Analyst Conference Summary

biotechnology

conference date: November 6, 2019 @ 8:30 AM Pacific Time
for quarter ending: September 30, 2019 (Q3, third quarter 2019)

Forward-looking statements

Overview: Greatly increased guidance due to licensing deals.

Basic data (GAAP):

Revenue was $168 million, up 2% sequentially from $164 million, and up 16% from $145 million year-earlier.

Net income was $26 million, up sequentially from $1 million, and up from negative $5 million year-earlier.

EPS (diluted) was $0.18, up sequentially from $0.01, and up from negative $0.03 year-earlier.

Guidance:

Full 2019 revenue estimate increased to around $1 billion from $725 million. Net income greater than $300 million, from above $0 million. In the fourth quarter of 2019, Ionis expects to recognize substantially all of the $250 million upfront payment it generated for Akcea's license of AKCEA-ANGPTL3-LRx to Pfizer and $10 million from Bayer for advancing IONIS-FXI-LRx.

Conference Highlights:

CEO Stanley Crooke said "In early October, we licensed AKCEA-ANGPTL3-LRx to Pfizer, which plans to develop it for the millions of people with certain cardiovascular and metabolic diseases. The favorable up-front and back-end economics we achieved with this transaction, coupled with the recent commitments by Novartis, Bayer and GSK to advance our medicines for broad patient populations, reflect the substantial and increasing value of our technology. Our significantly improved financial guidance is a result of the substantial economics we can command for our medicines and technology. As we continue to advance our pipeline and technology, we aim to deliver even greater value to patients and shareholders. In keeping with that goal, our board of directors has authorized a share repurchase program."

Ionis and Akcea generated $250 million when Pfizer licensed AKCEA-ANGPTL3-LRx to treat patients with certain cardiovascular and metabolic diseases. They are eligible to receive up to $1.3 billion in milestone payments plus tiered double-digit royalties on worldwide net sales. Ionis' 50 percent portion of the $250 million license fee will be paid in Akcea common stock.

Waylivra (volanesorsen) was approved in the EU for the treatment of adults with genetically confirmed familial chylomicronemia syndrome (FCS) at high risk for pancreatitis. Launched in Germany by Akcea in Q3 2019, followed by other EU nations in 2020. Encouraging discussions continued with the FDA to clarify a path forward in the U.S.

In Q3 2019 Ionis earned a $25 million license fee from GSK to develop and commercialize Ionis' program for chronic hepatitis B virus infection. Ionis received $10 million from Bayer to advance IONIS-FXI-LRx for clotting disorders.

Tegsedi (Inotersen) sales were $12 million, up sequentially from $10 million, and from $0 million year-earlier. Tegsedi is licensed and sold by Akcea. Tegsedi was approved in the EU for polyneuropathy in adults with hATTR (hereditary transthyretin amyloidosis). Launched in England in Q3 2019 following a positive reimbursement recommendation from NICE. Also commercial in Austria, Brazil, and Sweden. Br

There is a wave of Ionis medicines heading to Phase 3 this year. We have at least 10 medicines with the potential to enter Phase 3 trials by the end of 2020.

SMA population treatable with Spinraza is larger than originally estimated, more than 45,000 patients in markets already established.

Huntington's and ALS therapies are in Phase 3 studies partnered with Biogen.

Revenue consisted of: $82 million from Spinraza royalties; $12 million Tegsedi sales; $2 other million licensing and other royalties; $72 million R&D revenue from collaboration agreements.

Spinraza royalty revenue from Biogen was $82 million, up 15% sequentially from $71 million, and up 17% from $70 million year-earlier. Royalties are tiered. Over 8,400 SMA patients are under treatment. New data reinforced safety and efficacy profile; benefit of treatment increases over time. The earlier babies are treated, the better. Reimbursement is in place in 40 countries, and approved in 50.

Akcea revenue and expenses, or about 75% of them, are included with Ionis's, as consolidated P&L. Except inter-company transactions like licensing fees. Ionis is licensing drugs to Akcea. Ionis' net losses attributable to noncontrolling interest in Akcea

Non-GAAP numbers: net income $39 million, up sequentially from $38 million, and up from $27 million year-earlier.

Cash ended at $2.22 billion, up sequentially from $na billion. Debt was $596 million in 1% convertible senior notes. $125 million share repurchase program authorized.

Believes that at today's stock price buying back shares is a really good investment.

Novartis plans to initiate the Phase 3 HORIZON cardiovascular outcomes study of AKCEA-APO(a)-LRx (TQJ230) in patients with elevated Lp(a)-driven cardiovascular disease before the end of 2019.

In Q3 2019 Roche started patients in a Phase 3 study for IONIS-HTTRx. It had been granted EU designation for possible accelerated assessment for Huntington's disease. Roche released data from the OLE study of IONIS-HTTRx in patients with Huntington's disease and changed dosing to once every four months.

IONIS-MAPT was granted EU orphan drug designation for frontotemporal dementia.

AKCEA-APO(a)-LRx for CVD (cardiovascular disease) reported positive Phase 2 results in Q3 2018. Novartis exercised its licence option in January, generating $150 million for Ionis/Akcea, with Ionis taking its half in Akcea stock.

Tofersen (IONIS-SOD1Rx) Phase 3 study continues for ALS patients with SOD-1 mutation.

Positive Phase 1b/2 data for danvatirsen (IONIS-STAT3-2.5Rx) in combination with durvalumab were presented at ESMO, demonstrating a response rate approximately double that of durvalumab alone, based on previous studies in patients with refractory head and neck cancer. Ionis earned a $17.5 million milestone payment from AstraZeneca. A separate undisclosed oncology program with AstraZeneca earned a $10 million milestone payment.

The Phase 2b study of IONIS-FXIRx in patients with end-stage renal disease on dialysis completed enrollment, with data planned for mid-2019.

Ionis or its partners initiated clinical studies with IONIS-GHR-LRx (Phase 2), IONIS-C9Rx (Phase 1/2), IONIS-FXI-LRx and IONIS-AZ4-2.5-LRx (Phase 1).

Ionis initiated a Phase 2 study of IONIS-PKK-LRx in patients with hereditary angioedema in Q2 2019.

Ionis initiated a Phase 2 study of IONIS-FB-LRx in patients with geographic atrophy secondary to age-related macular degeneration. Part of a collaboration started with Roche for complement-mediated diseases. Already received $75 million upfront payment, could get milestones worth $684 million, and royalties of up to 20%.

Ionis and Akcea are finalizing Phase 3 study designs for the AKCEA-TTR-LRx pivotal program planned to initiate in the second half of 2019.

Ionis is in a collaboration with Biogen to discover and develop a swath of neurological therapies. The first patient was dosed in the Parkinson's study in Q3 2019.

In the future Ionis expects to launch pivotal trials of up to 10 new drugs by the end of 2020.

Ionis continues to develop technologies that allow RNA therapies to almost any part of the body, including inhaled agents.

Ionis has a pipeline of 45 potential drugs. A growing number are wholly-owned.

GAAP Operating expense was $165 million, consisting of $1 million for cost of goods sold; $104 million for R&D and $60 million for selling, general and administrative. Operating income was $1 million. Investment income was $13 million, interest expense $12 million. Income tax benefit $14 million. Net loss attributable to noncontrolling interest in Akcea $8 million.

Q&A summary:

Pfizer and tafamadis 4000 patients with PTR cardiomyopathy? They know the space extremely well. We believe it is a substantial market. We believe the LICA for will give good results.

Oral drugs? We will talk more about it on December 13 technology webcast.

Revenue longer term? It is our fourth year of net income. We are confident that 2020 will be another banner year.

Capital allocation, going beyond antisense? We are making progress on several broad fronts. One is enhanced perfomance for the present technology. Expand use of genomics. Extend antisense technology.

Our pulmonary disease platform is very promissing, just beginning. But it would be a mistake to focus soley on the wholly owned pipeline, since the large volume potential drugs we have licensed could result in substantial income.

Huntington's label timeline? Randomized Phase 3 study with Roche should be available in 2022. Open label data should be available in 2020, but is a small sample size.

We believe the Tegsedi sales will grow going forward, particularly with the new countries onboard. The new team at Akcea is doing well.

HBV data and non-LICA preference? We did not see the increased potency we expected with the LICA form, it may be specific to the disease, so we agree with GSK to go forward with the form that was further along.

The two newest drugs in our program are currently undisclosed. The prion program is owned by U.S.

There is no significant platelet issue with LICA drugs, the declines were slight and were at very high doses. They were not clinically meaningful.

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