Analyst Conference Summary

biotechnology

conference date: February 26, 2020 @ 8:30 AM Pacific Time
for quarter ending: December 31, 2019 (Q4, fourth quarter 2019)

Forward-looking statements

Overview: Beat guidance.

Basic data (GAAP):

Revenue was $494 million, up 194% sequentially from $168 million, and up 576% from $73 million year-earlier. But quarter revenue was boosted by a one-time item; see below.

Net income was $204 million, way up sequentially from $26 million, but down 33% from $303 million year-earlier.

EPS (diluted) was $1.28, way up sequentially from $0.18, but down 42% from $2.21 year-earlier.

Guidance:

Expects full year 2020 revenue to exceed $700 million, with operating expenses coming in between $650 and $690 million.

Conference Highlights:

CEO Brett Monia said "These achievements position us to deliver on our goal of ten or more new drug applications through 2025. This year, our priorities include further growing and advancing our Ionis-owned pipeline, initiating additional Phase 3 studies, reporting clinical proof-of-concept results from six or more studies and further developing our commercial strategy to maximize the value of each medicine in our pipeline. This year, our priorities include further growing and advancing our Ionis-owned pipeline, initiating additional Phase 3 studies, reporting clinical proof-of-concept results from six or more studies and further developing our commercial strategy to maximize the value of each medicine in our pipeline"

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, to be followed by other EU nations in 2020. Will refile for marketing authorization with the FDA. Q4 2019 revenue not enough to get a separate line item.

"Our revenue nearly doubled compared to 2018, driven primarily by nearly $400 million in revenue from licensing AKCEA-APO(a)-LRx and AKCEA-ANGPTL3-LRx, both of which could address very large patient populations. We achieved our third consecutive year of net income while investing substantially in our pipeline and technology," said Elizabeth L. Hougen, CFO. "This year, we expect to be meaningfully profitable. We expect growth in commercial revenues, with another strong year for Spinraza combined with growing revenue from Tegsedi and Waylivra as we expand into new countries."

Tegsedi (Inotersen) sales were $13 million, up sequentially from $12 million, and from $2 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). Now commercial in moe than 10 countries, with additional EU launches planned for 2020.

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: $81 million from Spinraza royalties; $13 million Tegsedi sales; $6 other million licensing and other royalties; $394 million R&D revenue from collaboration agreements.

Spinraza royalty revenue from Biogen was $81 million, down 1% sequentially from $82 million, and up 16% 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 plans to introduce 8 new drugs to the Akcea pipeline in 2020.

Non-GAAP numbers: net income $212 million, up sequentially from $39 million, and down from $330 million year-earlier.

Cash ended at $2.5 billion, up sequentially from $2.22 billion. Debt was $710 million convertible senior notes. Repurchased $125 million of stock in Q4 2019 to Q1 2020 timeframe.

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) initiated its Phase 3 study. Novartis licensed this.

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 2019, 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 initiated the Phase 3 study for the AKCEA-TTR-LRx in Q4 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. An Alzheimer's therapy was licensed in Q4 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 $233 million, consisting of $1 million for cost of goods sold; $149 million for R&D and $83 million for selling, general and administrative. Operating income was $261 million. Investment income was $13 million, interest expense $14 million. $22 million loss on early debt retirement. Income tax $34 million. Net income attributable to noncontrolling interest in Akcea $20 million.

Q&A summary:

Pfizer AKCEA-ANGPTL3-LRx v. Arrowhead? We partnered prior to unblinding Phase 2 data, we and Pfizer were thrilled with the data. Data to be shared in second half o 2020. Don't like to comment on other peoples' programs. We believe ours is first in class and best in class.

Huntington's expectations? Phase 3 program should deliver results in 2022. Roche is very excited about the program, the Phase 2 study is on track.

Capital allocation? We will invest agressively across the business, including acquiring technologies to enhance our own capabilities. We believe our stock, at the current price, is an attractive investment opportunity. We also have notes coming due next year.

Exposure to corona virus disruption? We are preparing to protect our trials, employees, and supply chain. We are not dependent on China for supply.

Spinraza in 2020 guidance? We expect continued revenue growth for Spinraza in 2020. R&D revenues have a substantial base from amortization.

Waylivra refiling? We need to write up the results, we have more patients and more safety data. Expect to file this year.

We are doing a full-court press on all forms of ALS.

We believe Pfizer's identifying patients and getting them on Tafamadis helps us.

Waylivra was launched late in 2019 in one country, so most product revenue was from Tegsedi.

We continue to make advancements in oral delivery and plan to bring several oral medicines forward.

We are excited about Akcea, we are committed to their success, and we expect them to be successful. They have a full and exciting agenda and pipeline.

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