient movement and interrupted healthcare services;

●

we have experienced some impact on our ability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19; and

●

we have experienced some delays in necessary interactions with regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government or contractor personnel.

The spread of COVID-19 has caused a broad impact globally. While the potential economic impact brought by, and the duration of, the COVID-19 Pandemic may be difficult to assess or predict, it could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and has and could continue to affect the value of our securities.

The global COVID-19 Pandemic continues to rapidly evolve. While we have not yet experienced material adverse effects to our business as a result of the COVID-19 Pandemic, the ultimate impact of the COVID-19 Pandemic or a similar health epidemic is highly uncertain and subject to change. As such, we do not yet know the full extent of delays or impacts on our business, our clinical trials, healthcare systems or the global economy as a whole. However, these effects could have a material impact on our operations, and we will continue to monitor the COVID-19 Pandemic closely.

Risks Associated with our Ionis Core and Akcea Therapeutics Businesses

If the market does not accept our medicines, including SPINRAZA, TEGSEDI and WAYLIVRA, and our medicines in development, we are not likely to generate substantial revenues or become consistently profitable.*

Even if our medicines are authorized for marketing, including SPINRAZA, TEGSEDI and WAYLIVRA, our success will depend upon the medical community, patients and third-party ~~payors~~payers accepting our medicines as medically useful, cost-effective, safe and ~~safe.~~convenient. Even when the FDA or foreign regulatory authorities authorize our or our partners’ medicines for commercialization, doctors may not prescribe our medicines to treat patients. We and our partners may not successfully commercialize additional medicines.

Additionally, in many of the markets where we or our partners may sell our medicines in the future, if we or our partners cannot agree with the government or other third-party payers regarding the price we can charge for our medicines, then we may not be able to sell our medicines in that market. Similarly, cost control initiatives by governments or third-party ~~payors~~payers 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.~~and our medicines in development, economically unviable.

The degree of market acceptance for our medicines, including SPINRAZA, TEGSEDI and WAYLIVRA, and our medicines in development, depends upon a number of factors, including the:

●

receipt and scope of marketing authorizations;

●

establishment and demonstration in the medical and patient community of the efficacy and safety of our medicines and their potential advantages over competing products;

●

cost and effectiveness of our medicines compared to other available therapies;

●

patient convenience of the dosing regimen for our medicines; and

●

reimbursement policies of government and third-party ~~payors.~~payers.

Based on the profile of our medicines, physicians, patients, patient advocates, ~~payors~~payers or the medical community in general may not accept ~~and/~~or use any medicines that we may develop.

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~~is only available through a Risk Evaluation and Mitigation Strategy, or REMS, program. Our main competition in the U.S. market for TEGSEDI is ONPATTRO (patisiran), marketed by Alnylam Pharmaceuticals, Inc. Although ONPATTRO requires intravenous administration and pre-treatment with steroids, it does not have a boxed warning or REMS. Additionally, 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. The~~ product label for WAYLIVRA in the E.U. requires ~~periodic~~regular blood monitoring. In each case, these label requirements could negatively affect our ability to attract and retain patients for these medicines. We believe that the enhanced monitoring we have implemented to support early detection and management of these issues can help manage these safety issues so that patients can continue treatment. Since implementation of the enhanced monitoring, serious platelet events have been infrequent. While we believe we and Akcea can better maintain patients on TEGSEDI and WAYLIVRA through our patient-centric commercial ~~approaches~~approach where we plan to have greater involvement with physicians and patients, if we cannot effectively maintain patients on TEGSEDI or WAYLIVRA, including due to limitations or restrictions on our ability to conduct periodic blood and urine monitoring of our patients as a result of the current COVID-19 Pandemic, we may not be able to generate substantial revenue from TEGSEDI or WAYLIVRA sales.

If we or our partners fail to compete effectively, our medicines, including SPINRAZA, TEGSEDI and WAYLIVRA, and our medicines in development, will not contribute significant revenues.*

Our competitors engage in drug discovery throughout the world, are numerous, and include, among others, major pharmaceutical companies and specialized biopharmaceutical firms. Other companies engage in developing antisense technology. Our competitors may succeed in developing medicines that are:

●

priced lower than our medicines;

●

reimbursed more favorably by government and other third-party ~~payors~~payers than our medicines;

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safer than our medicines;

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more effective than our medicines; or

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more convenient to use than our medicines.

These competitive developments could make our medicines, including SPINRAZA, TEGSEDI and WAYLIVRA, and our medicines in development, obsolete or non-competitive.

Certain of our partners are pursuing other technologies or developing other medicines 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’s focus on and commitment to our medicines and, as a result, could delay or otherwise negatively affect the commercialization of our medicines, including SPINRAZA, TEGSEDI and WAYLIVRA.

Many of our competitors have substantially greater financial, technical and human resources than we do. In addition, many of these competitors have significantly greater experience than we do in conducting preclinical testing and human clinical studies of new pharmaceutical products, in obtaining FDA and other regulatory authorizations of such products and in commercializing such products. Accordingly, our competitors may succeed in obtaining regulatory authorization for products earlier than we do. Marketing and sales capability is another factor relevant to the competitive position of our medicines, and we will primarily rely on our partners and Akcea to provide this capability.

There are several pharmaceutical and biotechnology companies engaged in the development or commercialization in certain geographic markets of products against targets that are also targets of products in our development pipeline. For ~~example, ZOLGENSMA (approved in the U.S. for the treatment~~example:

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ZOLGENSMA and risdiplam could compete with SPINRAZA;

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ONPATTRO, VYNDAQEL and VYNDAMAX, AG10 and vutrisiran could compete with TEGSEDI and AKCEA-TTR-L_Rx;

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ARO-APOC3, metreleptin and gemcabene could compete with WAYLIVRA;

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WVE-120101/WVE-120102, Selistat and VX15 could compete with tominersen; and

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Arimoclomol could compete with tofersen.

Certain of ~~pediatric patients less than two years of age with SMA), risdiplam (RG7916), reldesemtiv and firdapse could~~our medicines may compete with ~~SPINRAZA,~~our other medicines, which could reduce our expected revenues.

Certain of our medicines inhibit the production of the same protein. For example, WAYLIVRA inhibits the production of the same protein as AKCEA-APOCIII-L_Rx and ~~ONPATTRO (approved~~TEGSEDI inhibits the production of the same protein as AKCEA-TTR-L_Rx. We believe the enhancements we incorporated into AKCEA-APOCIII-L_Rx and AKCEA-TTR-L_Rx can provide greater patient convenience by allowing for significantly lower doses and less frequent administration compared to WAYLIVRA and TEGSEDI, respectively. As such, to the extent physicians and patients elect to use AKCEA-APOCIII-L_Rx or AKCEA-TTR-L_Rx instead of WAYLIVRA or TEGSEDI, respectively, it will reduce the revenue we derive from those medicines. In addition, while vupanorsen, AKCEA-APOCIII-L_Rx and WAYLIVRA use different mechanisms of action, if vupanorsen can effectively lower triglyceride levels in ~~the U.S. and Europe for a similar indication as TEGSEDI), VYNDAQEL and VYNDAMAX (approved in the U.S. for~~ patients with ~~both hereditary~~familial chylomicronemia syndrome, or FCS, it may likewise reduce the revenue we derive from WAYLIVRA and wild type ATTR cardiomyopathy and in the EU for stage 1 hATTR amyloidosis with polyneuropathy), AG10, CRX-1008 and vutrisiran could compete with TEGSEDI. Also, metreleptin and gemcabene could compete with WAYLIVRA, while laquinimod, OMS823, selistat, VX15, WVE-120101 and WVE-120102 could compete with IONIS-HTTAKCEA-APOCIII-L_Rx. ~~Furthermore, arimoclomol could potentially compete with tofersen.~~

~~Following approval, our~~

Our medicines ~~including SPINRAZA, TEGSEDI and WAYLIVRA~~ could be subject to regulatory limitations. *limitations following approval.

Following approval of a medicine, we and our partners must comply with comprehensive government regulations regarding the manufacture, marketing and distribution of ~~drug products.~~medicines. Promotional communications regarding prescription medicines must be consistent with the information in the product’s approved labeling. We or our partners may not obtain the labeling claims necessary or desirable to successfully commercialize our ~~drug products,~~medicines, including SPINRAZA, TEGSEDI and ~~WAYLIVRA.~~WAYLIVRA, and our medicines in development.

The FDA and foreign regulatory bodies have the authority to impose significant restrictions on an approved ~~drug product~~medicine through the product label and on advertising, promotional and distribution activities. For example:

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in the U.S., TEGSEDI’s label contains a boxed warning for thrombocytopenia and glomerulonephritis;

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TEGSEDI requires periodic blood and urine monitoring;

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in the U.S., TEGSEDI is available only through a ~~Risk Evaluation and Mitigation Strategy, or~~ REMS program; and

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we expect WAYLIVRA will require periodic blood ~~monitoring.~~monitoring if approved in the U.S.

Prescription medicines may be promoted only for the approved indications in accordance with the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label may be subject to significant liability.

In addition, when approved, the FDA or a foreign regulatory authority may condition approval on the performance of post-approval clinical studies or patient monitoring, which could be time consuming and expensive. For example, in connection with the conditional marketing approval for WAYLIVRA in the ~~EU,~~E.U., we are required to conduct a post-authorization safety study to evaluate the safety of WAYLIVRA on thrombocytopenia and bleeding in FCS patients taking WAYLIVRA. If the results of such post-marketing studies are not satisfactory, the FDA, EC or aother foreign regulatory authority may withdraw marketing authorization or may condition continued marketing on commitments from us or our partners that may be expensive ~~and/or~~and time consuming to fulfill.

If we or others identify side effects after any of our ~~drug products~~medicines are on the market, or if manufacturing problems occur subsequent to regulatory approval, or if we, our manufacturers or our partners fail to comply with regulatory requirements, we or our partners may, among other things, lose regulatory approval ~~or we or our partners may~~and be forced to withdraw products from the market, need to conduct additional clinical studies, incur restrictions on the marketing, distribution or manufacturing of the product, and/or change the labeling of our ~~drug products,~~medicines, including SPINRAZA, TEGSEDI and WAYLIVRA.

We depend on our collaboration with Biogen for the development and commercialization of SPINRAZA.

We have entered into a collaborative arrangement with Biogen to develop and commercialize SPINRAZA. We entered into this collaboration primarily to:

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fund our development activities for SPINRAZA;

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seek and obtain regulatory approvals for SPINRAZA; and

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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 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 and WAYLIVRA, we may not generate significant product revenue from TEGSEDI or WAYLIVRA.*

To successfully commercialize TEGSEDI and WAYLIVRA, Akcea must effectively 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 and~~ WAYLIVRA in the initial indications Akcea is pursuing and to continue the commercialization of TEGSEDI, Akcea will need to optimize and maintain a specialty sales ~~force~~forces in ~~each~~the global ~~region~~regions where it currently markets or expects to market TEGSEDI and WAYLIVRA, supported by case managers, reimbursement specialists, partnerships with specialty pharmacies, injection training, routine blood and urine monitoring and a medical affairs team.

Even though certain members of Akcea’s management team and other employees have experience commercializing medicines, as a company Akcea has limited experience marketing, selling and distributing medicines, and there are significant risks involved in building, tailoring, optimizing and managing a commercial infrastructure. Since September 2019, Akcea has announced several changes to its senior leadership team, including the departure of its Chief Executive Officer, its President, its Chief Operating Officer, its Chief Financial Officer and the retirement of its Chief Medical Officer. Akcea has also appointed a new Chief Executive Officer, a new Chief Commercial Officer, a new Chief Operating Officer, a new General Counsel, a new Chief Financial Officer and a new Chief Medical Officer. The effectiveness of the senior leadership team following these transitions, new leaders as they fill in these roles, and any further transition as a result of these changes could impair Akcea’s ability to manage its business.

It ~~will be~~is expensive and time consuming for Akcea to maintain its own sales ~~force~~forces and related compliance protocols to market TEGSEDI and ~~WAYLIVRA.~~WAYLIVRA, and it will be increasingly expensive and time consuming when Akcea commercially launches additional medicines, if approved. Akcea may never successfully optimize or manage this capability and any failure could ~~preclude~~harm the ~~successful commercialization~~commercial launch of WAYLIVRA or adversely affect TEGSEDI ~~and/or WAYLIVRA.~~sales. Additionally, Akcea and its partners, if any, will have to compete with other companies to recruit, hire, train, manage and retain marketing and sales personnel. As a result of Akcea’s receipt of a complete response letter, or CRL, from the FDA regarding the new drug application for WAYLIVRA, on September 6, 2018, Akcea enacted a plan to reorganize its workforce to better align with the immediate needs of the business. In connection with this reorganization plan, Akcea reduced its workforce by approximately 12% and will need to increase its operations and expand its use of third -party contractors if WAYLIVRA is approved in the U.S.

Akcea has incurred expenses ~~prior to~~launching, optimizing and managing the ~~launch of TEGSEDI and WAYLIVRA to integrate and manage the associated~~ marketing and sales ~~infrastructure.~~infrastructure for TEGSEDI in the E.U., Canada and the U.S., and WAYLIVRA in the E.U. If regulatory requirements or other factors cause the ~~commercial launch~~commercialization of TEGSEDI or WAYLIVRA to be less successful than expected in important markets, Akcea ~~will have incurred~~would incur additional expenses for having invested in these capabilities prior to realizing any significant revenue from sales of TEGSEDI or WAYLIVRA. Akcea’s sales force and marketing teams may not successfully commercialize TEGSEDI or WAYLIVRA.

~~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.~~ To the extent we and Akcea decide to rely on third parties to commercialize TEGSEDI or WAYLIVRA in a particular geographic market, ~~such as the collaboration Akcea has with PTC Therapeutics to commercialize TEGSEDI and WAYLIVRA in Latin America,~~ we may receive less revenue than if Akcea commercialized TEGSEDI or WAYLIVRA by itself. For example, in August 2018, Akcea granted PTC Therapeutics International Limited, or PTC Therapeutics, the exclusive right to commercialize TEGSEDI and WAYLIVRA in Latin America and certain Caribbean countries, and Akcea will continue to rely on PTC Therapeutics to commercialize TEGSEDI and WAYLIVRA in those geographic markets. If PTC Therapeutics does not successfully commercialize TEGSEDI or WAYLIVRA, including as a result of delays or disruption caused by the current COVID-19 Pandemic, that may affect PTC Therapeutics’ ability to commercialize TEGSEDI or WAYLIVRA, and Akcea may receive limited revenue for TEGSEDI or no revenue for WAYLIVRA in Latin America or certain Caribbean countries. In addition, in August 2018 Akcea entered into an agreement with Accredo Health Group, Inc., or Accredo, a subsidiary of Express Scripts, to be Akcea’s specialty pharmacy partner for distribution of TEGSEDI in the U.S. Further, ~~we would have~~Akcea has less control over the sales efforts of ~~any~~ other third parties,including PTC Therapeutics and Accredo, involved in commercializing TEGSEDI or WAYLIVRA.

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. 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 and WAYLIVRA may be ~~delayed, less successful or precluded. Such~~adversely affected. Any such events may result in decreased sales and lower revenue, which could have a material adverse effect on our business, prospects, financial condition and results of operations.

In ~~September 2019,~~addition, in response to the public health directives and orders related to the COVID-19 Pandemic, Akcea ~~announced several changes~~implemented work-from-home policies for its employees globally and suspended business-related travel. The effects of the government orders and Akcea’s work-from-home and travel policies in response to ~~its senior leadership team, including~~ the ~~departure~~COVID-19 Pandemic have thus far had a limited impact on Akcea’s productivity, business and commercialization efforts for TEGSEDI and WAYLIVRA, but the effects of ~~its Chief Executive Officer, President,~~these orders and ~~Chief Operating Officer and~~policies may become more significant in the ~~appointment of two new Board members and an interim Chief Executive Officer. These transitions could impair Akcea’s ability to manage its business.~~

future.

If government or other third-party ~~payors~~payers fail to provide adequate coverage and payment rates for our medicines, including SPINRAZA, TEGSEDI and WAYLIVRA, and our medicines in development, our revenue will be limited.*

In both domestic and foreign markets, sales of our current and future products will depend in part upon the availability of coverage and reimbursement from third-party ~~payors.~~payers. The majority of ~~people~~patients in the U.S. who would fit within our target patient populations for our medicines 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~~medicines 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 medicines affordable. Accordingly, SPINRAZA, TEGSEDI and WAYLIVRA for FCS in the E.U. and, if approved, WAYLIVRA in the U.S. or Canada and for additional indications, and our medicines in development, will face competition from other therapies and medicines for limited financial resources. We or our partners may need to conduct post-marketing studies to demonstrate the cost-effectiveness of any future products to satisfy third-party payers. These studies might require us to commit a significant amount of management time and financial and other resources. Third-party payers may never consider our future products as cost-effective. Adequate third-party coverage and reimbursement might not be available to enable us to maintain price levels sufficient to realize an appropriate return on investment in product development.

Third-party ~~payors,~~payers, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In addition, in the U.S., no uniform policy of coverage and reimbursement for ~~drug products~~medicines exists among third-party ~~payors.~~payers. Therefore, coverage and reimbursement for ~~drug products~~medicines can differ significantly from ~~payor~~payer to ~~payor.~~ payer. For example, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, the Affordable Care Act, was passed in March 2010, and substantially changed the way healthcare is financed by both governmental and private insurers, and continues to significantly impact the U.S. pharmaceutical industry. There remain judicial and Congressional challenges to certain aspects of the Affordable Care Act, as well as efforts by the Trump administration to repeal or replace certain aspects of the Affordable Care Act. On December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the Affordable Care Act are invalid as well. However, in March 2020, before the District Court could rule on the remaining provisions of the Affordable Care Act, the U.S. Supreme Court agreed to review the case. The Supreme Court is expected to rule on the case in its next session, which begins in October 2020. It is unclear how such litigation and other efforts to repeal and replace the Affordable Care Act will impact the Affordable Care Act and our business.

Further, we believe that future coverage and reimbursement will likely be subject to increased restrictions both in the U.S. and in international markets. For example, in the 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~~medicines and bring more transparency to drug pricing. At the federal level, the Trump administration’s budget for fiscal year 2021 includes a $135 billion allowance to support legislative proposals seeking to reduce drug prices, increase competition, lower out-of-pocket drug costs for patients and increase patient access to lower-cost generic and biosimilar drugs. On March 10, 2020, the Trump administration sent “principles” for drug pricing to Congress, calling for legislation that would, among other things, cap Medicare Part D beneficiary out-of-pocket pharmacy expenses, provide an option to cap Medicare Part D beneficiary monthly out-of-pocket expenses and place limits on pharmaceutical price increases. On July 24, 2020, President Trump announced four executive orders related to prescription drug pricing that attempt to implement several of the administration’s proposals, including a policy that would tie Medicare Part B drug prices to international drug prices; one that directs the U.S. Department of Health and Human Services, or HHS, to finalize the Canadian drug importation proposed rule previously issued by HHS and makes other changes allowing for personal importation of drugs from Canada; one that directs HHS to finalize the rulemaking process on modifying the anti-kickback law safe harbors for plans, pharmacies, and pharmaceutical benefit managers; and one that reduces costs of insulin and epipens to patients of federally qualified health centers. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Third-party coverage and reimbursement for ~~our products or~~ medicines may not be available or adequate in either the U.S. or international markets, and third-party payers, whether foreign or domestic, or governmental or commercial, may allocate their resources to address the current COVID-19 Pandemic or experience delays or disruptions in their ability to devote resources to coverage and reimbursement matters related to our products or medicines as a result of the COVID-19 Pandemic, which would negatively affect the potential commercial success of our products, our revenue and our profits.

If Biogen cannot manufacture finished drug product for SPINRAZA or the post-launch supply of the active drug substance for SPINRAZA, SPINRAZA may not maintain commercial success.

Biogen is responsible for the long-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-term commercialization of SPINRAZA. If Biogen cannot reliably manufacture SPINRAZA drug substance and drug product, SPINRAZA may not maintain commercial success, which will harm our ability to generate revenue.

If we or our partners fail to obtain regulatory approval for our medicines and additional approvals for SPINRAZA, TEGSEDI and WAYLIVRA, and our medicines in development, we or our partners cannot sell them in the applicable markets.*

We cannot guarantee that any of our medicines will be considered safe and effective or will be approved for commercialization. In addition, ~~we cannot guarantee~~it is possible that SPINRAZA, TEGSEDI and WAYLIVRA ~~will~~may not be approved in additional markets or for additional indications. We and our partners must conduct time-consuming, extensive and costly clinical studies to ~~show~~demonstrate the safety and efficacy of each of our medicines before they can be approved or receive additional approvals for sale. We and our partners must conduct these studies in compliance with FDA regulations and with comparable regulations in other countries.

We and our partners may not obtain necessary regulatory approvals on a timely basis, if at all, for our medicines. It is possible that regulatory agencies will not approve our medicines for marketing or ~~additional marketing authorizations for~~ SPINRAZA, TEGSEDI or ~~WAYLIVRA.~~WAYLIVRA in additional markets or for additional indications. If the FDA or another regulatory agency believes that we or our partners have not sufficiently demonstrated the safety or efficacy of any of our medicines, including SPINRAZA, TEGSEDI and WAYLIVRA, or our medicines in development, the agency will not approve the specific medicine or will require additional studies, which can be time consuming and expensive and which will delay or harm commercialization of the medicine. For example, in August 2018 Akcea received a CRL from the FDA ~~and~~regarding the new drug application for WAYLIVRA in which the FDA determined that the safety concerns identified with WAYLIVRA in Akcea’s clinical development program outweighed the expected benefits of triglyceride lowering in patients with FCS. Akcea also received a ~~preliminary notice of noncompliance withdrawal letter~~Non-W from Health Canada for ~~WAYLIVRA. As result,~~WAYLIVRA in November 2018. We and Akcea ~~may need to submit additional data to~~are engaged with the FDA and plan to work with Health Canada to confirm a path forward for WAYLIVRA.

The FDA or ~~conduct additional clinical studies before obtaining marketing authorization, which would be expensive and cause delays.~~other comparable foreign regulatory authorities can delay, limit or deny approval of a medicine for many reasons, including:

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such authorities may disagree with the design or implementation of our clinical studies;

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we or our partners may be unable to demonstrate to the satisfaction of the FDA or other regulatory authorities that a medicine is safe and effective for any indication;

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such authorities may not accept clinical data from studies conducted at clinical facilities that have deficient clinical practices or that are in countries where the standard of care is potentially different from the U.S.;

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we or our partners may be unable to demonstrate that our medicine's clinical and other benefits outweigh its safety risks to support approval;

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such authorities may disagree with the interpretation of data from preclinical or clinical studies;

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such authorities may find deficiencies in the manufacturing processes or facilities of third-party manufacturers who manufacture clinical and commercial supplies for our medicines; and

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the approval policies or regulations of such authorities or their prior guidance to us or our partners during clinical development may significantly change in a manner rendering our clinical data insufficient for approval.

Failure to receive marketing authorization for our medicines, or failure to receive additional marketing authorizations for SPINRAZA, TEGSEDI or WAYLIVRA, and our medicines in development, or delays in these authorizations could prevent or delay commercial introduction of the 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 medicines 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 medicines are a relatively new approach to therapeutics. If we cannot demonstrate that our medicines are safe and effective for human use in the intended indication, we may need to abandon one or more of our drug development programs.

In the past, we have invested in clinical studies of medicines that have not met the primary clinical end points in their Phase 3 studies. Similar results could occur in clinical studies for our medicines, including the ~~study~~studies of ~~WAYLIVRA in patients with FPL, the study of IONIS-HTT~~tominersen, tofersen, AKCEA-APO(a)-L_Rx ~~in patients with Huntington’s disease~~ and ~~the study of tofersen in adults with SOD1-ALS.~~AKCEA-TTR-L_Rx. If any of our medicines in clinical studies, including ~~WAYLIVRA, IONIS-HTT~~tominersen, tofersen, AKCEA-APO(a)-L_Rx, and ~~tofersen~~AKCEA-TTR-L_Rx, do not show sufficient efficacy in patients with the targeted indication, it could negatively impact our development and commercialization goals for these medicines and our stock price could decline.

Even if our medicines are successful in preclinical and human clinical studies, the medicines 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 medicines in development, may not predict the results of subsequent clinical studies, including the ~~study~~studies of ~~WAYLIVRA in patients with FPL, the study of IONIS-HTT~~tominersen, tofersen, AKCEA-APO(a)-L_Rx ~~in patients with Huntington’s disease~~ and ~~the study of tofersen in adults with SOD1-ALS.~~AKCEA-TTR-L_Rx. There are a number of factors that could cause a clinical study to fail or be delayed, including:

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the clinical study may produce negative or inconclusive results;

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regulators may require that we hold, suspend or terminate clinical research for noncompliance with regulatory requirements;

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we, our partners, the FDA or foreign regulatory authorities could suspend or terminate a clinical study due to adverse side effects of a medicine on subjects in the trial;

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we, or our partners, may decide, or regulators may require us, to conduct additional preclinical testing or clinical studies;

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enrollment in our clinical studies may be slower than we anticipate;

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we or our partners, including our independent clinical investigators, contract research organizations and other third-party service providers on which we rely, may not identify, recruit and train suitable clinical investigators at a sufficient number of study sites or timely enroll a sufficient number of study subjects in the clinical study;

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the institutional review board for a prospective site might withhold or delay its approval for the study;

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enrollment in our clinical studies may be slower than we anticipate;

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people who enroll in the clinical study may later drop out due to adverse events, a perception they are not benefiting from participating in the study, fatigue with the clinical study process or personal issues;

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a clinical study site may deviate from the protocol for the study;

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the cost of our clinical studies may be greater than we anticipate;

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our partners may decide not to exercise any existing options to license and conduct additional clinical studies for our medicines; and

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the supply or quality of our medicines or other materials necessary to conduct our clinical studies may be insufficient, inadequate or delayed.

The current COVID-19 Pandemic could make some of these factors more likely to occur.

In addition, our current medicines, including SPINRAZA, TEGSEDI and WAYLIVRA, are chemically similar to each other. As a result, a safety observation we encounter with one of our medicines could have, or be perceived by a regulatory authority to have, an impact on a different medicine 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 medicines 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 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 recently completed~~This happened in connection with the conditional marketing approval for WAYLIVRA in the E.U., as the EC is requiring Akcea to conduct a post-authorization safety study to evaluate the safety of WAYLIVRA on thrombocytopenia and bleeding in FCS patients ~~with FPL and we have~~taking WAYLIVRA. Akcea has an ongoing ~~open-label~~OLE extension study of WAYLIVRA in patients with FCS and an ~~ongoing open-label extension~~OLE study of TEGSEDI in patients with hATTR, and ~~expanded~~an early access ~~programs~~program, or EAP, for ~~each medicine.~~both WAYLIVRA and TEGSEDI. Adverse events or results from these studies or the EAPs could negatively impact ~~our current~~Akcea’s pending or ~~planned~~future marketing approval applications for WAYLIVRA and TEGSEDI in patients with FCS or hATTR amyloidosis or the commercial opportunity for ~~each product.~~WAYLIVRA or TEGSEDI.

Any failure or delay in the clinical studies, including the ~~study~~studies of ~~IONIS-HTT~~tominersen, tofersen, AKCEA-APO(a)-L_Rx ~~in patients with Huntington’s disease~~ and ~~the study of tofersen in adults with SOD1-ALS,~~AKCEA-TTR-L_Rx, could reduce the commercial potential or viability of our medicines.

If we cannot manufacture our medicines or contract with a third party to manufacture our medicines at costs that allow us to charge competitive prices to buyers, we cannot market our products profitably.*

To successfully commercialize any of our medicines, we or our partner would need to ~~establish~~optimize and manage large-scale commercial manufacturing capabilities either on our own or through a third-party manufacturer. We and Akcea ~~will~~ rely on third-party manufacturers to supply the drug substance and drug product for TEGSEDI and WAYLIVRA. Any delays or disruption to our own or third-party commercial manufacturing capabilities, including any interruption to our supply chain as a result of the current COVID-19 Pandemic, could limit the commercial success of our medicines.

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 medicines, called oligonucleotides, on a commercial scale for the systemic administration of a medicine. There are a small number of suppliers for certain capital equipment and raw materials that we use to manufacture our 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 medicines at a cost or in quantities necessary to make commercially successful products.

Also, manufacturers, including us, must adhere to the FDA’s current Good Manufacturing Practices regulations and similar regulations in foreign countries, which the applicable regulatory authorities enforce through facilities inspection programs. We, our partners and our contract manufacturers may not comply or maintain compliance with Good Manufacturing Practices, or similar foreign regulations. Non-compliance could significantly delay or prevent receipt of marketing ~~authorization~~authorizations for our medicines, including authorizations for SPINRAZA, TEGSEDI and WAYLIVRA, and our medicines in development, or result in enforcement action after authorization that could limit the commercial success of our medicines, including SPINRAZA, TEGSEDI and ~~WAYLIVRA.~~

WAYLIVRA, and our medicines in development.

We depend on third parties to conduct our clinical studies for our medicines 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 medicines and expect to continue to do so in the future. For example, we use clinical research organizations, such as Pharmaceutical Research Associates, Inc., Icon Clinical Research Limited, ~~INC Research Toronto,~~Syneos Health, Inc., PPD and Medpace for the clinical studies for our medicines, including ~~TEGSEDI~~tominersen, tofersen, AKCEA-APO(a)-L_Rx and ~~WAYLIVRA.~~AKCEA-TTR-L_Rx. 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, including as a result of delays or disruption caused by the current COVID-19 Pandemic that may affect the third party’s ability to conduct the clinical studies for our medicines, or a termination of our relationship with these third parties could delay or prevent the development, marketing authorization and commercialization of our medicines or additional marketing authorizations for ~~SPINRAZA,~~ TEGSEDI and WAYLIVRA.

Risks Associated with our Businesses as a Whole

We have incurred losses, and our business will suffer if we fail to consistently achieve profitability in the future.*

Because drug discovery and development requires substantial lead-time and money prior to commercialization, our expenses have generally exceeded our revenue since we were founded in January 1989. As of ~~September~~June 30, ~~2019,~~2020, we had an accumulated deficit of approximately $0.9 billion and stockholders’ equity of approximately ~~$1.5~~$1.4 billion. Most of our historical losses resulted from costs incurred in connection with our research and development programs and from selling, general and administrative costs associated with our operations. Most of our income has come from collaborative arrangements, including commercial revenue from royalties and R&D revenue, with additional income from research grants and the sale or licensing of our patents, as well as interest income. If we do not continue to earn substantial revenue, we may incur additional operating losses in the future. We may not successfully develop any additional products or achieve or sustain future profitability.

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

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, as modified by the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, U.S. federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such U.S. federal net operating losses is ~~limited.~~limited to 80 percent of taxable income beginning in 2021. It is uncertain if and to what extent various states will conform to the ~~newly~~federal Tax Act or the CARES Act. The CARES Act also reinstated the net operating loss carryback provisions whereby net operating losses incurred in calendar tax years 2018, 2019 and 2020 may be carried back to offset taxable income of the five tax years preceding the year of the loss.

In June 2020, California enacted ~~federal~~Assembly Bill 85 (AB 85), which suspends NOLs and limits credit utilization to $5 million per year for the 2020, 2021 and 2022 tax ~~law.~~years. We do not believe AB 85 will have an impact on our 2020 tax provision, but it is possible that it may in future years.

In addition, under ~~Section~~Sections 382 and 383 of the Code, 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. In addition, at the state level, there may be periods during which the use of net operating losses is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. A change in tax laws, treaties or regulations, or their interpretation, of any other country in which we operate could also affect us.

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 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 medicines could suffer.

Our corporate partners are developing and/or funding many of the medicines in our development pipeline. For example, we are relying on:

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Roche for development and funding of tominersen;

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Novartis for development and funding of AKCEA-APO(a)-L_Rx; and

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Biogen for development and funding of tofersen.

If any of these pharmaceutical companies stops developing and/or funding these medicines, our business could suffer and we may not have, or be willing to dedicate, the resources available to develop these medicines on our own.

Our collaborators can terminate their relationships with us under certain circumstances, many of which are outside of our control. For example, as part of a reprioritization of its pipeline and strategic review of its rare disease business, GSK declined its option onto license TEGSEDI and IONIS-FB-L_Rx.

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:

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conduct clinical studies;

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seek and obtain marketing authorization; and

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manufacture, market and sell our medicines.

Once we have secured a collaborative arrangement to further develop and commercialize one of our drug development programs, such as our collaborations with AstraZeneca, Bayer, Biogen, GSK, Janssen, Novartis, Pfizer and Roche, these collaborations may not continue or result in commercialized medicines, or may not progress as quickly as we first anticipated.

For example, a collaborator such as AstraZeneca, Bayer, Biogen, GSK, Janssen, Novartis, Pfizer or Roche, could determine that it is in its financial interest to:

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pursue alternative technologies or develop alternative products that may be competitive with the medicine that is part of the collaboration with us;

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pursue higher-priority programs or change the focus of its own development programs; or

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choose to devote fewer resources to our medicines than it does for its own medicines.

If any of these occur, it could affect our partner’s commitment to the collaboration with us and could delay or otherwise negatively affect the commercialization of our medicines, including ~~SPINRAZA.~~SPINRAZA, tominersen, AKCEA-APO(a)-L_Rx and tofersen.

If we do not progress in our programs as anticipated, the price of our securities could decrease.*

For planning purposes, we estimate and may disclose the timing of a variety of clinical, regulatory and other milestones, such as when we anticipate a certain medicine will enter ~~the clinic,~~clinical trials, when we anticipate completing a clinical study, or when we anticipate filing an application for, or obtaining, marketing ~~authorization.~~authorization, or when our partners plan to commercially launch a medicine. We base our estimates on present facts and a variety of ~~assumptions. Many underlying~~ assumptions, many of which are outside of our ~~control.~~control, including the current COVID-19 Pandemic. If we do not achieve milestones in accordance with our or our investors’ or securities analysts’ expectations, including milestones related to SPINRAZA, TEGSEDI, WAYLIVRA, tominersen, tofersen, AKCEA-APO(a)-L_Rxand ~~WAYLIVRA,~~AKCEA-TTR-L_Rx, the price of our securities could decrease.

If we cannot protect our ~~patents~~patent rights or our other proprietary rights, others may compete more effectively against us.

Our success depends to a significant degree upon whether we can continue to develop, secure and ~~secure~~maintain intellectual property rights to proprietary products and services. However, we may not receive issued patents on any of our pending patent applications in the U.S. or in other ~~countries.~~countries and we may not be able to obtain, maintain or enforce our patents and other intellectual property rights which could impact our ability to compete effectively. In addition, the scope of any of our issued patents may not be sufficiently broad to provide us with a competitive advantage. Furthermore, other parties may successfully challenge, invalidate or circumvent our issued patents or patents licensed to us so that our patent rights do not create an effective competitive barrier or revenue source.

We cannot be certain that the U.S. Patent and Trademark Office, or U.S. PTO, and courts in the U.S. or the patent offices and courts in foreign countries will consider the claims in our patents and applications covering SPINRAZA, TEGSEDI, WAYLIVRA, or any of our medicines in development as patentable. Method-of-use patents protect the use of a product for the specified method. This type of patent does not prevent a competitor from making and marketing a product that is identical to our product for an indication that is outside the scope of the patented method. Moreover, even if competitors do not actively promote their product for our targeted indications, physicians may prescribe these products off-label. Although off-label prescriptions may infringe or contribute to the infringement of method-of-use patents, the practice is common and such infringement is difficult to prevent, including through legal action.

If we or any licensor partner loses or cannot obtain patent protection for SPINRAZA, TEGSEDI, WAYLIVRA, or any of our other medicines in development, it could have a material adverse impact on our business.

Intellectual property litigation could be expensive and prevent us from pursuing our programs.

From time to time we have to defend our intellectual property rights. If we are involved in an intellectual property dispute, we ~~sometimes~~may need to litigate to defend our rights or assert them against others. Disputes can involve arbitration, litigation or proceedings declared by the U.S. ~~Patent and Trademark Office~~PTO or the International Trade Commission or foreign patent authorities. ~~Intellectual~~Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property ~~litigation can~~claims may cause us to incur significant expenses and could distract our technical and management personnel from their normal responsibilities. In addition, there could be ~~extremely expensive,~~public announcements of the results of hearings, motions or other interim proceedings or developments and ~~this expense, as well as~~if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the ~~consequences should we not prevail, could seriously harm~~price of our ~~business.~~common stock.

If a third party claims that our medicines 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 U.S. are filed confidentially for the first 18 months. Moreover, the validity and breadth of biotechnology patents involve complex legal and factual questions for which important legal issues remain.

If we fail to obtain timely funding, we may need to curtail or abandon some of our programs.*

Many of our medicines are undergoing clinical studies or are in the early stages of research and development. Most of our drug programs will require significant additional research, development, manufacturing, preclinical ~~and/or~~and clinical testing, marketing authorization, ~~and/or~~preclinical activities and commitment of significant additional resources prior to their successful commercialization. These activities will require significant cash. As of ~~September~~June 30, ~~2019,~~2020, we had cash, cash equivalents and short-term investments equal to ~~approximately $2.2~~$2.3 billion. If we or our partners do not meet our goals to successfully commercialize our medicines, including SPINRAZA, TEGSEDI and WAYLIVRA, or to license ~~our~~certain medicines and proprietary technologies, we will need additional funding in the future. Our future capital requirements will depend on many factors, such as the following:

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successful commercialization ~~for~~of SPINRAZA, TEGSEDI and WAYLIVRA;

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additional marketing approvals for WAYLIVRA and TEGSEDI;

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the profile and launch timing of our medicines, including TEGSEDI and WAYLIVRA;

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changes in existing collaborative relationships and our ability to establish and maintain additional collaborative arrangements;

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continued scientific progress in our research, drug discovery and development programs;

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the size of our programs and progress with preclinical and clinical studies;

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the time and costs involved in obtaining marketing authorizations; and

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competing technological and market developments, including the introduction by others of new therapies that address our markets.

If we need additional funds, we may need to raise them through public or private financing. Additional financing may not be available at all or on acceptable terms. If we raise additional funds by issuing equity securities, the shares of existing stockholders will be diluted and the price, as well as the price of our other securities, may decline. If adequate funds are not available or not available on acceptable terms, we may have to cut back on one or more of our research, drug discovery or development programs. Alternatively, we may obtain funds through arrangements with collaborative partners or others, which could require us to give up rights to certain of our technologies or 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~~transitioned from Chief Executive Officer to Executive Chairman of our Board of Directors. As Executive Chairman, Dr. Crooke will continue to be responsible for the activities of the board and will remain active in the company, providing strategic advice and continuing to participate in the scientific activities. ~~Our board has selected~~Starting in January 2020, Dr. Monia, who ~~has~~had been our Chief Operating Officer for the last year and has been a member of our team since our founding ~~nearly~~over 30 years ago, ~~to serve~~serves as our Chief Executive ~~Officer starting in January 2020.~~Officer. If this transition is not successful, our business could suffer.

The loss of key personnel, or the inability to attract and retain highly skilled personnel, could make it more difficult to run our business and reduce our likelihood of success.

We are dependent on the principal members of our management and scientific staff. We do not have employment agreements with any of our executive officers that would prevent them from leaving us. The loss of our management and key scientific employees might slow the achievement of important research and development goals. It is also critical to our success that we recruit and retain qualified scientific personnel to perform research and development work. We may not be able to attract and retain skilled and experienced scientific personnel on acceptable terms because of intense competition for experienced scientists among many pharmaceutical and health care companies, universities and non-profit research institutions. In addition, failure to succeed in clinical studies may make it more challenging to recruit and retain qualified scientific personnel. Similarly, Akcea is dependent on the principal members of its staff responsible for marketing, sales and distribution activities. If Akcea is not able to recruit and retain qualified marketing and sales personnel, the sales of TEGSEDI and WAYLIVRA may be adversely affected.

If the price of our securities continues to be highly volatile, this could make it harder for you to liquidate your investment and could increase your risk of suffering a loss.*

The market price of our common stock, like that of the securities of many other biopharmaceutical companies, has been and is likely to continue to be highly volatile. These fluctuations in our common stock price may significantly affect the trading price of our securities. During the 12 months preceding ~~September~~June 30, ~~2019,~~2020, the market price of our common stock ranged from ~~$43.27~~$73.09 to ~~$86.58~~$39.32 per share. Many factors can affect the market price of our securities, including, for example, fluctuations in our operating results, announcements of collaborations, clinical study results, technological innovations or new products being developed by us or our competitors, the commercial success of our approved medicines, governmental regulation, marketing ~~authorization,~~authorizations, changes in ~~payors’~~payers’ reimbursement policies, developments in patent or other proprietary rights and public concern regarding the safety of our ~~medicines and general market conditions.~~

medicines.

~~We cannot guarantee that we will repurchase shares~~The current COVID-19 Pandemic has caused a significant disruption of common stock under our stock repurchase program or that we will repurchase shares of common stock at favorable prices.*

In September 2019, our board of directors authorized a program to repurchase up to $125 million of our common stock. We can provide no assurance that we will repurchase shares at favorable prices, if at all, as the amountglobal financial markets and ~~timing of share repurchases under such program are subject to capital availability and our determination that share repurchases are~~has resulted in the best interest of our shareholders and in compliance with all applicable laws and agreements. Our ability to repurchase shares will depend upon, among other factors, our financial condition, results of operations, cash balances and potential future capital requirements for strategic transactions. In addition, the share repurchase program could impact the trading price of our stock and increaseincreased volatility ~~and any announcement of a reduction in or discontinuance of repurchases by us under such program may result in a decrease~~ in the trading price of our common stock. Additionally, broad market and industry factors may also materially harm the market price of our common stock irrespective of our operating performance. The stock market in general, and NASDAQ and the market for biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of ours, may not be predictable. A loss of investor confidence in the market for biotechnology or pharmaceutical stocks or the stocks of other companies which investors perceive to be similar to us, the opportunities in the biotechnology and pharmaceutical market or the stock market in general, could depress our stock price regardless of our business, prospects, financial conditions or results of operations.

We are exposed to potential product liability claims, and insurance against these claims may not be available to us at a reasonable rate in the future or at all.

Our business exposes us to potential product liability risks that are inherent in the testing, manufacturing, marketing and sale of therapeutic products, including potential product liability claims related to SPINRAZA, TEGSEDI and ~~WAYLIVRA.~~WAYLIVRA, and our medicines in development. We have clinical study insurance coverage and commercial product liability insurance coverage. However, this insurance coverage may not be adequate to cover claims against us, or be available to us at an acceptable cost, if at all. Regardless of their merit or eventual outcome, product liability claims may result in decreased demand for our ~~drug products,~~medicines, injury to our reputation, withdrawal of clinical study volunteers and loss of revenues. Thus, whether or not we are insured, a product liability claim or product recall may result in losses that could be material.

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

We are dependent upon our own and third-party information technology systems, infrastructure and data, including mobile technologies, to operate our business. The multitude and complexity of our computer systems may make them vulnerable to service interruption or destruction, disruption of data integrity, malicious intrusion, or random attacks. Likewise, data privacy or security incidents or breaches by employees or others may pose a risk that sensitive data, including our intellectual property, trade secrets or personal information of our employees, patients, customers or other business partners may be exposed to unauthorized persons or to the public. Cyber-attacks are increasing in their frequency, sophistication and intensity, with third-party phishing and social engineering attacks in particular increasing in connection with the COVID-19 Pandemic. Cyber-attacks could include the deployment of harmful malware, denial-of-service, social engineering and other means to affect service reliability and threaten data confidentiality, integrity and availability. Our business partners face similar risks and any security breach of their systems could adversely affect our security posture. A security breach or privacy violation that leads to disclosure or modification of or prevents access to patient information, including personally identifiable information or protected health information, could harm our reputation, compel us to comply with federal and state breach notification laws and foreign law equivalents, subject us to financial penalties and mandatory and costly corrective action, require us to verify the correctness of database contents and otherwise subject us to litigation or other liability under laws and regulations that protect personal data, any of which could disrupt our business and result in increased costs or loss of revenue. Moreover, the prevalent use of mobile devices that access confidential information increases the risk of data security breaches, which could lead to the loss of confidential information, trade secrets or other intellectual property. While we have invested, and continue to invest, in the protection of our data and information technology infrastructure, our efforts may not prevent service interruptions, or identify breaches in our systems, that could adversely affect our business and operations and result in the loss of critical or sensitive information, which could result in financial, legal, business or reputational harm to us. In addition, our liability insurance may not be sufficient in type or amount to cover us against claims related to security breaches, cyber-attacks and other related breaches.

Because we use biological materials, hazardous materials, chemicals and radioactive compounds, if we do not comply with laws regulating the protection of the environment and health and human safety, our business could be adversely affected.

Our research, development and manufacturing activities involve the use of potentially harmful biological materials as well as materials, chemicals and various radioactive compounds that could be hazardous to human health and safety or the environment. We store most of these materials and various wastes resulting from their use at our facilities in Carlsbad, California pending ultimate use and disposal. We cannot completely eliminate the risk of contamination, which could cause:

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interruption of our research, development and manufacturing efforts;

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injury to our employees and others;

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environmental damage resulting in costly clean up; and

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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 medicines.

We manufacture most of our research and clinical supplies in a manufacturing facility located in Carlsbad, California. We manufacture the finished drug product for TEGSEDI and WAYLIVRA at third-party contract manufacturers. Biogen manufactures the finished drug product for SPINRAZA. The facilities and the equipment we, our partners and our contract manufacturers use to research, develop and manufacture our medicines would be costly to replace and could require substantial lead time to repair or replace. Our facilities or those of our partners or contract manufacturers may be harmed by natural or man-made disasters, including, without limitation, earthquakes, floods, fires, ~~and~~ acts of ~~terrorism;~~terrorism and pandemics; and if ~~our~~such facilities are affected by a disaster, our development and commercialization efforts would be delayed. Although we possess property damage and business interruption insurance ~~for damage to our property and the disruption of our business from casualties,~~coverage, this insurance may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, or at all. In addition, our development and commercialization activities could be harmed or delayed by a shutdown of the U.S. government, including the FDA.

Provisions in our certificate of incorporation, ~~other agreements~~convertible notes documents, call spread hedge transaction documents and Delaware law may prevent stockholders from receiving a premium for their shares.

Our certificate of incorporation provides for classified terms for the members of our board of directors. Our certificate also includes a provision that requires at least 66 2/3 percent of our voting stockholders to approve a merger or certain other business transactions with, or proposed by, any holder of 15 percent or more of our voting stock, except in cases where certain directors approve the transaction or certain minimum price criteria and other procedural requirements are met.

Our certificate of incorporation also requires that any action required or permitted to be taken by our stockholders must be taken at a duly called annual or special meeting of stockholders and may not be taken by written consent. In addition, only our board of directors, chairman of the board or chief executive officer can call special meetings of our stockholders. We have in the past, and may in the future, implement a stockholders’ rights plan, also called a poison pill, which could make it uneconomical for a third party to acquire our company on a hostile basis. In addition, our board of directors has the authority to fix the rights and preferences of, and issue shares of preferred stock, which may have the effect of delaying or preventing a change in control of our company without action by our stockholders.

The provisions of our convertible senior notes could make it more difficult or more expensive for a third party to acquire us. Upon the occurrence of certain transactions constituting a fundamental change, holders of the notes will have the right, at their option, to require us to repurchase all of their notes or a portion of their notes, which may discourage certain types of transactions in which our stockholders might otherwise receive a premium for their shares over the then current market prices.

In December 2019, we entered into privately negotiated exchange and/or subscription agreements with certain new investors and certain holders of our existing 1% Notes to exchange $375.6 million of our 1% Notes for $439.3 million of our 0.125% Notes, and to issue $109.5 million of our 0.125% Notes. Additionally, in connection with the pricing of our 0.125% Notes, we entered into call spread transactions in which we purchased note hedges and sold warrants. Terminating or unwinding the call spread transactions could require us to make substantial payments to the counterparties under those agreements or may increase our stock price. The costs or any increase in stock price that may arise from terminating or unwinding such agreements could make an acquisition of our company significantly more expensive to the purchaser.

These provisions, as well as Delaware law, including Section 203 of the Delaware General Corporation Law, and other of our agreements, may discourage certain types of transactions in which our stockholders might otherwise receive a premium for their shares over then current market prices, and may limit the ability of our stockholders to approve transactions that they think may be in their best interests.

Future sales of our common stock in the public market could adversely affect the trading price of our securities.

Future sales of substantial amounts of our common stock in the public market, or the perception that such sales could occur, could adversely affect trading prices of our securities. For example, we may issue approximately ~~10.3~~11.2 million shares of our common stock upon conversion of our convertible senior ~~notes.~~notes and up to 6.6 million shares may be issued in connection with the warrant transactions we entered into in connection with the issuance of our 0.125% Notes, in each case subject to customary anti-dilution adjustments. The addition of any of these shares into the public market may have an adverse effect on the price of our securities.

In addition, pursuant to the call spread transactions we entered into in connection with the pricing of our 0.125% Notes, the counterparties are likely to modify their hedge positions from time to time at or prior to the conversion or maturity of the notes by purchasing and selling shares of our common stock, other of our securities, or other instruments, including over-the-counter derivative instruments, that they may wish to use in connection with such hedging, which may have a negative effect on the conversion value of those notes and an adverse impact on the trading price of our common stock. The call spread transactions are expected generally to reduce potential dilution to holders of our common stock upon any conversion of our 0.125% Notes or offset any cash payments we are required to make in excess of the principal amount of the converted 0.125% Notes, as the case may be. However, the warrant transactions could separately have a dilutive effect to the extent that the market value per share of our common stock exceeds the applicable strike price of the warrants.

Our business is subject to changing regulations for corporate governance and public disclosure that has increased both our costs and the risk of noncompliance.

Each year we are required to evaluate our internal controls systems in order to allow management to report on and our Independent Registered Public Accounting Firm to attest to, our internal controls as required by Section 404 of the Sarbanes-Oxley Act. As a result, we continue to incur additional expenses and divert our management’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 on 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.

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~~are currently experiencing substantial turmoil and uncertainty characterized by unprecedented intervention by the U.S. federal government ~~and~~in response to the COVID-19 Pandemic. In the past, the failure, bankruptcy, or sale of various financial and other ~~institutions.~~institutions created similar turmoil and uncertainty in such markets and industries. 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.

~~We are dependent~~The impact on ~~information technology systems, infrastructure and data, which exposes~~ us of the vote by the United Kingdom to ~~data security risks.~~leave the European Union cannot be predicted.*

WeOn June 23, 2016, the United Kingdom, or the U.K., voted to leave the E.U. in an advisory referendum, which is generally referred to as Brexit. In January 2020, the U.K. and the E.U. entered into a withdrawal agreement pursuant to which the U.K. formally withdrew from the E.U. on January 31, 2020. Following such withdrawal, the U.K. entered into a transition period scheduled to end on December 31, 2020, or the Transition Period. During the Transition Period, negotiations are ~~dependent upon our own~~expected to continue in relation to the customs and trading relationship between the U.K. and the E.U. following the expiry of the Transition Period. Due to the COVID-19 Pandemic, negotiations between the U.K. and the E.U. that have been scheduled since March have either been postponed or ~~third-party information technology systems, infrastructure and data, including mobile technologies,~~are occurring in a reduced forum via video conference. There is, therefore, an increased likelihood that the Transition Period may need to ~~operate our business. The multitude and complexity~~be extended beyond December 31, 2020 (although it remains the position of ~~our computer systems may make them vulnerable~~the U.K. government that it will not be extended).

In addition, as a result of Brexit, the European Medicines Agency, or EMA, formerly situated in London, relocated 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~~Amsterdam. Following the Transition Period, there is a risk that ~~sensitive data, including our intellectual property, trade secrets or personal information of our employees, patients, customers or other business partners~~the relocation will interrupt current administrative routines and occupy resources, which 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 couldgenerally adversely affect our ~~security posture. A security breach~~dealings with the EMA. Further, there is considerable uncertainty resulting from a lack of precedent and the complexity of the U.K. and E.U.’s intertwined legal regimes as to how Brexit (following the Transition Period) will impact the life sciences industry in Europe, including our company, including with respect to ongoing or ~~privacy violation that leads to disclosure or modification~~future clinical trials. The impact will largely depend on the model and means by which the U.K.’s relationship with the E.U. is governed post-Brexit. For example, following the Transition Period, the U.K. will no longer be covered by the centralized procedures for obtaining E.U.-wide marketing authorization from the EMA and, unless a specific agreement is entered into, a separate process for authorization of ~~or prevents access to patient information,~~drug products, 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,product candidates, will be required 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~~UK, the potential process for which is currently unclear. Brexit may adversely affect and delay our ~~business~~ability to commercialize, market and ~~operations and/or result~~sell our product candidates 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.U.K.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3.

DEFAULT UPON SENIOR SECURITIES

Not applicable.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.

OTHER INFORMATION

Not applicable.

ITEM 6.

EXHIBITS

Exhibits

Exhibit Number		Description of Document

10.1		~~Amendment No. 1~~Side Letter dated June 11, 2020 to the Second Amended and Restated Strategic Neurology ~~III~~Drug Discovery and Development Collaboration, Option and License Agreement by and between the Registrant and Biogen MA Inc., dated ~~August 16, 2019~~October 17, 2018 (portions of the exhibit have been omitted because they are both (i) not material and (ii) would be competitively harmful if publicly disclosed).

10.2		Amendment #8No. 2 to the ~~Research, Development~~Strategic Collaboration Agreement by and ~~License Agreement~~ between the Registrant ~~Glaxo Group Limited~~ and ~~Glaxosmithkline Intellectual Property Development Limited,~~AstraZeneca AB dated July ~~29, 2019~~31, 2015 (portions of the exhibit have been omitted because they are both (i) not material and (ii) would be competitively harmful if publicly disclosed).

10.3		~~Consent~~Amended and Restated 2002 Non-Employee Directors’ Stock Option Plan. Filed as an exhibit to ~~Collateral Addition~~the Registrant’s Form DEF 14A filed with the SEC on April 24, 2020 and Amendment to Loan Documents between the Registrant, Ionis Gazelle, LLC, Wells Fargo Bank, National Association, as Trustee for the Benefit of the Registered Holders of UBS Commercial Mortgage Trust 2017-C3, Commercial Mortgage Pass-Through Certificates, Series 2017-C3, dated August 1, 2019.incorporated herein by reference.

31.1		Certification by Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended.

31.2		Certification by Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended.

32.1*		Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		The following financial statements from the Ionis Pharmaceuticals, Inc. Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2019,~~2020, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) condensed consolidated balance sheets, (ii) condensed consolidated statements of operations, (iii) condensed consolidated statements of comprehensive income (loss), (iv) condensed consolidated statements of stockholders' equity, (v) condensed consolidated statements of cash flows and (vi) notes to condensed consolidated financial statements (detail tagged).

104		Cover Page Interactive Data File (formatted in iXBRL and included in exhibit 101).

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 1933, as amended, or the Securities Exchange Act of 1934, as amended.

5557

SIGNATURES

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~~BRETT P. MONIA	~~Chairman of the Board, President,~~Director and Chief Executive Officer
~~Stanley T. Crooke, M.D.,~~Brett P. Monia, Ph.D.	(Principal executive officer)	~~November 6, 2019~~August 5, 2020

/s/ ELIZABETH L. HOUGEN	~~Senior~~Executive Vice President, Finance and Chief Financial Officer
Elizabeth L. Hougen	(Principal financial and accounting officer)	~~November 6, 2019~~August 5, 2020

5658

Delaware		33-0336973
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

2855 Gazelle Court, Carlsbad, California		92010
(Address of Principal Executive Offices)		(Zip Code)

Title of each class		Trading symbol		Name of each exchange on which registered		~~Trading symbol~~
Common Stock, $.001 Par Value		“IONS”		The Nasdaq Stock Market LLC		~~“IONS”~~

Large Accelerated Filer ☒	Accelerated Filer ☐

Non-accelerated Filer ☐	Smaller Reporting Company ☐
	Emerging Growth Company ☐

Nine months ended September 30, 2019	Weighted Average Shares Owned in Akcea		Akcea’s Net Loss Per Share			Ionis’ Portion of Akcea’s Net Loss
Common shares		69,681	$	(0.40	)	$	(28,174	)
Akcea’s net loss attributable to our ownership						$	(28,174	)
Ionis’ stand-alone net income							140,938
Net income available to Ionis common stockholders						$	112,764
Weighted average shares outstanding							139,800
Basic net income per share						$	0.81

Three months ended September 30, 2018	Weighted Average Shares Owned in Akcea		Akcea’s Net Loss Per Share			Ionis’ Portion of Akcea’s Net Loss
Common shares		65,538	$	(0.73	)	$	(47,843	)
Akcea’s net loss attributable to our ownership						$	(47,843	)
Ionis’ stand-alone net income							43,226
Net loss available to Ionis common stockholders						$	(4,617	)
Weighted average shares outstanding							137,346
Basic net loss per share						$	(0.03	)

Nine months ended September 30, 2018	Weighted Average Shares Owned in Akcea		Akcea’s Net Loss Per Share			Ionis’ Portion of Akcea’s Net Loss
Common shares		57,347	$	(1.93	)	$	(110,680	)
Akcea’s net loss attributable to our ownership						$	(110,680	)
Ionis’ stand-alone net income							67,517
Net loss available to Ionis common stockholders						$	(43,163	)
Weighted average shares outstanding							130,507
Basic net loss per share						$	(0.33	)

	At September 30, 2019		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents (1)	$	202,904	$	202,904	$	—	$	—
Corporate debt securities (2)		1,296,598		—		1,296,598		—
Debt securities issued by U.S. government agencies (3)		283,365		—		283,365		—
Debt securities issued by the U.S. Treasury (4)		366,272		366,272		—		—
Debt securities issued by states of the U.S. and political subdivisions of the states (3)		43,265		—		43,265		—
Other municipal debt securities (3)		2,948		—		2,948		—
Investment in ProQR Therapeutics N.V. (5)		606		—		—		606
Total	$	2,195,958	$	569,176	$	1,626,176	$	606

	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 (6)		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 (7)		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 September 30, 2019

Right-of-use operating lease assets (1)	$	13.0
Operating lease liabilities (2)	$	17.7
Weighted average remaining lease term	8.3 years
Weighted average discount rate		7.5	%

	Operating Leases
Remainder of 2019	$	801
Years ending December 31,
2020		3,282
2021		3,019
2022		2,781
2023		2,520
Thereafter		11,861
Total minimum lease payments		24,264
Less:
Imputed interest		(6,533	)
Total operating lease liabilities	$	17,731