Ionis Exceeds 2018 Financial Guidance

CARLSBAD, Calif.,Feb. 27, 2019/PRNewswire/ -- Ionis Pharmaceuticals, Inc. (Nasdaq:IONS) today reported financial results for the fourth quarter and full year 2018 and reviewed highlights of its successful year.

"We begin 2019 in the strongest position in our 30-year history. Building on this foundation, we believe we are positioned for continued growth," said Stanley T. Crooke, M.D., Ph.D., chairman of the board and chief executive officer of Ionis. "In 2018, we launched TEGSEDI globally through our affiliate, Akcea, adding revenue from TEGSEDI sales to our substantial commercial revenue from SPINRAZA. We also achieved many important milestones in our pipeline, particularly among the medicines within our late-stage pipeline. This week, Novartis exercised its option to license AKCEA-APO(a)-LRxfor which we earned$150 million. Novartis plans to initiate a Phase 3 cardiovascular outcomes study and initiation activities are already underway. We and Akcea are finalizing Phase 3 study designs for the AKCEA-TTR-LRxpivotal program that we plan to initiate in the second half of this year. In addition, our late-stage neurological disease programs recently achieved important milestones. Roche is now enrolling patients in the Phase 3 study of IONIS-HTTRxfor Huntington's disease and Biogen is planning to add an additional cohort to the ongoing study of IONIS-SOD1Rxfor patients with SOD1-related ALS that has the potential to support marketing approval. We achieved these successes while growing revenues, investing in the commercialization of TEGSEDI, advancing our broad and diverse pipeline, and consistently leading our industry in innovation – demonstrating the success of our business model and robust technology platform."

• Revenues increased by 17 percent compared to 2017

• Achieved third consecutive year of non-GAAP operating profitability

• Strong financial results trigger the recognition of a significant tax benefit

• Substantial cash position of over$2 billionenables continued investment in commercial products and pipeline

• Total revenue was$600 millioncompared to$514 millionin 2017.

• Commercial revenue from SPINRAZA for 2018 was $238 million, more than double compared to 2017.

• TEGSEDI sales were$2.2 millionin the fourth quarter of 2018, with commercial sales commencing in the EU in October and in the U.S. in December.

• Commercial revenue was over 40 percent of total revenue in 2018 compared to less than 25 percent in 2017, reflecting Ionis' transition to a commercial-stage company.

• GAAP operating income was$11 millionfor the fourth quarter and an operating loss of$61 millionfor the full year 2018, compared to an operating loss of$6 millionand operating income of$31 millionfor the same periods in 2017.

• Non-GAAP operating income was$45 millionfor the fourth quarter and$70 millionfor the full year 2018, compared to operating income of$16 millionand$117 millionfor the same periods in 2017.

• Operating expenses increased in 2018 primarily due to investment in the commercialization of TEGSEDI.

• In 2018, Ionis reported GAAP net income attributable to Ionis common stockholders of$274 million, primarily driven by a$291 millionone-time non-cash income tax benefit Ionis recorded in 2018 related to its income tax assets.

• Because of Ionis' strong financial performance over the past few years and its outlook regarding the continued growth of its business, the Company believes it is more likely than not that it will be able to use the significant amount of income tax assets it has accumulated to offset future taxable income.

Net income on a non-GAAP basis

Total Revenue

>$725 million

R&D Expenses

~$360 million to $390 million

SG&A Expenses

~$260 million to $290 million

Operating Income

>$100 million

Cash and Short-Term Investments

~$2 billion

"Building upon our success in 2018, we expect to continue our momentum this year and beyond. We anticipate both commercial and R&D revenues to contribute to our overall earnings growth this year, potentially making 2019 our fourth consecutive year of non-GAAP operating profitability. And for the first time, due to our strong financial performance in recent years and strong confidence in our future, we are projecting to be profitable on the bottom line on a non-GAAP basis in 2019. We believe our ability to be profitable while investing in commercial activities, fully exploiting our pipeline and advancing our technology, clearly sets us apart from our peers," said Elizabeth L. Hougen, chief financial officer of Ionis.

All non-GAAP amounts referred to in this press release exclude non-cash compensation expense related to equity awards. Please refer to the reconciliation of non-GAAP and GAAP measures, which is provided later in this release. In prior financial results releases, Ionis referred to amounts that excluded non-cash compensation expense related to equity awards as "pro forma". Additionally, Ionis has labeled its prior period financial statements "as revised" to reflect the revenue recognition accounting standard the Company adopted onJanuary 1, 2018.

• SPINRAZA– the worldwide standard-of-care for the treatment of all people with spinal muscular atrophy

• TEGSEDI™ (inotersen) – launch underway in multiple markets for the treatment of polyneuropathy of hereditary transthyretin amyloidosis (hATTR) in adult patients

• In 2018, SPINRAZA sales nearly doubled to$1.7 billioncompared to 2017, driven by growth in the U.S. and outside the U.S., as reported by Biogen.

• As of the fourth quarter of 2018, more than 6,600 SMA patients from over 40 countries were on SPINRAZA, including commercial patients and patients in the expanded access program and clinical trials.

• In the fourth quarter of 2018, the number of adult patients on therapy in the U.S. grew by over 20 percent compared to the third quarter, accounting for more than 50 percent of new patient starts in the U.S.

• TEGSEDI generated$2.2 millionin sales from the U.S. and EU in its first quarter of launch.

• PTC Therapeutics, Ionis and Akcea's commercialization partner inLatin America, filed for marketing authorization for TEGSEDI inBraziland was granted priority review.

• Roche plans to present data from the OLE study of IONIS-HTTRxin patients with Huntington's disease in 2019.

• Biogen plans to present data from the completed portions of the Phase 1/2 study of IONIS-SOD1Rxin 2019.

• Ongoing regulatory discussions on WAYLIVRA in the EU, and if approved, launch.

• Ionis and its partners plan to report data from numerous Phase 2 studies including IONIS-FXIRx,IONIS-HBVRx, and IONIS-GHR-LRx.

Ionis' revenue in the three months and year endedDecember 31, 2018was$192 millionand$600 million, respectively, compared to$168 millionand$514 millionfor the same periods in 2017 and was comprised of the following (amounts in millions):

Three months ended,

Year ended

December 31,

December 31,

2018

2017

2018

2017

Revenue:

(as revised)

(as revised)

Commercial revenue:

SPINRAZA royalties

$70

$52

$238

$113

TEGSEDI product sales, net

2

-

2

-

Licensing and royalty revenue

1

2

15

7

Total commercial revenue

73

54

255

120

R&D Revenue:

Amortization from upfront payments

33

28

125

98

Milestone payments

38

17

83

152

License fees

38

51

102

116

Other services

10

18

35

28

Total R&D revenue

119

114

345

394

Total revenue

$192

$168

$600

$514

The increase in revenue in 2018 compared to 2017 was primarily due to increasing commercial revenue from SPINRAZA royalties, which more than doubled. Additionally, Ionis earned more than$2 millionfrom TEGSEDI product sales in the fourth quarter of 2018.

Ionis' R&D revenue demonstrates the Company's ability to generate sustainable revenue from its numerous partnerships.  R&D revenue from the amortization of upfront payments increased over$25 millionin 2018 compared to 2017. The increase in amortization was primarily due to Ionis' 2018 strategic neurology collaboration with Biogen. Also, in 2018, Ionis added amortization revenue from its new collaboration with Roche to develop IONIS-FB-LRx. Ionis' R&D revenue from milestone payments, license fees and other services for 2018 continued to make a significant contribution to Ionis' financial results.

Already in the first quarter of 2019, Ionis has earned$185 million. The Company earned$150 millionfrom Novartis when it licensed AKCEA-APO(a)-LRxand$35 millionfrom Roche when it enrolled the first patient in the Phase 3 study of IONIS-HTTRxin patients with Huntington's disease.

Operating expenses for the three months and year endedDecember 31, 2018on a GAAP basis were $181 million and$661 million, respectively, and on a non-GAAP basis were $147 million and$530 million, respectively. These amounts compare to GAAP operating expenses for the three months and year endedDecember 31, 2017of $174 million and$483 million, respectively, and non-GAAP operating expenses of$152 millionand$397 million, respectively. The full year increase in operating expenses in 2018 compared to 2017 was principally due to Ionis' investments in the global launch of TEGSEDI. The Company's SG&A expenses also increased due to an increase in fees the Company owed under its in-licensing agreements related to SPINRAZA, due to increased SPINRAZA product sales.

Ionis reported an income tax benefit of $292 million and$291 millionfor the three months and year endedDecember 31, 2018, respectively, compared to$7 millionand $6 million for the same periods in 2017. Ionis' tax benefit increased significantly in 2018 primarily due to a one-time non-cash tax benefit related to its deferred income tax assets. In the fourth quarter of 2018, the Company released a large portion of the valuation allowance associated with its deferred tax assets. Because of Ionis' strong financial performance over the past few years and its outlook regarding the continued growth of its business, the Company determined that it is more likely than not that it will be able to utilize most of the deferred income tax assets it has accumulated to offset future taxable income.

AtDecember 31, 2018, Ionis owned approximately 75 percent of Akcea. The shares of Akcea third parties own represent an interest in Akcea's equity that Ionis does not control. However, because Ionis continues to maintain overall control of Akcea through its voting interest, Ionis reflects the assets, liabilities and results of operations of Akcea in Ionis' consolidated financial statements. Ionis reflects the noncontrolling interest attributable to other owners of Akcea's common stock in a separate line called "Net loss attributable to noncontrolling interest in Akcea" on Ionis' statement of operations. Ionis' net loss attributable to noncontrolling interest in Akcea for the three months and year endedDecember 31, 2018, was $17 million and$59 million, respectively. Ionis' net loss attributable to noncontrolling interest in Akcea for the three months and year endedDecember 31, 2017, was $6 million and$11 million, respectively.

Ionis reported net income attributable to Ionis' common stockholders of $320 million and$274 millionfor the three months and year endedDecember 31, 2018, respectively, compared to a net loss of$3million and net income of$0.3 millionfor the same periods in 2017, all on a GAAP basis.  On a non-GAAP basis, Ionis reported net income attributable to Ionis' common stockholders of $351 million and$394 millionfor the three months and year endedDecember 31, 2018, respectively, compared to$18million and$85 millionfor the same periods in 2017. The increase in 2018 net income attributable to Ionis' common stockholders was primarily due to increases in revenue and the income tax benefit Ionis recognized in the fourth quarter of 2018.

For the three months endedDecember 31, 2018, basic and diluted net income per share were $2.32 and$2.21, respectively. For the year endedDecember 31, 2018, basic and diluted net income per share were $2.09 and$2.07, respectively. For the three months endedDecember 31, 2017, basic and diluted net loss per share were each$0.03. For the year endedDecember 31, 2017, basic and diluted net income per share were each$0.15. All amounts are on a GAAP basis.

As of December 31, 2018, Ionis had cash, cash equivalents and short-term investments of $2.1 billion compared to $1.0 billion at December 31, 2017. The increase in Ionis' cash, cash equivalents and short-term investments was primarily due to the$1 billionIonis received from Biogen for the 2018 strategic neurology collaboration.

Today, at11:30 a.m. Eastern Time, Ionis will conduct a live webcast conference call to discuss this earnings release and related activities. Interested parties may listen to the call by dialing 877-443-5662 or access the webcast atwww.ionispharma.com. A webcast replay will be available for a limited time.

As the leader in RNA-targeted drug discovery and development, Ionis has created an efficient, broadly applicable, proprietary antisense technology platform with the potential to treat diseases where no other therapeutic approaches have proven effective. Our drug discovery platform has served as a springboard for actionable promise and realized hope for patients with unmet needs – such as children and adults with spinal muscular atrophy (SMA). We created SPINRAZA®(nusinersen)* and are proud to have brought new hope to the SMA community by developing the first and only approved treatment for this disease.

Our sights are set on all the patients we have yet to reach with a pipeline of more than 40 medicines with the potential to treat patients with cardiovascular disease, rare diseases, neurological diseases, infectious diseases and cancer. We created TEGSEDI™ (inotersen) the world's first RNA-targeted therapeutic approved for the treatment of polyneuropathy of hereditary transthyretin (TTR) amyloidosis (ATTR) in adult patients that our affiliate Akcea Therapeutics is commercializing. Together with Akcea, we are also bringing new medicines to patients with cardiometabolic lipid disorders.

To learn more about Ionis follow us on twitter @ionispharma or visithttp://ir.ionispharma.com/.

*Spinraza is marketed by Biogen.

This press release includes forward-looking statements regarding Ionis' business, financial guidance and the therapeutic and commercial potential of SPINRAZA (nusinersen) and TEGSEDI (inotersen) and Ionis' technologies and products in development, including the business of Akcea Therapeutics, Inc., Ionis' majority-owned affiliate. Any statement describing Ionis' goals, expectations, financial or other projections, intentions or beliefs is a forward-looking statement and should be considered an at-risk statement. Such statements are subject to certain risks and uncertainties, particularly those inherent in the process of discovering, developing and commercializing drugs that are safe and effective for use as human therapeutics, and in the endeavor of building a business around such drugs. Ionis' forward-looking statements also involve assumptions that, if they never materialize or prove correct, could cause its results to differ materially from those expressed or implied by such forward-looking statements. Although Ionis' forward-looking statements reflect the good faith judgment of its management, these statements are based only on facts and factors currently known by Ionis. As a result, you are cautioned not to rely on these forward-looking statements. These and other risks concerning Ionis' programs are described in additional detail in Ionis' annual report on Form 10-K for the year endedDecember 31, 2017, and most recent Form 10-Q quarterly filing, which are on file with the SEC. Copies of these and other documents are available from the Company.

In this press release, unless the context requires otherwise, "Ionis," "Company," "we," "our," and "us" refers to Ionis Pharmaceuticals and its subsidiaries.

Ionis Pharmaceuticals™is a trademark of Ionis Pharmaceuticals, Inc. Akcea Therapeutics™is a trademark of Akcea Therapeutics, Inc. TEGSEDI™is a trademark of Akcea Therapeutics, Inc. WAYLIVRA™is a trademark of Akcea Therapeutics, Inc. SPINRAZA®is a registered trademark of Biogen.

Three months ended,

Year ended,

December 31,

December 31,

2018

2017

2018

2017

(as revised)

(as revised)

(unaudited)

Revenue:

Commercial revenue:

SPINRAZA royalties

$70,187

$52,073

$237,930

$112,540

TEGSEDI product sales, net

2,237

-

2,237

-

Licensing and royalty revenue

523

1,835

14,755

7,474

Total commercial revenue

72,947

53,908

254,922

120,014

Research and development revenue under collaborative agreements

119,166

113,883

344,752

394,165

Total revenue

192,113

167,792

599,674

514,179

Expenses:

Cost of products sold

777

-

1,820

-

Research, development and patent

113,451

128,285

414,604

374,644

Selling, general and administrative

67,103

45,707

244,622

108,488

Total operating expenses

181,331

173,992

661,046

483,132

Income (loss) from operations

10,782

(6,200)

(61,372)

31,047

Other income (expense):

Investment income

11,484

673

30,187

8,179

Interest expense

(11,458)

(10,787)

(44,789)

(44,752)

Loss on debt financing liability for leased facility

-

-

-

(7,689)

Other expenses

(37)

(19)

(182)

(3,548)

Income (loss) before income tax benefit

10,771

(16,333)

(76,156)

(16,763)

Income tax benefit

291,964

7,164

291,141

5,980

Net income (loss)

$302,735

$(9,169)

$214,985

$(10,783)

Net loss attributable to noncontrolling interest in Akcea Therapeutics, Inc.

17,343

6,247

58,756

11,129

Net income (loss) attributable to Ionis Pharmaceuticals, Inc. common stockholders

$320,078

$(2,922)

$273,741

$346

Basic net income (loss) per share

$2.32

$(0.03)

$2.09

$0.15

Diluted net income (loss) per share

$2.21

$(0.03)

$2.07

$0.15

Shares used in computing basic net income (loss) per share

137,699

124,818

132,320

124,016

Shares used in computing diluted net income (loss) per share

149,856

124,818

134,056

126,098

Year Ended,

December 31, 2018

Ionis

Akcea

Eliminations

Ionis Consolidated

Revenue:

Commercial revenue:

SPINRAZA royalties

$237,930

$-

$-

$237,930

TEGSEDI product sales, net

-

2,237

-

2,237

Licensing and royalty revenue

2,755

12,000

-

14,755

Total commercial revenue

240,685

14,237

-

254,922

Research and development revenue under collaborative agreements

294,122

50,630

-

344,752

Intercompany revenue

107,137

-

(107,137)

-

Total revenue

641,944

64,867

(107,137)

599,674

Expenses:

Cost of products sold

-

11,733

(9,913)

1,820

Research, development and patent expenses

289,650

130,340

(5,386)

414,604

Selling, general and administrative

90,562

153,610

450

244,622

Total operating expenses

380,212

295,683

(14,849)

661,046

Income (loss) from operations

261,732

(230,816)

(92,288)

(61,372)

Other income (expense):

Investment income

24,563

5,624

-

30,187

Interest expense

(44,789)

-

-

(44,789)

Other expenses

-

(182)

-

(182)

Income (loss) before income tax expense

241,506

(225,374)

(92,288)

(76,156)

Income tax (expense) benefit

291,588

(447)

-

291,141

Net income (loss)

$533,094

$(225,821)

$(92,288)

$214,985

Net loss attributable to noncontrolling interest in Akcea Therapeutics, Inc.

$-

$-

$58,756

$58,756

Net income (loss) attributable to Ionis Pharmaceuticals, Inc. common stockholders

$533,094

$(225,821)

$(33,532)

$273,741

Three months ended,

December 31,

Year ended,

December 31,

2018

2017

2018

2017

(as revised)

(as revised)

(unaudited)

$113,451

$128,285

$414,604

$374,644

Excluding compensation expense related to equity awards

(18,860)

(16,078)

(76,557)

(64,521)

$94,591

$112,207

$338,047

$310,123

$67,103

$45,707

$244,622

$108,488

Excluding compensation expense related to equity awards

(15,083)

(6,255)

(54,595)

(21,454)

$52,020

$39,452

$190,027

$87,034

$181,331

$173,992

$661,046

$483,132

Excluding compensation expense related to equity awards

(34,103)

(22,333)

(131,312)

(85,975)

$147,228

$151,659

$529,734

$397,157

$10,782

$(6,200)

$(61,372)

$31,047

Excluding compensation expense related to equity awards

(34,103)

(22,333)

(131,312)

(85,975)

$44,885

$16,133

$69,940

$117,022

$320,078

$(2,922)

$273,741

$346

Excluding compensation expense related to equity awards attributable to Ionis Pharmaceuticals, Inc. common stockholders

(30,897)

(20,518)

(119,790)

(84,369)

$350,975

$17,596

$393,531

$84,715

As illustrated in the Selected Financial Information in this press release, non-GAAP operating expenses, non-GAAP income (loss) from operations, and non-GAAP net income (loss) were adjusted from GAAP to exclude compensation expense related to equity awards, which are non-cash. Ionis has regularly reported non-GAAP measures for operating results as non-GAAP results. These measures are provided as supplementary information and are not a substitute for financial measures calculated in accordance with GAAP. Ionis reports these non-GAAP results to better enable financial statement users to assess and compare its historical performance and project its future operating results and cash flows. Further, the presentation of Ionis' non-GAAP results is consistent with how Ionis' management internally evaluates the performance of its operations. In prior financial results releases, Ionis referred to amounts that excluded non-cash compensation expense related to equity awards as "pro forma".

December 31,

December 31,

2018

2017

(as revised)

Assets:

Cash, cash equivalents and short-term investments

$2,084,072

$1,022,715

Contracts receivable

12,759

62,955

Other current assets

111,055

83,064

Property, plant and equipment, net

132,160

121,907

Other assets

327,738

32,133

Total assets

$2,667,784

$1,322,774

Liabilities and stockholders' equity:

Other current liabilities

$120,038

$118,276

Current portion of deferred contract revenue

160,256

125,336

1% convertible senior notes

568,215

533,111

Long-term obligations, less current portion

64,756

72,745

Long-term deferred contract revenue

567,359

108,026

Total Ionis stockholders' equity

1,048,079

281,013

Noncontrolling interest in Akcea Therapeutics, Inc.

139,081

84,267

Total stockholders' equity

1,187,160

365,280

Total liabilities and stockholders' equity

$2,667,784

$1,322,774

December 31, 2018

Ionis

Ionis

Akcea

Eliminations

Consolidated

Assets:

Cash, cash equivalents and short-term investments

$1,831,463

$252,609

$-

$2,084,072

Contracts receivable

10,763

1,996

-

12,759

Receivable from Akcea Therapeutics, Inc.

18,901

-

(18,901)

-

Other current assets

102,613

12,630

(4,188)

111,055

Property, plant and equipment, net

126,464

5,696

-

132,160

Other assets

885,288

92,330

(649,880)

327,738

Total assets

$2,975,492

$365,261

$(672,969)

$2,667,784

Liabilities and stockholders' equity:

Other current liabilities

$87,820

$55,307

$(23,089)

$120,038

Current portion of deferred contract revenue

134,902

25,354

-

160,256

1% convertible senior notes

568,215

-

-

568,215

Long-term obligations, less current portion

60,314

4,442

-

64,756

Long-term deferred contract revenue

565,624

3,434

(1,699)

567,359

Total stockholders' equity before noncontrolling interest

1,558,617

276,724

(787,262)

1,048,079

Noncontrolling interest in Akcea Therapeutics, Inc.

-

-

139,081

139,081

Total stockholders' equity

1,558,617

276,724

(648,181)

1,187,160

Total liabilities and stockholders' equity

$2,975,492

$365,261

$(672,969)

$2,667,784