UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Form 10-Q
(Mark One)

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

For the Quarterly Period Ended September 30, 2022

OR

☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission file number 000-19125

     

Ionis Pharmaceuticals, Inc.
(Exact name of Registrant as specified in its charter)

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)

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

Securities registered pursuant to Section 12(b) of the Act:

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

     

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☒
Accelerated Filer ☐
   
Non-accelerated Filer ☐
Smaller Reporting Company ☐
 
Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12(b)-2 of the Securities Exchange Act of 1934). Yes ☐ No ☒

The number of shares of voting common stock outstanding as of November 3, 2022 was 142,050,336.

1


IONIS PHARMACEUTICALS, INC.
FORM 10-Q
INDEX

PART I
FINANCIAL INFORMATION
  
     
ITEM 1:
Financial Statements:
  
     
 
Condensed Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021
3
     
 
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021 (unaudited)
4
     
 
Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2022 and 2021 (unaudited)
5
     
 
Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2022 and 2021 (unaudited)
6
     
 
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (unaudited)
8
     
 
9
     
ITEM 2:
  
     
 
29
     
 
33
     
 
39
     
ITEM 3:
41
     
ITEM 4:
41
     
PART II
41
     
ITEM 1:
41
     
ITEM 1A:
42
     
ITEM 2:
60
     
ITEM 3:
60
     
ITEM 4:
60
     
ITEM 5:
60
     
ITEM 6:
61
     
62

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 of Akcea Therapeutics, Inc. appearing in this report are the property of Akcea Therapeutics, Inc., Ionis’ wholly owned subsidiary. 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.

2

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

  
September 30,
2022
    
December 31,
2021
  
   
(unaudited)
        
ASSETS
            
Current assets:
            
Cash and cash equivalents
  
$
314,993
    
$
869,191
  
Short-term investments
    
1,666,670
      
1,245,782
  
Contracts receivable
    
6,645
      
61,896
  
Inventories
    
20,645
      
24,806
  
Other current assets
    
143,173
      
143,374
  
Total current assets
    
2,152,126
      
2,345,049
  
Property, plant and equipment, net
    
180,806
      
178,069
  
Patents, net
    
29,605
      
29,005
  
Deposits and other assets
    
59,434
      
59,567
  
Total assets
  
$
2,421,971
    
$
2,611,690
  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Current liabilities:
                
Accounts payable
  
$
20,545
    
$
11,904
  
Accrued compensation
    
30,410
      
38,810
  
Accrued liabilities
    
128,002
      
88,560
  
Income taxes payable
    
16
      
36
  
Current portion of long-term obligations
    
4,970
      
3,526
  
Current portion of deferred contract revenue
    
99,511
      
97,714
  
Total current liabilities
    
283,454
      
240,550
  
Long-term deferred contract revenue
    
294,656
      
351,879
  
0 percent convertible senior notes, net
    
621,460
      
619,119
  
0.125 percent convertible senior notes, net
    
543,955
      
542,314
  
Long-term obligations, less current portion
    
25,107
      
26,378
  
Long-term mortgage debt
    
58,978
      
59,713
  
Total liabilities
    
1,827,610
      
1,839,953
  
Stockholders’ equity:
                
Common stock, $0.001 par value; 300,000,000 shares authorized, 142,017,411 and 141,210,015 shares issued and outstanding at September 30, 2022 (unaudited) and December 31, 2021, respectively
    
142
      
141
  
Additional paid-in capital
    
2,034,554
      
1,964,167
  
Accumulated other comprehensive loss
    
(63,140
)
    
(32,668
)
Accumulated deficit
    
(1,377,195
)
    
(1,159,903
)
Total stockholders’ equity
    
594,361
      
771,737
  
Total liabilities and stockholders’ equity
  
$
2,421,971
    
$
2,611,690
  


See accompanying notes.

3

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,
  
   
2022
    
2021
    
2022
    
2021
  
                         
Revenue:
                        
Commercial revenue:
                        
SPINRAZA royalties
  
$
61,647
    
$
66,572
    
$
175,092
    
$
198,726
  
TEGSEDI and WAYLIVRA revenue, net
    
5,920
      
15,519
      
22,467
      
46,901
  
Licensing and other royalty revenue
    
4,843
      
2,729
      
25,320
      
9,502
  
Total commercial revenue
    
72,410
      
84,820
      
222,879
      
255,129
  
Research and development revenue:
                                
Collaborative agreement revenue
    
69,250
      
48,273
      
157,282
      
115,321
  
Eplontersen joint development revenue
    
18,107
      
—
      
55,317
      
—
  
Total research and development revenue
    
87,357
      
48,273
      
212,599
      
115,321
  
Total revenue
    
159,767
      
133,093
      
435,478
      
370,450
  
                                 
Expenses:
                                
Cost of sales
    
1,515
      
3,079
      
10,430
      
8,616
  
Research, development and patent
    
182,990
      
184,770
      
524,875
      
463,878
  
Selling, general and administrative
    
34,416
      
31,093
      
102,345
      
148,747
  
Total operating expenses
    
218,921
      
218,942
      
637,650
      
621,241
  
                                 
Loss from operations
    
(59,154
)
    
(85,849
)
    
(202,172
)
    
(250,791
)
                                 
Other income (expense):
                                
Investment income, net
    
7,524
      
872
      
13,447
      
8,236
  
Interest expense
    
(2,139
)
    
(2,340
)
    
(6,391
)
    
(7,111
)
Gain (loss) on investments
    
2,347
      
4,013
      
(10,616
)
    
4,885
  
Other income (expense)
    
4,713
      
(469
)
    
(7,923
)
    
(9,283
)
                                 
Loss before income tax (expense) benefit
    
(46,709
)
    
(83,773
)
    
(213,655
)
    
(254,064
)
                                 
Income tax (expense) benefit
    
(283
)
    
1,307
      
(3,637
)
    
854
  
                                 
Net loss
  
$
(46,992
)
  
$
(82,466
)
  
$
(217,292
)
  
$
(253,210
)
                                 
Basic and diluted net loss per share
  
$
(0.33
)
  
$
(0.58
)
  
$
(1.53
)
  
$
(1.80
)
Shares used in computing basic and diluted net loss per share
    
141,950
      
141,139
      
141,782
      
140,958
  


 See accompanying notes.

4

IONIS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(Unaudited)

  
Three Months Ended
September 30,
    
Nine Months Ended
September 30,
  
   
2022
    
2021
    
2022
    
2021
  
                         
                         
Net loss
  
$
(46,992
)
  
$
(82,466
)
  
$
(217,292
)
  
$
(253,210
)
Unrealized losses on debt securities, net of tax
    
(8,734
)
    
(1,618
)
    
(29,508
)
    
(6,321
)
Currency translation adjustment
    
(399
)
    
(23
)
    
(964
)
    
(45
)
                                 
Comprehensive loss
  
$
(56,125
)
  
$
(84,107
)
  
$
(247,764
)
  
$
(259,576
)


See accompanying notes.

5

IONIS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Three Months Ended September 30, 2021 and 2022
(In thousands)
(Unaudited)

  
Common Stock
    
Additional
    
Accumulated Other
    
Accumulated
    
Total
Stockholders’
  
Description
  
Shares
    
Amount
    
Paid in Capital
    
Comprehensive Loss
    
Deficit
    
Equity
  
Balance at June 30, 2021
    
141,022
    
$
141
    
$
1,910,379
    
$
(25,796
)
  
$
(1,302,050
)
  
$
582,674
  
Net loss
    
—
      
—
      
—
      
—
      
(82,466
)
    
(82,466
)
Change in unrealized losses, net of tax
    
—
      
—
      
—
      
(1,618
)
    
—
      
(1,618
)
Foreign currency translation
    
—
      
—
      
—
      
(23
)
    
—
      
(23
)
Issuance of common stock in connection with employee stock plans
    
176
      
—
      
1,922
      
—
      
—
      
1,922
  
Issuance of warrants
    
—
      
—
      
—
      
—
      
—
      
—
  
Purchase of note hedges
    
—
      
—
      
—
      
—
      
—
      
—
  
Stock-based compensation expense
    
—
      
—
      
30,537
      
—
      
—
      
30,537
  
Payments of tax withholdings related to vesting of employee stock awards and exercise of employee stock options
    
(14
)
    
—
      
(490
)
    
—
      
—
      
(490
)
Balance at September 30, 2021
    
141,184
    
$
141
    
$
1,942,348
    
$
(27,437
)
  
$
(1,384,516
)
  
$
530,536
  
                                                 
Balance at June 30, 2022
    
141,831
    
$
142
    
$
2,008,794
    
$
(54,007
)
  
$
(1,330,203
)
  
$
624,726
  
Net loss
    
—
      
—
      
—
      
—
      
(46,992
)
    
(46,992
)
Change in unrealized losses, net of tax
    
—
      
—
      
—
      
(8,734
)
    
—
      
(8,734
)
Foreign currency translation
    
—
      
—
      
—
      
(399
)
    
—
      
(399
)
Issuance of common stock in connection with employee stock plans
    
203
      
—
      
2,567
      
—
      
—
      
2,567
  
Stock-based compensation expense
    
—
      
—
      
23,837
      
—
      
—
      
23,837
  
Payments of tax withholdings related to vesting of employee stock awards and exercise of employee stock options
    
(17
)
    
—
      
(644
)
    
—
      
—
      
(644
)
Balance at September 30, 2022
    
142,017
    
$
142
    
$
2,034,554
    
$
(63,140
)
  
$
(1,377,195
)
  
$
594,361
  


See accompanying notes.

6

IONIS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Nine Months Ended September 30, 2021 and 2022
(In thousands)
(Unaudited)

  
Common Stock
    
Additional
    
Accumulated Other
    
Accumulated
    
Total Ionis
Stockholders’
  
Description
  
Shares
    
Amount
    
Paid in Capital
    
Comprehensive Loss
    
Deficit
    
Equity
  
Balance at December 31, 2020
    
140,366
    
$
140
    
$
1,895,519
    
$
(21,071
)
  
$
(1,131,306
)
  
$
743,282
  
Net loss
    
—
      
—
      
—
      
—
      
(253,210
)
    
(253,210
)
Change in unrealized losses, net of tax
    
—
      
—
      
—
      
(6,321
)
    
—
      
(6,321
)
Foreign currency translation
    
—
      
—
      
—
      
(45
)
    
—
      
(45
)
Issuance of common stock in connection with employee stock plans
    
1,094
      
1
      
11,563
      
—
      
—
      
11,564
  
Issuance of warrants
    
—
      
—
      
89,752
      
—
      
—
      
89,752
  
Purchase of note hedges
    
—
      
—
      
(136,620
)
    
—
      
—
      
(136,620
)
Stock-based compensation expense
    
—
      
—
      
98,419
      
—
      
—
      
98,419
  
Payments of tax withholdings related to vesting of employee stock awards and exercise of employee stock options
    
(276
)
    
—
      
(16,285
)
    
—
      
—
      
(16,285
)
Balance at September 30, 2021
    
141,184
    
$
141
    
$
1,942,348
    
$
(27,437
)
  
$
(1,384,516
)
  
$
530,536
  
                                                 
Balance at December 31, 2021
    
141,210
    
$
141
    
$
1,964,167
    
$
(32,668
)
  
$
(1,159,903
)
  
$
771,737
  
Net loss
    
—
      
—
      
—
      
—
      
(217,292
)
    
(217,292
)
Change in unrealized losses, net of tax
    
—
      
—
      
—
      
(29,508
)
    
—
      
(29,508
)
Foreign currency translation
    
—
      
—
      
—
      
(964
)
    
—
      
(964
)
Issuance of common stock in connection with employee stock plans
    
1,138
      
1
      
6,029
      
—
      
—
      
6,030
  
Stock-based compensation expense
    
—
      
—
      
74,575
      
—
      
—
      
74,575
  
Payments of tax withholdings related to vesting of employee stock awards and exercise of employee stock options
    
(331
)
    
—
      
(10,217
)
    
—
      
—
      
(10,217
)
Balance at September 30, 2022
    
142,017
    
$
142
    
$
2,034,554
    
$
(63,140
)
  
$
(1,377,195
)
  
$
594,361
  


See accompanying notes.

7

IONIS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

  
Nine Months Ended
September 30,
  
   
2022
    
2021
  
             
Operating activities:
            
Net loss
  
$
(217,292
)
  
$
(253,210
)
Adjustments to reconcile net loss to net cash used in operating activities:
                
Depreciation
    
11,301
      
11,665
  
Amortization of right-of-use operating lease assets
    
1,970
      
1,171
  
Amortization of patents
    
1,805
      
1,740
  
Amortization of premium on investments, net
    
9,072
      
13,515
  
Amortization of debt issuance costs
    
4,035
      
3,586
  
Stock-based compensation expense
    
74,575
      
98,419
  
Loss (gain) on investments
    
228
      
(933
)
Loss on early retirement of debt
    
—
      
8,627
  
Non-cash losses related to disposal of property, plant and equipment
    
528
      
—
  
Non-cash losses related to patents
    
1,155
      
1,150
  
Changes in operating assets and liabilities:
                
Contracts receivable
    
55,251
      
67,136
  
Inventories
    
4,161
      
(965
)
Other current and long-term assets
    
(988
)
    
10,358
  
Income taxes payable
    
(20
)
    
134
  
Accounts payable
    
5,607
      
(10,737
)
Accrued compensation
    
(8,400
)
    
(33,408
)
Accrued liabilities and other current liabilities
    
38,263
      
(19,526
)
Deferred contract revenue
    
(55,426
)
    
(71,610
)
Net cash used in operating activities
    
(74,175
)
    
(172,888
)
                 
Investing activities:
                
Purchases of short-term investments
    
(1,223,791
)
    
(930,963
)
Proceeds from sale of short-term investments
    
764,101
      
1,051,857
  
Purchases of property, plant and equipment
    
(11,582
)
    
(9,453
)
Acquisition of licenses and other assets, net
    
(3,511
)
    
(4,459
)
Purchase of Bicycle Therapeutics plc common stock
    
—
      
(7,185
)
Net cash (used in) provided by investing activities
    
(474,783
)
    
99,797
  
                 
Financing activities:
                
Proceeds from equity, net
    
6,030
      
11,564
  
Payments of tax withholdings related to vesting of employee stock awards and exercise of employee stock options
    
(10,217
)
    
(16,285
)
Proceeds from the issuance of 0 percent convertible notes
    
—
      
632,500
  
0 percent convertible senior notes issuance costs
    
—
      
(15,525
)
Repurchase of $247.9 million principal amount of the 1 percent convertible senior notes
    
—
      
(256,963
)
Proceeds from issuance of warrants
    
—
      
89,752
  
Purchase of note hedges
    
—
      
(136,620
)
Principal payments on mortgage debt
    
(89
)
    
—
  
Net cash (used in) provided by financing activities
    
(4,276
)
    
308,423
  
                 
Effects of exchange rates on cash
    
(964
)
    
(43
)
                 
Net (decrease) increase in cash and cash equivalents
    
(554,198
)
    
235,289
  
Cash and cash equivalents at beginning of period
    
869,191
      
397,664
  
Cash and cash equivalents at end of period
  
$
314,993
    
$
632,953
  
                 
Supplemental disclosures of cash flow information:
                
Interest paid
  
$
2,204
    
$
3,527
  
Income taxes paid
  
$
2
    
$
3
  
                 
Supplemental disclosures of non-cash investing and financing activities:
                
Amounts accrued for capital and patent expenditures
  
$
3,032
    
$
1,811
  
Right-of-use assets obtained in exchange for lease liabilities
  
$
657
    
$
—
  


See accompanying notes.

8

IONIS PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)

1.  Basis of Presentation


We prepared the unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2022 and 2021 on the same basis as the audited financial statements for the year ended December 31, 2021. 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. Our operating results for the interim periods may not be indicative of 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, 2021 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC.


In our condensed consolidated financial statements, we included the accounts of Ionis Pharmaceuticals, Inc. and the consolidated results of our wholly owned subsidiary, Akcea Therapeutics, Inc. and its wholly owned subsidiaries (“we”, “us” or “our”).

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 within deferred revenue in our condensed consolidated balance sheet.


At contract inception, we analyze our collaboration arrangements to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities and therefore within the scope of Accounting Standards Codification, or ASC, Topic 808, Collaborative Arrangements, or ASC 808. ASC 808 does not address the recognition and measurement of collaborative arrangements and instead refers companies to use other authoritative accounting literature. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, we first determine which elements of the collaboration reflect a vendor-customer relationship and therefore are within the scope of ASC 606, Revenue from Contracts with Customers. When we determine elements of a collaboration do not reflect a vendor-customer relationship, we consistently apply the reasonable and rational policy election we made by analogizing to authoritative accounting literature.


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 also recognize sales milestone payments and royalties we earn under our other partnerships as commercial revenue.


Commercial Revenue: TEGSEDI and WAYLIVRA revenue, net


In January 2021 and April 2021, we entered into distribution agreements with Swedish Orphan Biovitrum AB, or Sobi, in which Sobi began commercializing TEGSEDI and WAYLIVRA in Europe and TEGSEDI in North America, respectively. Under our agreements, we are responsible for supplying finished goods inventory to Sobi and Sobi is responsible for selling each medicine to the end customer. As a result of these agreements, we earn a distribution fee on net sales from Sobi for each medicine.


Prior to the second quarter of 2021 in North America, we sold TEGSEDI through exclusive distribution agreements with third-party logistics companies, or 3PLs, that took title to TEGSEDI. The 3PLs then distributed TEGSEDI to a specialty pharmacy and a specialty distributor, which we collectively refer to as wholesalers, who then distributed TEGSEDI to health care providers and patients. In the United States, or U.S., we had a single 3PL as our sole customer and in Canada we also had a single 3PL as our sole customer. Prior to 2021 in Europe, we sold TEGSEDI and WAYLIVRA to hospitals and pharmacies, which were our customers, using 3PLs as distributors.
9


Under our collaboration agreement with PTC Therapeutics International Limited, or PTC, PTC is responsible for commercializing TEGSEDI and WAYLIVRA in Latin America and Caribbean countries. Under our agreement, we started receiving royalties from PTC for TEGSEDI sales in December 2021.


Research and development revenue under collaborative agreements


We 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.


See Note 6, Collaborative Arrangements and Licensing Agreements, for collaborations with substantive changes that occurred in 2022. Additionally, see Note 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, 2021 for a summary of each of our material collaborative agreements.


Steps to Recognize Revenue


For elements of our contractual relationships that we account for under ASC 606, we use a five-step process to determine the amount of revenue we should recognize and when we should recognize it. The five-step process is as follows:

1.
Identify the contract


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

●
We and our partner approved the contract and we are both committed to perform our obligations;
●
We have identified our rights, our partner’s rights and the payment terms;
●
We have concluded that the contract has commercial substance, meaning that the risk, timing, or amount of our future cash flows is expected to change as a result of the contract; and
●
We believe collectability of the consideration is probable.

2.
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.


Often 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 because these items are contingent upon future events that may not occur and are not priced at a significant discount. When a partner exercises its option to license a medicine or requests additional goods or services, then we identify a new performance obligation for that item.


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

3.
Determine the transaction price


We then determine the transaction price by reviewing the amount of consideration we are eligible to 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.
10


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/or are usually based on scientific progress which is inherently uncertain. For example, in the first quarter of 2022, we earned a $10 million milestone payment from Biogen when Biogen advanced the Phase 1/2 study for ION859, an investigational antisense medicine targeting leucine rich repeat kinase 2, or LRRK2, in patients with Parkinson’s disease. We did not consider the milestone payment probable until Biogen achieved the milestone event because advancing ION859 was contingent on Biogen advancing a Phase 1/2 study and was not within our control. We recognized the milestone payment in full in the period the milestone event was achieved because we did not have any remaining performance obligations related to the milestone payment.

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 we may receive from future product sales;
●
Estimated contractual milestone payments we may receive;
●
Estimated expenses we may incur;
●
Estimated 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 estimated number of internal hours we will spend performing these services;
●
The estimated cost of work we will perform;
●
The estimated cost of work that we will contract with third parties to perform; and
●
The estimated cost of API we will use.


For purposes of determining 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.

5.
Recognize revenue


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


For R&D services that we recognize over time, we measure our progress using an input method. The input methods we use are based on the effort we expend or costs we incur toward the satisfaction of our performance obligation. We estimate the amount of effort we expend, including the time we estimate it will take us to complete the activities, or costs we incur in a given period, relative to the estimated total effort or costs to satisfy the performance obligation. This results in a percentage that we multiply by the transaction price to determine the amount of revenue we recognize each period. This approach requires us to make numerous estimates and use significant judgement. If our estimates or judgements change over the course of the collaboration, they may affect the timing and amount of revenue that we recognize in the current and future periods.
11


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.


Commercial Revenue: TEGSEDI and WAYLIVRA revenue, net


Under our distribution agreements with Sobi we concluded that our performance obligation is to provide services to Sobi over the term of the agreement, which includes supplying finished goods inventory to Sobi. We are also responsible for maintaining the marketing authorization for TEGSEDI and WAYLIVRA in major markets and for leading the global commercial strategy for each medicine. We view this performance obligation as a series of distinct activities that are substantially the same. Therefore, we recognize as revenue the price Sobi pays us for the inventory when we deliver the finished goods inventory to Sobi. We also recognize distribution fee revenue based on Sobi’s net sales of TEGSEDI and WAYLIVRA. Under our agreements with Sobi, Sobi does not generally have a right of return.


Prior to our distribution agreements with Sobi, we recognized TEGSEDI and WAYLIVRA commercial revenue in the period when our customer obtained control of our products, which occurred at a point in time upon transfer of title to the customer. We classified payments to customers or other parties in the distribution channel for services that were distinct and priced at fair value as selling, general and administrative, or SG&A, expenses in our condensed consolidated statements of operations. We classified payments to customers or other parties in the distribution channel that did not meet those criteria as a reduction of revenue, as discussed further below. We excluded from revenues taxes collected from customers relating to TEGSEDI and WAYLIVRA commercial revenue and remitted these amounts to governmental authorities.


Reserves for TEGSEDI and WAYLIVRA commercial revenue


Under our distribution agreements with Sobi, Sobi is responsible for any applicable reserves.


Prior to our distribution agreements with Sobi, we recorded TEGSEDI and WAYLIVRA commercial revenue at our net sales price, or transaction price. We included in our transaction price estimated reserves for discounts, returns, chargebacks, rebates and other allowances that we offered within contracts between us and our customers, wholesalers, distributors, health care providers and other indirect customers. We estimated our reserves using the amounts we have earned or we could claim on the associated sales. We classified our reserves as a reduction of accounts receivable when we were not required to make a payment or as a current liability when we were required to make a payment. In certain cases, our estimates included a range of possible outcomes that were probability weighted for relevant factors such as our historical experience, contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall, our reserves reflected our best estimates under the terms of our respective contracts. When calculating our reserves and related TEGSEDI and WAYLIVRA commercial revenue, we only recognized amounts to the extent that we considered it probable that we would not have to reverse a significant amount of the cumulative sales we previously recognized in a future period. Under our agreements with Sobi, we transferred all reserves to Sobi. See our revenue recognition policy in Note 1, Organization and Significant Accounting Policies, of our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021 for additional details regarding how we accounted for the reserves related to TEDSEDI and WAYLIVIRA product sales prior to our agreements with Sobi.


Research and development revenue under collaboration agreements:


Upfront payments


When we enter into a collaboration agreement and receive an upfront payment, we typically record the entire upfront payment as deferred revenue if our only performance obligation is for R&D services we will provide in the future. We amortize the upfront payment into revenue as we perform the R&D services. For example, under our collaboration agreement with Roche to develop IONIS-FB-LRx for the treatment of complement-mediated diseases, we received a $75 million upfront payment in the fourth quarter of 2018. We allocated the upfront payment to our single performance obligation, R&D services. We are amortizing the $75 million upfront payment using an input method over the estimated period of time we are providing R&D services.
12


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 typically there is considerable uncertainty in the research and development processes that trigger these payments. Similarly, we include approval milestone payments in the transaction price once the medicine is approved by the applicable regulatory agency. We will recognize sales-based milestone payments in the period in which we achieve the milestone under the sales-based royalty exception allowed under accounting rules.


We recognize milestone payments that relate to an ongoing performance obligation over our period of performance. For example, in the second quarter of 2022, we achieved a $20 million milestone payment from Roche when we advanced the Phase 2 study in patients with dry age-related macular degeneration, or AMD, under our collaboration agreement with Roche to develop IONIS-FB-LRx. We added this payment to the transaction price and allocated it to our R&D services performance obligation for IONIS-FB-LRx. We are recognizing revenue related to this milestone payment over our estimated period of performance. As a result, we recorded a cumulative catch-up adjustment of $13.8 million to increase revenue in the second quarter of 2022 for this payment. We estimate we will satisfy our performance obligation in the fourth quarter of 2023.


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 quarter of 2022, we recognized $13 million in milestone payments when Biogen advanced two targets under our neurology collaborations. We concluded that these milestone payments were not related to our R&D services performance obligations for these collaborations. Therefore, we recognized the milestone payments in full in the third quarter of 2022.


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 quarter of 2022, we earned a $35 million license fee from Roche when Roche licensed IONIS-FB-LRx, an investigational medicine in development to treat complement-mediated diseases.


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 fourth quarter of 2020, we earned a $41.2 million sublicense fee from Alnylam Pharmaceuticals for its sublicense of our technology to Sanofi Genzyme.


Amendments to Agreements


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

1)
If the additional goods and/or services are distinct from the other performance obligations in the original agreement; and
2)
If the goods and/or services are sold 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 are sold at a 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.
13


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 two separate agreements with Biogen at the same time: a new strategic neurology collaboration agreement and a stock purchase agreement. 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.


Eplontersen Collaboration with AstraZeneca


In December 2021, we entered into a joint development and commercialization agreement with AstraZeneca to develop and commercialize eplontersen for the treatment of transthyretin amyloidosis, or ATTR. We are jointly developing and preparing to commercialize eplontersen with AstraZeneca in the U.S. We granted AstraZeneca exclusive rights to commercialize eplontersen outside the U.S., except certain countries in Latin America. Under the terms of the agreement, we received a $200 million upfront payment in 2021.


We evaluated our eplontersen collaboration under ASC 808 and identified four material components: (i) the license we granted to AstraZeneca in 2021, (ii) the co-development activities that we and AstraZeneca are performing, (iii) the co-commercialization activities that we and AstraZeneca are performing and (iv) the co-medical affairs activities that we and AstraZeneca are performing.


We determined that we had a vendor-customer relationship within the scope of ASC 606 for the license we granted to AstraZeneca and as a result we had one performance obligation.  For our sole performance obligation, we determined the transaction price was the $200 million upfront payment we received. We recognized the upfront payment in full in 2021 because we did not have any remaining performance obligations after we delivered the license to AstraZeneca.


We also concluded that the co-development activities, the co-commercialization activities and the co-medical affairs activities are within the scope of ASC 808 because we and AstraZeneca are active participants exposed to the risks and benefits of the activities under the collaboration and therefore do not have a vendor-customer relationship. AstraZeneca is responsible for 55 percent of the costs associated with the ongoing global Phase 3 development program. Because we are leading the Phase 3 development program, we made an accounting policy election to recognize as non-customer revenue the cost-share funding from AstraZeneca, net of our share of AstraZeneca’s development expenses, in the same period we incur the related development expenses. As AstraZeneca is responsible for the majority of the commercial and medical affairs costs in the U.S. and all costs associated with bringing eplontersen to market outside the U.S., we made an accounting policy election to recognize cost-share funding we receive from AstraZeneca related to commercial and medical affairs activities as reductions of our SG&A expense and R&D expense, respectively. Refer to Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, for further details on the financial statement impacts of our eplontersen collaboration with AstraZeneca.


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 contracts receivable to be unconditional. We typically receive payment within one quarter of billing our partner or customer.


As of September 30, 2022, approximately 73.1 percent of our contracts receivables were from two significant customers. As of December 31, 2021, approximately 93.8 percent of our contracts receivables were from two significant customers.
14


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 30, 2022 and 2021, we recognized $23.1 million and $21.1 million of revenue from amounts that were in our beginning deferred revenue balance for each respective period. During the nine months ended September 30, 2022 and 2021, we recognized $69.8 million and $71.9 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 Sales


Our cost of sales is comprised of costs related to our commercial revenue, including 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 sales.


Accrued Liabilities


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

  
September 30, 2022
    
December 31, 2021
  
Clinical development expenses
  
$
103,635
    
$
65,730
  
In-licensing expenses
    
7,130
      
8,044
  
Commercial expenses
    
4,188
      
2,471
  
Other miscellaneous expenses
    
13,049
      
12,315
  
Total accrued liabilities
  
$
128,002
    
$
88,560
  


Estimated Liability for Clinical Development Expenses


We have numerous medicines in preclinical studies and/or clinical trials at clinical sites throughout the world. On at least a quarterly basis, we estimate our liability for preclinical and clinical development expenses we have incurred and services that we have received but for which we have not yet been billed and maintain an accrual to cover these expenses. These expenses primarily relate to third-party clinical management costs, laboratory and analysis costs, toxicology studies and investigator grants. We estimate our liability using assumptions about study and patient activities and the related expected expenses for those activities determined based on the contracted fees with our service providers. The assumptions we use represent our best estimates of the activity and expenses at the time of our accrual and involve inherent uncertainties and the application of our judgment. Upon settlement, these expenses may differ materially from the amounts accrued in our consolidated financial statements. Our historical accrual estimates have not been materially different from our actual amounts.


Cash, Cash 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 in our condensed consolidated statement of operations. 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 30, 2022, we held equity investments in three publicly held companies and eight privately held companies.
15


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 publicly held companies based on observable inputs such as quoted prices in active markets for identical assets. 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. We recorded an immaterial amount of fair value adjustments related to our equity investments for the three and nine months ended September 30, 2022 and 2021.


Inventory Valuation


We reflect our inventory on our condensed consolidated balance sheet at the lower of cost or net realizable 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, 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. Our raw materials - commercial inventory includes API for our commercial medicines. We capitalize material, labor and overhead costs as part of our raw materials - commercial inventory.


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.


Our inventory consisted of the following (in thousands):

  
September 30, 2022
    
December 31, 2021
  
Raw materials:
            
Raw materials- clinical
  
$
15,598
    
$
14,507
  
Raw materials- commercial
    
1,019
      
4,139
  
Total raw materials
    
16,617
      
18,646
  
Work in process
    
3,740
      
5,770
  
Finished goods
    
288
      
390
  
Total inventory
  
$
20,645
    
$
24,806
  


Leases


We determine if an arrangement contains a lease at inception of the arrangement. As of September 30, 2022, we only had 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 determine the lease term at the inception of each 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. When we exercise a lease option that was not previously included in the initial lease term, we reassess our right-of-use asset and lease liabilities for the new lease term.


As our leases do not provide an interest rate implicit in the lease, we use our incremental borrowing rate, based on the information available as of the lease inception date or at the lease option extension date in determining the present value of future payments. 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.


In January 2022, we entered into a sublease agreement for our office space located in Boston, Massachusetts. The sublease commenced in January 2022 when the office space was ready for our tenant’s occupancy. We are subleasing this space under a non-cancelable operating sublease with a sublease term ending in November 2028 with no option to extend the sublease. Under the sublease agreement we provided a seven-month free rent period, which commenced in January 2022. We will receive lease payments over the sublease term totaling $9.6 million. We are recognizing sublease payments as other income on a straight-line, gross basis over the term of our sublease.
16


In October 2022, we entered into a build-to-suit lease agreement to lease a development chemistry and manufacturing facility in Oceanside, California. The lessor will develop and construct a building composed of manufacturing space, office space, research and development space and warehouse space. We will design and construct tenant improvements to customize the facility’s interior space. We will lease the facility for an initial term of 20 years and 3 months with options to extend the lease for two additional terms of 10 years each. The lease will commence when the lessor's construction is complete and we are able to occupy the facility.


In October 2022, we concurrently entered into two purchase and sale agreements with a real estate investor. Under the agreements, we sold and leased back the facilities at our headquarters location in Carlsbad, California and will sell, subject to meeting certain closing conditions, two lots of undeveloped land adjacent to our headquarters. We sold the facilities at our headquarters for a total purchase price of $263.4 million and we expect to receive total proceeds of $33.0 million upon the close of the sale of the two lots. We used a portion of the sale proceeds to extinguish our mortgage debt on our headquarters facilities of $51.3 million. The initial lease term for our headquarters facilities is 15 years with options to extend the lease for two additional terms of five years each. In connection with the sale of our two undeveloped lots, we will enter into a build-to-suit lease agreement with the same real estate investor who will build a new R&D facility for us on those lots. Once this new facility is completed, our lease will commence.


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 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. When we identify patents and patent applications that we are not actively pursuing, we write off any associated 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.


We apply the authoritative accounting guidance prescribing a threshold and measurement attribute for the financial recognition and measurement of a tax position taken or expected to be taken in a tax return. We recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50 percent likely to be realized upon ultimate settlement.


We are required to use significant judgment in evaluating our uncertain tax positions and determining our provision for income taxes. Although we believe our reserves are reasonable, we can provide no assurance that the final tax outcome of these matters will not be different from that which we have reflected in our historical income tax provisions and accruals. We adjust these reserves for changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences may impact the provision for income taxes in the period in which we make such determination.


We are also required to use significant judgment in determining any valuation allowance recorded against our deferred tax assets. In assessing the need for a valuation allowance, we consider all available evidence, including scheduled reversal of deferred tax liabilities, past operating results, the feasibility of tax planning strategies and estimates of future taxable income. We base our estimates of future taxable income on assumptions that are consistent with our plans. The assumptions we use represent our best estimates and involve inherent uncertainties and the application of our judgment. Should actual amounts differ from our estimates, the amount of our tax expense and liabilities we recognize could be materially impacted. We record a valuation allowance to reduce the balance of our net deferred tax assets to the amount we believe is more-likely-than-not to be realized.


We do not provide for a U.S. income tax liability and foreign withholding taxes on undistributed foreign earnings of our foreign subsidiaries.
17


Long-lived Assets


We evaluate long-lived assets, which include property, plant and equipment, right-of-use assets and patent costs, for impairment on at least a quarterly basis and whenever events or changes in circumstances indicate that we may not be able to recover the carrying amount of such assets.


Use of Estimates


We prepare our condensed consolidated financial statements in conformity with accounting principles generally accepted in the U.S. that require us to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. Actual results could differ from our estimates.


Basic and Diluted Net Loss Per Share


Basic net loss per share


We calculated our basic net loss per share for the three and nine months ended September 30, 2022 and 2021 by dividing our net loss by our weighted-average number of common shares outstanding during the period. Our basic net loss per share for the three months ended September 30, 2022 and 2021 were $0.33 and $0.58, respectively. Our basic net loss per share for the nine months ended September 30, 2022 and 2021 were $1.53 and $1.80, respectively.


Diluted net loss per share


For the three and nine months ended September 30, 2022 and 2021, 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 percent convertible senior notes, or 0% Notes;
●
Note hedges related to the 0% Notes;
●
0.125 percent convertible senior notes, or 0.125% Notes;
●
Note hedges related to the 0.125% Notes;
●
Dilutive stock options;
●
Unvested restricted stock units, or RSUs;
●
Unvested performance restricted stock units, or PRSUs; and
●
Employee Stock Purchase Plan, or ESPP.


For the three and nine months ended September 30, 2021, common stock that we could have issued from our 1 percent convertible senior notes, or 1% Notes, would also have had an anti-dilutive effect on net loss per share.


Additionally as of September 30, 2022, we had warrants related to our 0% and 0.125% Notes outstanding. We will include the shares issuable under these 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.


Convertible Debt


We account for each of our convertible debt instruments as a single unit of accounting, a liability, because we concluded that the conversion features do not require bifurcation as a derivative under ASC 815, Derivatives and Hedging, or ASC 815, and our convertible debt instruments were not issued at a substantial premium. We record the entire debt issuance costs as a contra-liability in our condensed consolidated balance sheet at issuance and we amortize them over the contractual term using an updated effective interest rate. As such, the ending balances for our 0% and 0.125% Notes represent the principal balance of each convertible debt instrument less debt issuance costs. We amortize debt issuance costs for our 0% and 0.125% Notes over the respective contractual term using an effective interest rate of 0.5 percent for each note. Refer to Note 7, Convertible Debt, for further details on our convertible debt instruments.
18


Call Spread


In conjunction with the issuance of our 0% Notes and 0.125% Notes in April 2021 and December 2019, respectively, we entered into call spread transactions, which were comprised of purchasing note hedges and selling warrants. We account for the note hedges and warrants as separate freestanding financial instruments and treat each instrument as a separate unit of accounting. We determined that the note hedges and warrants do not meet the definition of a liability using the guidance contained in ASC Topic 480, therefore we account for the note hedges and warrants using the Derivatives and Hedging – Contracts in Entity’s Own Equity accounting guidance contained in ASC 815. We determined that the note hedges and warrants meet the definition of a derivative, are indexed to our stock and meet the criteria to be classified in shareholders’ equity. We recorded the aggregate amount paid for the note hedges and the aggregate amount received for the warrants as additional paid-in capital in our condensed consolidated balance sheet. We reassess our ability to continue to classify the note hedges and warrants in shareholders’ equity at each reporting period.


Segment Information


We operate as a single segment, Ionis operations, because our chief decision maker reviews operating results on an aggregate basis and manages our operations as a single operating segment.


Stock-based Compensation Expense


We measure stock-based compensation expense for equity-classified awards, principally related to stock options, RSUs, PRSUs 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.


On the grant date, we use our stock price and assumptions regarding a number of variables to determine the estimated fair value of stock-based payment awards. These variables include, but are not limited to, our expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.


We recognize compensation expense for stock options granted, RSUs, PRSUs and stock purchase rights under the ESPP using the accelerated multiple-option approach. Under the accelerated multiple-option approach (also known as the graded-vesting method), we recognize compensation expense over the requisite service period for each separately vesting tranche of the award as though the award were in substance multiple awards, which results in the expense being front-loaded over the vesting period.


In December 2020, we amended and restated the Akcea 2015 equity plan, including renaming the plan as the Ionis Pharmaceuticals, Inc. 2020 Equity Incentive Plan, or 2020 Plan. As a result, all employees are now under an Ionis stock plan and subject to the same Black-Scholes assumptions.


For the nine months ended September 30, 2022 and 2021, we used the following weighted-average assumptions in our Black-Scholes calculations:


Employee Stock Options:
  
Nine Months Ended
September 30,
  
   
2022
    
2021
  
Risk-free interest rate
    
1.9
%
    
0.5
%
Dividend yield
    
0.0
%
    
0.0
%
Volatility
    
54.9
%
    
54.3
%
Expected life*
  
6.3 years
    
4.9 years
  

*
In 2021, our Compensation Committee approved an amendment to the 2011 Equity Incentive Plan, or 2011 Plan, and 2020 Plan, that increased the contractual term of stock options granted under these plans from seven years to ten years for stock options granted on January 1, 2022 and thereafter. We determined that we are unable to rely on our historical exercise data as a basis for estimating the expected life of stock options granted to employees following this change because the contractual term changed and we have no other means to reasonably estimate future exercise behavior. We therefore used the simplified method for determining the expected life of stock options granted to employees in the nine months ended September 30, 2022. Under the simplified method, we calculate the expected term as the average of the time-to-vesting and the contractual life of the options. As we gain additional historical information, we will transition to calculating our expected term based on our historical exercise patterns.
19


Ionis Board of Director Stock Options:
  
Nine Months Ended
September 30,
  
   
2022
    
2021
  
Risk-free interest rate
    
2.9
%
    
1.2
%
Dividend yield
    
0.0
%
    
0.0
%
Volatility
    
56.2
%
    
55.9
%
Expected life
  
7.4 years
    
7.3 years
  


ESPP:
  
Nine Months Ended
September 30,
  
   
2022
    
2021
  
Risk-free interest rate
    
1.2
%
    
0.1
%
Dividend yield
    
0.0
%
    
0.0
%
Volatility
    
50.1
%
    
42.4
%
Expected life
  
6 months
    
6 months
  


RSU’s:


The fair value of RSUs is based on the market price of our common stock on the date of grant. The RSUs we have granted to employees vest annually over a four-year period. The RSUs we granted to our board of directors prior to June 2020 vest annually over a four-year period. The RSUs we granted after June 2020 to our board of directors fully vest after one year. The weighted-average grant date fair value of RSUs granted to employees and our board of directors for the nine months ended September 30, 2022 were $34.88 and $38.06 per share, respectively.


PRSU’s:


Beginning in 2020, we added PRSU awards to the compensation for our Chief Executive Officer, Dr. Brett Monia. Beginning in 2022, we added PRSU awards to the compensation for our other Section 16 officers. Under the terms of the grants, one third of the PRSUs may vest at the end of three separate performance periods spread over the three years following the date of grant (i.e., the one-year period commencing on the date of grant and ending on the first anniversary of the date of grant; the two-year period commencing on the date of grant and ending on the second anniversary of the date of grant; and the three-year period commencing on the date of grant and ending on the third anniversary of the date of grant) based on our relative total shareholder return, or TSR, as compared to a peer group of companies, and as measured, in each case, at the end of the applicable performance period. Under the terms of the grants no number of PRSUs is guaranteed to vest and the actual number of PRSUs that will vest at the end of each performance period may be anywhere from zero percentto 150 percent of the target number depending on our relative TSR.


We determined the fair value of the PRSUs using a Monte Carlo model because the performance target is based on our relative TSR, which represents a market condition. We are recognizing the grant date fair value of these awards as stock-based compensation expense using the accelerated multiple-option approach over the vesting period. The weighted-average grant date fair value of PRSUs granted to our Section 16 officers for the nine months ended September 30, 2022 and 2021 were $42.28 and $77.17 per share, respectively.


The following table summarizes stock-based compensation expense for the three and nine months ended September 30, 2022 and 2021 (in thousands).

 
Three Months Ended
September 30,
    
Nine Months Ended
September 30,
  
 
2022
    
2021
    
2022
    
2021
  
Cost of sales
  
$
163
    
$
111
    
$
376
    
$
293
  
Research, development and patent expense
    
17,733
      
23,332
      
55,315
      
71,979
  
Selling, general and administrative expense
    
5,941
      
7,094
      
18,884
      
26,147
  
Total stock-based compensation expense
  
$
23,837
    
$
30,537
    
$
74,575
    
$
98,419
  
20


As of September 30, 2022, total unrecognized estimated stock-based compensation expense related to non-vested stock options, RSUs and PRSUs was $50.9 million, $53.0 million and $3.4 million, respectively. Our actual expenses may differ from these estimates because we will adjust our unrecognized stock-based compensation expense for future forfeitures. We expect to recognize the cost of stock-based compensation expense related to our non-vested stock options, RSUs and PRSUs over a weighted average amortization period of 1.2 years, 1.4 years and 1.1 years, respectively. Our stock-based compensation expense related to equity awards decreased in the three and nine months ended September 30, 2022 compared to the same periods in 2021 due to decreased headcount of longer-tenured employees as a result of restructuring our commercial operations for TEGSEDI and WAYLIVRA.


Recently Adopted Accounting Standards


In June 2022, the Financial Accounting Standards Board, or FASB, issued clarifying guidance on fair value measurement of equity securities subject to contractual trading restrictions. The guidance clarifies that contractual trading restrictions are not considered part of the unit of account of equity securities and therefore, are not considered when measuring the fair value of equity securities. This update is effective for interim and annual periods beginning January 1, 2024 on a prospective basis. Early adoption of this guidance is permitted at an interim or annual period. We early adopted this new guidance in the third quarter of 2022. This guidance did not have an impact on our condensed consolidated financial statements.


We do not expect any other recently issued accounting standards to have a material impact to our financial results.

3.  Investments


The following table summarizes the contract maturity of the available-for-sale securities we held as of September 30, 2022:

One year or less
    
66
%
After one year but within two years
    
31
%
After two years but within three and a half years
    
3
%
Total
    
100
%


As illustrated above, at September 30, 2022, 97 percent of our available-for-sale securities had a maturity of less than two years.


All of our available-for-sale debt 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. This reflects our intention to use the proceeds from the sale of these investments to fund our operations, as necessary.


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 30, 2022, we had an equity ownership interest of less than 20 percent in eight private companies and three public companies with which we conduct business.
21


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

  
Amortized
    
Gross Unrealized
    
Estimated
  
September 30, 2022
  
Cost
    
Gains
    
Losses
    
Fair Value
  
Available-for-sale securities:
                        
Corporate debt securities (1)
  
$
487,666
    
$
1
    
$
(5,327
)
  
$
482,340
  
Debt securities issued by U.S. government agencies
    
104,987
      
12
      
(1,686
)
    
103,313
  
Debt securities issued by the U.S. Treasury (1)
    
462,475
      
22
      
(3,761
)
    
458,736
  
Debt securities issued by states of the U.S. and political subdivisions of the states
    
72,059
      
—
      
(797
)
    
71,262
  
Other municipal debt securities
    
6,040
      
—
      
(76
)
    
5,964
  
Total securities with a maturity of one year or less
    
1,133,227
      
35
      
(11,647
)
    
1,121,615
  
Corporate debt securities
    
258,362
      
6
      
(12,654
)
    
245,714
  
Debt securities issued by U.S. government agencies
    
28,987
      
8
      
(1,541
)
    
27,454
  
Debt securities issued by the U.S. Treasury
    
298,431
      
13
      
(6,247
)
    
292,197
  
Debt securities issued by states of the U.S. and political subdivisions of the states
    
14,591
      
2
      
(540
)
    
14,053
  
Total securities with a maturity of more than one year
    
600,371
      
29
      
(20,982
)
    
579,418
  
Total available-for-sale securities
  
$
1,733,598
    
$
64
    
$
(32,629
)
  
$
1,701,033
  
Equity securities:
                                
Publicly traded equity securities included in other current assets (2)
  
$
15,097
    
$
—
    
$
(7,841
)
  
$
7,256
  
Privately held equity securities included in deposits and other assets (3)
    
23,115
      
17,257
      
—
      
40,372
  
Total equity securities
    
38,212
      
17,257
      
(7,841
)
    
47,628
  
Total available-for-sale and equity securities
  
$
1,771,810
    
$
17,321
    
$
(40,470
)
  
$
1,748,661
  

 
Amortized
    
Gross Unrealized
    
Estimated
  
December 31, 2021
  
Cost
    
Gains
    
Losses
    
Fair Value
  
Available-for-sale securities:
                        
Corporate debt securities (1)
  
$
383,870
    
$
728
    
$
(226
)
  
$
384,372
  
Debt securities issued by U.S. government agencies
    
48,493
      
19
      
(18
)
    
48,494
  
Debt securities issued by the U.S. Treasury (1)
    
45,424
      
—
      
(64
)
    
45,360
  
Debt securities issued by states of the U.S. and political subdivisions of the states
    
134,770
      
45
      
(37
)
    
134,778
  
Total securities with a maturity of one year or less
    
612,557
      
792
      
(345
)
    
613,004
  
Corporate debt securities
    
382,000
      
331
      
(2,644
)
    
379,687
  
Debt securities issued by U.S. government agencies
    
72,935
      
—
      
(561
)
    
72,374
  
Debt securities issued by the U.S. Treasury
    
137,635
      
139
      
(500
)
    
137,274
  
Debt securities issued by states of the U.S. and political subdivisions of the states
    
39,909
      
1
      
(224
)
    
39,686
  
Other municipal debt securities
    
6,136
      
—
      
(37
)
    
6,099
  
Total securities with a maturity of more than one year
    
638,615
      
471
      
(3,966
)
    
635,120
  
Total available-for-sale securities
  
$
1,251,172
    
$
1,263
    
$
(4,311
)
  
$
1,248,124
  
Equity securities:
                                
Publicly traded equity securities included in other current assets (2)
  
$
11,897
    
$
7,145
    
$
(837
)
  
$
18,205
  
Privately held equity securities included in deposits and other assets (3)
    
15,615
      
16,707
      
—
      
32,322
  
Total equity securities
    
27,512
      
23,852
      
(837
)
    
50,527
  
Total available-for-sale and equity securities
  
$
1,278,684
    
$
25,115
    
$
(5,148
)
  
$
1,298,651
  

(1)
Includes investments classified as cash equivalents in our condensed consolidated balance sheet.

(2)
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. In the nine months ended September 30, 2022, we recognized a $10.9 million unrealized non-cash loss in our condensed consolidated statement of operations related to a decrease in the fair value of our investments in publicly traded companies.

(3)
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.
22


The following is a summary of our investments we consider to be temporarily impaired at September 30, 2022 (in thousands, except for number of investments).

        
Less than 12 Months of
Temporary Impairment
    
More than 12 Months of
Temporary Impairment
    
Total Temporary
Impairment
  
   
Number of
Investments
    
Estimated
Fair Value
    
Unrealized
Losses
    
Estimated
Fair Value
    
Unrealized
Losses
    
Estimated
Fair Value
    
Unrealized
Losses
  
Corporate debt securities
    
397
    
$
591,245
    
$
(10,897
)
  
$
133,763
    
$
(7,084
)
  
$
725,008
    
$
(17,981
)
Debt securities issued by U.S. government agencies
    
31
      
69,640
      
(875
)
    
53,299
      
(2,352
)
    
122,939
      
(3,227
)
Debt securities issued by the U.S. Treasury
    
74
      
643,231
      
(8,327
)
    
52,767
      
(1,681
)
    
695,998
      
(10,008
)
Debt securities issued by states of the U.S. and political subdivisions of the states
    
140
      
40,160
      
(658
)
    
21,769
      
(679
)
    
61,929
      
(1,337
)
Other municipal debt securities
    
2
      
994
      
(12
)
    
4,970
      
(64
)
    
5,964
      
(76
)
Total temporarily impaired securities
    
644
    
$
1,345,270
    
$
(20,769
)
  
$
266,568
    
$
(11,860
)
  
$
1,611,838
    
$
(32,629
)


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 rather than underlying credit deterioration for any of the issuers. We believe it is more likely than not that we will be able to hold our debt securities with declines in value to maturity. Therefore, we anticipate full recovery of our debt securities’ amortized cost basis at maturity.

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, which includes our investments in equity securities in privately held biotechnology companies. We classify 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 30, 2022 and December 31, 2021 that we regularly measure and carry at fair value. As of December 31, 2021, one of our investments in publicly held biotechnology companies was subject to trading restrictions that ended in the third quarter of 2022; as a result, we included a lack of marketability discount in valuing this investment, which is a Level 3 input. The following tables segregate each security type by the level within the fair value hierarchy of the valuation techniques we utilized to determine the respective securities’ fair value (in thousands):

  
At
September 30, 2022
    
Quoted Prices in
Active Markets
(Level 1)
    
Significant Other
Observable Inputs
(Level 2)
    
Significant
Unobservable Inputs
(Level 3)
  
Cash equivalents (1)
  
$
231,960
    
$
231,960
    
$
—
    
$
—
  
Corporate debt securities (2)
    
728,054
      
—
      
728,054
      
—
  
Debt securities issued by U.S. government agencies (2)
    
130,767
      
—
      
130,767
      
—
  
Debt securities issued by the U.S. Treasury (3)
    
750,933
      
750,933
      
—
      
—
  
Debt securities issued by states of the U.S. and political subdivisions of the states (4)
    
85,315
      
—
      
85,315
      
—
  
Other municipal debt securities (3)
    
5,964
      
—
      
5,964
      
—
  
Publicly traded equity securities included in other current assets
    
7,256
      
7,256
      
—
      
—
  
Total
  
$
1,940,249
    
$
990,149
    
$
950,100
    
$
—
  
23

  
At
December 31, 2021
    
Quoted Prices in
Active Markets
(Level 1)
    
Significant Other
Observable Inputs
(Level 2)
    
Significant
Unobservable Inputs
(Level 3)
  
Cash equivalents (1)
  
$
541,199
    
$
541,199
    
$
—
    
$
—
  
Corporate debt securities (3)
    
764,059
      
—
      
764,059
      
—
  
Debt securities issued by U.S. government agencies (3)
    
120,868
      
—
      
120,868
      
—
  
Debt securities issued by the U.S. Treasury (3)
    
182,634
      
182,634
      
—
      
—
  
Debt securities issued by states of the U.S. and political subdivisions of the states (5)
    
174,464
      
—
      
174,464
      
—
  
Other municipal debt securities (3)
    
6,099
      
—
      
6,099
      
—
  
Publicly traded equity securities included in other current assets
    
18,205
      
3,875
      
—
      
14,330
  
Total
  
$
1,807,528
    
$
727,708
    
$
1,065,490
    
$
14,330
  

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

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

(2)
$23.5 million was included in cash and cash equivalents in our condensed consolidated balance sheet, with the difference included in short-term investments in our condensed consolidated balance sheet.

(3)
Included in short-term investments.

(4)
$10.0 million was included in cash and cash equivalents in our condensed consolidated balance sheet, with the difference included in short-term investments in our condensed consolidated balance sheet.

(5)
$2.3 million was included in cash and cash equivalents in our condensed consolidated balance sheet, with the difference included in short-term investments in our condensed consolidated balance sheet.

Convertible Notes


Our 0.125% Notes and 0% Notes had a fair value of $498.7 million and $631.8 million at September 30, 2022, 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.  Income Taxes


Beginning in 2022, the Tax Cuts and Jobs Act of 2017, or TCJA, requires taxpayers to amortize research and development expenditures over five years pursuant to Internal Revenue Code, or IRC, Section 174. Although the U.S. Congress is considering legislation that would defer the amortization requirement to later years, we have no assurance that the provision will be repealed or otherwise modified. Since we expect taxable income in 2022, we recorded income tax expense of $0.3 million and $3.6 million for the three months and nine months ended September 30, 2022, respectively, compared to income tax benefit of $1.3 million and $0.9 million for the same periods in 2021.

6.  Collaborative Arrangements and Licensing Agreements


Below, we have included our Biogen, Roche and Bayer collaborations, which are our only collaborations with substantive changes during 2022 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, 2021.
24

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. We and Biogen are currently developing numerous investigational medicines to treat neurodegenerative diseases under these collaborations, including medicines in development to treat people with ALS, SMA, Angelman Syndrome, Alzheimer’s disease and 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 30, 2022, we have received $3.4 billion from our Biogen collaborations.


During the three and nine months ended September 30, 2022 and 2021, 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,
  
   
2022
    
2021
    
2022
    
2021
  
SPINRAZA royalties (commercial revenue)
  
$
61.6
    
$
66.6
    
$
175.1
    
$
198.7
  
R&D revenue
    
27.4
      
17.4
      
84.6
      
63.4
  
Total revenue from our relationship with Biogen
  
$
89.0
    
$
84.0
    
$
259.7
    
$
262.1
  
Percentage of total revenue
    
56
%
    
63
%
    
60
%
    
71
%


Our condensed consolidated balance sheet at September 30, 2022 and December 31, 2021 included deferred revenue of $360.2 million and $407.5 million, respectively, related to our relationship with Biogen.


In the third quarter of 2022, we earned $13 million in milestone payments from Biogen when Biogen advanced two targets under our neurology collaborations. We recognized one of these milestone payments in full in the third quarter of 2022 because we did not have any remaining performance obligations related to the milestone payment. We added the other payment to the transaction price and allocated it to our R&D services performance obligation for the 2012 neurology collaboration. We are recognizing revenue for our R&D services performance obligation over our estimated period of performance. We will achieve the next payment of up to $10 million if Biogen advances another medicine under our 2013 strategic neurology collaboration.


Roche


We have two collaborations with Roche, one to develop IONIS-FB-LRx for the treatment of complement-mediated diseases, and one to develop treatments for Huntington's disease, or HD.


In October 2018, we entered into a collaboration agreement with Roche to develop IONIS-FB-LRx. We are currently conducting Phase 2 studies in two disease indications for IONIS-FB-LRx, one for the treatment of patients with geographic atrophy, or GA, the advanced stage of dry AMD, and a second for the treatment of patients with immunoglobulin A nephropathy, or IgAN. After positive data from a Phase 2 clinical study, Roche licensed IONIS-FB-LRx in July 2022 for $35 million and plans to advance IONIS-FB-LRx into Phase 3 development for patients with IgAN. As a result, Roche is responsible for global development, regulatory and commercialization activities and costs for the Phase 3 IgAN study of IONIS-FB-LRx. We will continue to lead and conduct the open label Phase 2 study in patients with IgAN and the Phase 2 study in patients with GA. In July 2022, we amended our IONIS-FB-LRx collaboration agreement with Roche. The amendment changed future potential milestone payments we could receive under the collaboration. We determined there were no changes that would require adjustments to revenue we previously recognized. Under our amended collaboration agreement, we are eligible to receive up to $145 million in development milestones, $279 million in regulatory milestones and $280 million in sales-related milestone payments. In addition, we are also eligible to receive tiered royalties from the high teens to 20 percent on net sales.


Under the collaboration agreement with Roche to develop treatments for HD, we discovered and developed tominersen, an investigational medicine targeting huntingtin, or HTT, protein, through completion of our Phase 1/2 clinical study in people with early stage HD. In the fourth quarter of 2017, upon completion of the Phase 1/2 study, Roche exercised its option to license tominersen. Roche is responsible for all global development, regulatory and commercialization activities and costs for tominersen. In March 2021, Roche decided to discontinue dosing in the Phase 3 GENERATION HD1 study of tominersen in patients with manifest HD based on the results of a pre-planned review of data from the Phase 3 study conducted by an unblinded iDMC. In January 2022, Roche announced it is actively preparing to initiate a new Phase 2 study of tominersen in patients with HD. Post-hoc analyses from the GENERATION HD1 study suggested tominersen may benefit younger adult patients with lower disease burden. From inception through September 30, 2022, we have received $283 million from our Roche collaborations.
25


During the three and nine months ended September 30, 2022 and 2021, 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,
  
   
2022
    
2021
    
2022
    
2021
  
R&D revenue
  
$
41.5
    
$
3.9
    
$
65.4
    
$
11.4
  
Percentage of total revenue
    
26
%
    
3
%
    
15
%
    
3
%


Our condensed consolidated balance sheet at September 30, 2022 and December 31, 2021 included deferred revenue of $23.6 million and $31.6 million, respectively, related to our relationship with Roche.


As discussed above, in the third quarter of 2022, we earned a $35 million payment from Roche when Roche licensed IONIS-FB-LRx. We recognized the license fee as revenue in the third quarter of 2022 because Roche had full use of the license without any continuing involvement from us. Additionally, we did not have any further performance obligations related to the license after we delivered it to Roche. We will achieve the next payment of up to $90 million if Roche advances a medicine under our IONIS-FB-LRx collaboration.


Bayer


In May 2015, we entered into an exclusive license agreement with Bayer to develop and commercialize IONIS-FXIRx for the prevention of thrombosis. In February 2017, we amended our agreement with Bayer to advance IONIS-FXIRx, initiate development of fesomersen, an investigational LIgand-Conjugated Antisense medicine we designed to inhibit the production of Factor XI, and license fesomersen to Bayer. In the fourth quarter of 2022, Bayer communicated to us that it will discontinue the clinical development program for fesomersen and return fesomersen to us. We have received over $190 million from Bayer over the term of this collaboration.

7. Convertible Debt


0 Percent Convertible Senior Notes and Call Spread


In April 2021, we completed a $632.5 million offering of convertible senior notes. We used a portion of the net proceeds from the issuance of the 0% Notes to repurchase $247.9 million in principal of our 1% Notes for $257.0 million.


At September 30, 2022, we had the following 0% Notes outstanding (amounts in millions except interest rate and price per share data):

  
0% Notes
  
Outstanding principal balance
  
$
632.5
  
Unamortized debt issuance costs
  
$
11.0
  
Maturity date
  
April 2026
  
Interest rate
  
0 percent
  
Effective interest rate
  
0.5 percent
  
Conversion price per share
  
$
57.84
  
Effective conversion price per share with call spread
  
$
76.39
  
Total shares of common stock subject to conversion
    
10.9
  



In conjunction with the April 2021 offering, 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% Notes by increasing the effective conversion price on our 0% Notes. We increased our effective conversion price to $76.39 with the same number of underlying shares as our 0% Notes. The call spread cost us $46.9 million, of which $136.7 million was for the note hedge purchase, offset by $89.8 million we received for selling the warrants. Similar to our 0% Notes, our note hedges are subject to adjustment. Additionally, our note hedges are exercisable upon conversion of the 0% Notes. The note hedges will expire upon maturity of the 0% Notes, or April 2026. The note hedges and warrants are separate transactions and are not part of the terms of our 0% Notes. The holders of the 0% Notes do not have any rights with respect to the note hedges and warrants.


We recorded the amount we paid for the note hedges and the amount we received for the warrants in additional paid-in capital in our condensed consolidated balance sheet. See our Call Spread accounting policy in Note 2, Significant Accounting Policies, in the Notes to the Condensed Consolidated Financial Statements. We reassess our ability to continue to classify the note hedges and warrants in shareholders’ equity at each reporting period.
26


0.125 Percent Convertible Senior Notes and Call Spread


At September 30, 2022, we had the following 0.125% Notes outstanding with interest payable semi-annually (amounts in millions except interest rate and price per share data):

  
0.125% Notes
  
Outstanding principal balance
  
$
548.8
  
Unamortized debt issuance costs
  
$
4.9
  
Maturity date
  
December 2024
  
Interest rate
  
0.125 percent
  
Effective interest rate
  
0.5 percent
  
Conversion price per share
  
$
83.28
  
Effective conversion price per share with call spread
  
$
123.38
  
Total shares of common stock subject to conversion
    
6.6
  



In conjunction with the issuance of our 0.125% Notes in December 2019, we entered into a call spread transaction, which was comprised of purchasing note hedges and selling warrants, to minimize the impact of potential economic dilution upon conversion of our 0.125% Notes by increasing the effective conversion price on our 0.125% Notes. We increased our effective conversion price to $123.38 with the same number of underlying shares as our 0.125% Notes. 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. 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 the 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 amount we paid for the note hedges and the amount we received for the warrants in additional paid-in capital in our condensed consolidated balance sheet. See our Call Spread accounting policy in Note 2, Significant Accounting Policies, in the Notes to the Condensed Consolidated Financial Statements. We reassess our ability to continue to classify the note hedges and warrants in shareholders’ equity at each reporting period.


1 Percent Convertible Senior Notes


In April 2021, we repurchased $247.9 million in aggregate principal amount of our 1% Notes in privately negotiated transactions. As a result of the repurchase, we recognized an $8.6 million loss on early retirement of debt in the second quarter of 2021, reflecting the early retirement of a significant portion of our 1% Notes. The loss on the early retirement of our debt is the difference between the amount paid to retire our 1% Notes and the net carrying balance of the liability at the time that we retired the debt. We paid the remaining principal balance of our 1% Notes with $62.0 million of cash at maturity in November 2021.


Other Terms of Convertible Senior Notes


The 0% and 0.125% Notes are convertible under certain conditions, at the option of the note holders. We can settle conversions of the notes, at our election, in cash, shares of our common stock or a combination of both. We may not redeem the notes prior to maturity, and we do not have to provide a sinking fund for them. Holders of the notes may require us to purchase some or all of their notes upon the occurrence of certain fundamental changes, as set forth in the indentures governing the notes, at a purchase price equal to 100 percent of the principal amount of the notes to be purchased, plus any accrued and unpaid interest. The 1% Notes were subject to similar terms.

8. 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 we consider the potential loss from any legal proceeding to be probable and we can reasonably estimate the amount, we accrue a liability for the estimated loss. The outcome of any proceeding is not determinable in advance. Therefore, we are required to use significant judgment to determine the probability of a loss and whether the amount of the loss is reasonably estimable. Our assessment of a potential liability and the amount of accruals we 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.
27


On August 5, 2021, four purported former stockholders of Akcea filed an action in the Delaware Court of Chancery captioned John Makris, et al. v. Ionis Pharmaceuticals, Inc., et al., C.A. No. 2021-0681, or the Delaware Action. The plaintiffs in the Delaware Action asserted claims against (i) former members of Akcea’s board of directors; and (ii) Ionis, or collectively, the Defendants. The plaintiffs asserted putatively direct claims on behalf of a purported class of former Akcea stockholders. The plaintiffs in the Delaware Action asserted that the Defendants breached their fiduciary duties in connection with the October 2020 take-private transaction that Ionis and Akcea entered into, in which Akcea became a wholly-owned subsidiary of Ionis. We believe this lawsuit is without merit. However, the outcome of this lawsuit or any other lawsuit that may be filed challenging the October 2020 take-private transaction is uncertain. Accordingly, on June 3, 2022, the parties reached an agreement in principle to settle the Delaware Action for $12.5 million. A Stipulation and Agreement of Compromise, Settlement and Release, or the Stipulation and Settlement Agreement reflecting the terms of the proposed settlement was executed and filed with the Delaware Court of Chancery on July 5, 2022. On October 11, 2022, the Delaware Court of Chancery entered an Order and Final Judgment, or the Order, approving the Stipulation and Settlement Agreement in full after determining that the Stipulation and Settlement Agreement was fair, reasonable, and adequate. The Order provides for the full settlement, satisfaction, compromise and release of all claims that were asserted in the Delaware Action. The Order contains no admission of wrongdoing on the part of any of the Defendants. We recorded a legal reserve of $12.5 million and the corresponding litigation settlement expense within other expense in the accompanying condensed consolidated statements of operations in the second quarter of 2022 for the proposed litigation settlement. In the third quarter of 2022, we received insurance contributions toward the settlement in the amount of $4.8 million from our insurance carriers. We recorded the insurance contributions as a reduction to the litigation settlement expense in the third quarter of 2022.


On January 19, 2022, a purported stockholder of Ionis filed a stockholder derivative complaint in the Delaware Court of Chancery captioned Leo Shumacher, et al. v. Joseph Loscalzo, et al., C.A. No. 2022-0059, or the Shumacher Action. The complaint names Ionis' board of directors, or the Board, as defendants and names Ionis as a nominal defendant. The Shumacher Action Plaintiff asserts a breach of fiduciary duty claim against the Board for awarding and receiving allegedly excessive compensation. The Shumacher Action Plaintiff also asserts an unjust enrichment claim against the non-executive directors as a result of the compensation they received. The complaint seeks, among other things, damages, restitution, attorneys’ fees and costs, and such other relief as deemed just and proper by the court. On March 18, 2022, we and the Board moved to dismiss the complaint. On May 24, 2022, the parties entered into a Stipulation and Agreement of Compromise, Settlement and Release.


On May 25, 2022, another purported stockholder of Ionis filed a stockholder derivative complaint also in the Delaware Court of Chancery captioned Robert S. Cohen, et al. v. Joseph Loscalzo, et al., C.A. No. 2022-0453, or the Cohen Action. The complaint names the Board as defendants and names Ionis as a nominal defendant. The Cohen Action Plaintiff asserts claims for breach of fiduciary duty, unjust enrichment, aiding and abetting breaches of fiduciary duty, and waste against the Board for awarding and receiving allegedly excessive non-executive director compensation for the years 2018, 2019, and 2020. On June 2, 2022, the Cohen Action Plaintiff filed a motion to consolidate the related Cohen Action and Shumacher Action. On July 5, 2022, the Court denied the motion to consolidate in favor of the settlement pending in the Shumacher Action.


On July 18, 2022, we filed a Form 8-K disclosing the pending settlement and attaching the Notice of Pendency of Settlement of Action. On September 21, 2022, the Court held a hearing to consider whether the terms of the settlement should be approved, at which hearing the Cohen Action plaintiff objected to the settlement. At the conclusion of the hearing, the Court declined to approve the settlement and directed the parties to meet and confer on the issue of the scope of the release. We and our Board have denied, and continue to deny, any and all allegations of wrongdoing or liability asserted in the Shumacher and Cohen Actions.

28
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 wholly owned subsidiary, Akcea Therapeutics, Inc.

Forward-Looking Statements

In addition to historical information contained in this Report on Form 10-Q, the Report includes forward-looking statements regarding our business and the therapeutic and commercial potential of SPINRAZA (nusinersen), TEGSEDI (inotersen), WAYLIVRA (volanesorsen), eplontersen, olezarsen, donidalorsen, ION363, pelacarsen, tofersen and our technologies and products in development. 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 those inherent in the process of discovering, developing and commercializing medicines that are safe and effective for use as human therapeutics, and in the endeavor of building a business around such medicines. Our forward-looking statements also involve assumptions that, if they never materialize or prove correct, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this report and described in additional detail in our annual report on Form 10-K for the year ended December 31, 2021, 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 RNA-targeted therapeutics. We believe our medicines have the potential to pioneer new markets, change standards of care and transform the lives of people with devastating diseases. We currently have three marketed medicines- SPINRAZA, TEGSEDI and WAYLIVRA. We also have a rich late- and mid-stage pipeline primarily focused on our leading cardiovascular and neurology franchises. We currently have six medicines in Phase 3 development for eight indications. Recently, we reported positive Phase 3 interim analysis data from the NEURO-TTRansform study of eplontersen in patients with polyneuropathy caused by hereditary transthyretin amyloidosis, or ATTRv-PN. As a result, we plan to file a New Drug Application, or NDA, with the U.S. Food and Drug Administration, or FDA, by the end of 2022. Additionally, the FDA recently accepted Biogen’s NDA filing of tofersen for the treatment of superoxide dismutase 1 amyotrophic lateral sclerosis, or SOD1-ALS, and granted tofersen priority review. Tofersen’s Prescription Drug User Fee Act, or PDUFA, date is April 25, 2023. These achievements put us on track to potentially add two new marketed products to our commercial portfolio, if these medicines are approved. In addition, based on recent positive data from the Phase 2b study of bepirovirsen in patients with chronic hepatitis B virus, or HBV, and the Phase 2 study of IONIS-FB-LRx in patients with immunoglobulin A nephropathy, or IgAN, our partners plan to advance these medicines into Phase 3 development, which would expand our late-stage pipeline to eight medicines in Phase 3 development for ten indications.

Our multiple sources of revenue and strong balance sheet enable us to invest in our strategic priorities to build our commercial pipeline, expand and diversify our technology and deliver new medicines to the market. By continuing to focus on these priorities, we believe we are well positioned to drive future growth and to deliver increasing value for patients and shareholders.

Marketed Medicines

SPINRAZA is the global market leader for the treatment of patients of all ages with spinal muscular atrophy, or SMA, a progressive, debilitating and often fatal genetic disease. Biogen is our partner responsible for commercializing SPINRAZA worldwide. From inception through September 30, 2022, we have earned more than $1.8 billion in revenues from our SPINRAZA collaboration, including more than $1.3 billion in royalties on sales of SPINRAZA.

TEGSEDI is a once weekly, self-administered subcutaneous medicine approved in the U.S., Europe, Canada and Brazil for the treatment of patients with polyneuropathy caused by ATTRv-PN. In 2021, we began selling TEGSEDI in Europe through our distribution agreement with Swedish Orphan Biovitrum AB, or Sobi. Additionally, in the second quarter of 2021, Sobi began distributing TEGSEDI in the U.S. and Canada. In Latin America, PTC Therapeutics International Limited, or PTC, is commercializing TEGSEDI beginning with Brazil.
29

WAYLIVRA is a once weekly, self-administered, subcutaneous medicine indicated as an adjunct to diet in adult patients with genetically confirmed familial chylomicronemia syndrome, or FCS, and at high risk for pancreatitis. In 2021, we began selling WAYLIVRA in Europe through our distribution agreement with Sobi. Under our exclusive license agreement with PTC, PTC is working to provide access to WAYLIVRA across Latin America, beginning in Brazil. In the third quarter of 2021, the National Health Surveillance Agency (Agência Nacional de Vigilância Sanitária), or ANVISA, approved WAYLIVRA in Brazil. In December 2021, PTC submitted an application to ANVISA for approval of WAYLIVRA for the treatment of familial partial lipodystrophy, or FPL, in Brazil. If approved, Waylivra will be the first approved treatment for patients with FPL in Brazil.

Under our distribution agreements with Sobi, we retained the marketing authorizations for TEGSEDI and WAYLIVRA in major markets. We continue to supply commercial product to Sobi and manage regulatory and manufacturing processes, as well as relationships with key opinion leaders. We also continue to lead the TEGSEDI and WAYLIVRA global commercial strategy. In connection with the agreements, we restructured our European operations in the first quarter of 2021, and we restructured our North American TEGSEDI operations in the second quarter of 2021.

Medicines in Phase 3 Studies

We currently have six medicines in Phase 3 studies for eight indications, which include:

●
Eplontersen: our medicine in development for transthyretin amyloidosis, or ATTR
o
We are currently conducting the Phase 3 NEURO-TTransform study in patients with ATTRv-PN, the Phase 3 CARDIO-TTransform study in patients with ATTR cardiomyopathy, or ATTR-CM, and additional studies supporting our ATTR development program
●
In September 2022, we presented positive results from an interim analysis of the Phase 3 NEURO-TTRansform study of eplontersen in patients with ATTRv-PN at the International Symposium on Amyloidosis
●
In the fourth quarter of 2022, we expanded enrollment in the Phase 3 CARDIO-TTRansform study of eplontersen in patients with ATTR cardiomyopathy, or ATTR-CM
●
Eplontersen was granted orphan drug designation by the FDA for the treatment of patients with ATTR
●
Tofersen: our medicine in development for SOD1-ALS
o
Biogen is developing tofersen for the treatment of SOD-1 ALS, including conducting the ongoing Phase 3 VALOR open label extension, or OLE, study in patients with SOD1-ALS and the ongoing Phase 3 ATLAS study in presymptomatic SOD-1 patients
●
Tofersen is currently under priority review with the FDA and has a PDUFA action date of April 25, 2023
●
In June 2022, Biogen presented new data from the ongoing VALOR OLE study at the European Network to Cure ALS meeting. These data were included in the NDA filing
●
Olezarsen: our medicine in development for FCS and severe hypertriglyceridemia, or SHTG
o
We are currently conducting a broad development program for olezarsen that includes the BALANCE study in patients with FCS and three Phase 3 studies supporting development for the treatment of SHTG, CORE, CORE2 and ESSENCE
●
In July 2022, we achieved full enrollment in the BALANCE Phase 3 study in patients with FCS supporting data readout mid-year 2023
●
In the third quarter of 2022, we initiated CORE2, a confirmatory Phase 3 study of olezarsen in patients with SHTG
●
In the fourth quarter of 2022, we initiated ESSENCE, a supporting Phase 3 study of olezarsen in patients with SHTG or hypertriglyceridemia and atherosclerotic cardiovascular disease
●
Pelacarsen: our medicine in development for lipoprotein(a), or Lp(a), driven cardiovascular disease
o
Novartis is developing pelacarsen, including conducting the ongoing Lp(a) HORIZON Phase 3 cardiovascular outcome study in patients with established cardiovascular disease and elevated Lp(a)
●
In July 2022, Novartis achieved full enrollment in the Lp(a) HORIZON Phase 3 cardiovascular outcome study
●
Donidalorsen: our medicine in development for hereditary angioedema, or HAE
o
We are currently conducting the OASIS study in patients with HAE and OASIS Plus supportive study for HAE patients previously treated with other prophylactic therapies
●
We plan to present new efficacy and safety results from the Phase 2 OLE study of donidalorsen in HAE patients treated for one year at the American College of Allergy, Asthma and Immunology Annual Scientific Meeting in November 2022
●
ION363: our medicine in development for amyotrophic lateral sclerosis, or ALS, with mutations in the fused in sarcoma gene, or FUS. FUS-ALS is the most common cause of juvenile-onset ALS
o
We are currently conducting a Phase 3 study of ION363 in juvenile and adult patients with FUS-ALS and enrollment is ongoing
30

Third Quarter 2022 and Recent Updates on Certain Mid-Stage Pipeline Medicines

●
GSK presented positive end of study data from the Phase 2b B-Clear study of bepirovirsen demonstrating potential for functional cures in patients with chronic hepatitis B; GSK plans to advance bepirovirsen into Phase 3 development in the first half of 2023
●
We presented positive data from the Phase 2 study of IONIS-FB-LRx in patients with IgAN; Roche plans to advance IONIS-FB-LRx into Phase 3 development in the first half of 2023
●
Bayer presented positive data from the Phase 2b study of fesomersen in patients with end-stage renal disease; we regained rights to fesomersen from Bayer and are assessing next steps
●
Roche presented the Phase 2 GENERATION HD2 study design of tominersen in Huntington’s disease, or HD, patients; Roche plans to begin enrollment in early 2023
●
We reported ION449 (AZD8233) targeting PCSK9 met the primary endpoint in Phase 2b SOLANO study in patients with hypercholesterolemia; based on pre-specified efficacy criteria, AstraZeneca is not advancing ION449

COVID-19

As a company focused on improving the health of people around the world, our priority during the COVID-19 pandemic is the safety of our employees, their families, the healthcare workers who work with us and the patients who rely on our medicines. We are also focused on maintaining the quality of our studies and minimizing the impact to timelines. While the COVID-19 pandemic has impacted some areas of our business, we believe our mitigation efforts and financial strength will enable us to continue to manage through the pandemic and execute on our strategic initiatives. Because the situation is extremely fluid, we are continuing to monitor the impact COVID-19 could have on our business, including the impact on our commercial products and the medicines in our pipeline.

Financial Highlights

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

  
Three Months Ended
    
Nine Months Ended
  
   
September 30,
    
September 30,
  
   
2022
    
2021
    
2022
    
2021
  
                         
Total revenue
  
$
159.8
    
$
133.1
    
$
435.5
    
$
370.5
  
Total operating expenses
  
$
218.9
    
$
218.9
    
$
637.7
    
$
621.2
  
Loss from operations
  
$
(59.2
)
  
$
(85.8
)
  
$
(202.2
)
  
$
(250.8
)
Net loss
  
$
(47.0
)
  
$
(82.5
)
  
$
(217.3
)
  
$
(253.2
)

●
Revenue increased 20 percent for the third quarter of 2022 and 18 percent on a year-to-date basis compared to the same periods in 2021 driven by significant partner payments earned across multiple programs
●
Operating expenses were flat for the three months ended September 30, 2022 compared to the same period in 2021 and increased 3 percent for the nine months ended September 30, 2022. Refer to the Results of Operations section for discussions on period-over-period changes for the various components of operating expenses
●