Ionis Pharmaceuticals (IONS) Q1 2018 Earnings Conference Call Transcript

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Ionis Pharmaceuticals (NASDAQ:IONS)
Q1 2018 Earnings Conference Call
May. 4, 2018 11:30 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good morning, and welcome to Ionis Pharmaceuticals first-quarter 2018 financial results conference call. As a reminder, this call is being recorded. At this time, I’d like to turn the call over to Wade Walke, vice president, corporate communications, investor relations, to lead the call. Please begin.

Wade WalkeVice President of Corporate Communications and Investor Relations

Thank you, Brian. Before we begin, I encourage everyone to go to the Investors section of the Ionis website to find the press release and related financial tables, including a reconciliation of the GAAP to pro forma financial measures that we will discuss today. We believe pro forma financial results better represent the economics of our business and how we manage our business. We’ve also posted slides for — on our website that accompany our discussion today.

Before I introduce our speakers for the call today, I’d like to introduce you to the latest member of our communications team. Roslyn Patterson has joined us as vice president, communications. She will be working closely with me to strengthen our investor relations and communications functions, and we are already working closely on this front. Now let me introduce the speakers for the call today.

With me today are Stan Crooke, chairman of the board and chief executive officer; Beth Hougen, our chief financial officer; Sarah Boyce, president of Akcea Therapeutics; and Brett Monia, chief operating officer. I would like to point out that today we will be making forward-looking statements, which are based on our current expectations and beliefs. These statements are subject to certain risks and uncertainties and are actual results may differ materially. I encourage you to consult our risk factors discussed in the SEC filings that we have on our website or available from the company for additional detail.

With that, I’ll turn the call over to Stan.

Stan CrookeChairman and Chief Executive Officer

Thanks, Wade, and good morning, and thanks, everyone, for joining us on today’s call. And let me add my welcome to Roslyn. Delighted to have you join us, Roz. But before we get into our financial results, let me start with the news on inotersen, which we now refer to by its commercial name, Tegsedi.

As Akcea announced yesterday, the FDA decided they needed additional time to review the Tegsedi NDA and the data analysis we provided them and responses to their standard information request. The new PDUFA date is October 6, 2018. We’re confident that Tegsedi will be highly competitive in the marketplace. The Early Access program is continuing to enroll patients and the demand continues to be high.

The Akcea team is ready to launch as soon as Tegsedi is approved. Now turning to our first-quarter earnings update. We began 2018 in our strongest position ever, both operationally and financially, on the verge of becoming a multiproduct profitable company with innovation at our core. Since our last earnings call, we further strengthened our financial position.

We continue to be profitable with pro forma operating profit in the first quarter of 2018 of $25 million, driven by a 25% increase in revenue compared to the first quarter last year. We earned $144 million of revenue and we ended the first quarter with more than $1 billion in cash. Once we receive the $1 billion payment from Biogen, under our expanded collaboration for neurological diseases, we’ll have approximately $2 billion in cash. This increased financial strength reflects the value of our antisense technology, and the pipeline we’ve created, combined with our development and commercialization strategy, in which we create tailored plans for each of our drugs.

We consider the efficiency and breadth of opportunity of our antisense technology to be tool of these strategic advantages, technology. By using the technology to its fullest to create a very large, diverse and broad innovative pipeline, we transformed the strategic advantages of the technology into the largest possible strategic business advantage, as we convert those drugs in the pipeline to a large product line. We then leveraged those strategic advantages maximally by coupling them to our partnering strategy. By partnering those opportunities that need a large infrastructure to develop and commercialize, while retaining opportunities that can be developed and commercialized with our infrastructure.

In that way, we maximize the opportunities while minimizing risk. The recent extension and expansion of our Biogen research collaboration in neurological diseases and our investment in commercialization of Tegsedi globally through our affiliate, Akcea, are excellent examples of our strategy in action. Our development and commercialization strategy is designed to maximize potential benefit to patients, maximize potential for success of each drug, optimize our participation in the commercial success of these drugs, and then fully exploit the breadth of the opportunity provided by our antisense technology. Our strategy has exceeded in delivering on these goals today.

We have demonstrated the value of antisense technology to patients in many therapeutic areas. Our research collaborations are more strategic in nature and are focused on advancing our technology in select therapeutic areas such as neurological diseases and cancer. These therapeutic areas share many similar characteristics. They represent enormous therapeutic spaces, they involve multiple targets in a variety of diseases or disease manifestations.

This means that they often require highly specialized knowledge about many diseases, access to and understanding of a wide range of complex disease models and experience with clinical testing paradigms, novel approaches to measuring pharmacological benefit, development and/or use of challenging clinical endpoints, non-dispositive Phase II studies and large, costly development and commercialization infrastructure needs. Neurological diseases, especially those with large patients meet — large patient populations, meet all the criteria I just listed. So you can see why it made sense for us to form a strategic collaboration in neurological diseases with Biogen. We believe that the breadth of the need and the breadth of the opportunity argue strongly that combining the intellect, experience and expertise of Ionis and Biogen teams is the best approach to achieving the broadest possible success.

This new collaboration builds on the foundation of our already very productive relationship, which produced Spinraza and six drugs in development and a broad portfolio of research-stage programs. Spinraza is now the standard of care for SMA and its launch is one of the most successful rare disease drug launches ever. Spinraza sales remain strong. We look forward to continued growth in Spinraza sales.

We’re also encouraged by our progress in discovering next-generation drugs for SMA. Together with Biogen, we’ve created an industry-leading pipeline of drugs to treat patients with neurological diseases, and we hope to create more Spinraza-like drugs. Our new partnership with Biogen is an important strategic step for Ionis. We had several goals for the collaboration.

First, to ensure that Biogen’s commitment and focus would match ours, that the relationship would be strategic for both companies, and that the intellect support and focus on this important mission would be unwavering. Second, to ensure that Ionis’ financial participation would appropriately reflect the advances we’ve made and the value we’ve created in our technology, not just upfront, but throughout the collaboration, with a focus on significantly increased participation in the commercial value created. And third, to maintain our ability to work on our own programs in neurological diseases outside of the Biogen collaboration. This new collaboration achieves all these goals.

Our strategy also includes commercializing drugs ourselves through commercial affiliates. We consider commercializing ourselves for those drugs that have these attributes: dispositive Phase II clinical endpoints; manageable pivotal trials; commercialization with a small focused high-touch patient support and commercial effort, similar to those for rare diseases such as Akcea is focusing on now; and then, therapeutic areas that match our expertise. In March, we invested in the commercialization of Tegsedi, by licensing the drug to Akcea. Commercializing Tegsedi ourselves through Akcea should provide substantial benefit to Ionis and our shareholders.

Most importantly, it strengthens our ability to successfully launch Tegsedi upon approval by leveraging the commercial preparations already completed by Ionis, along with Akcea’s commercial infrastructure. It provides Ionis with very substantial participation in the commercial success of Tegsedi. With 60% profit share of the substantial revenue and earnings growth, we believe Tegsedi should generate post milestones of up to $1.5 billion, and it ensures that Ionis can stay focused on where we create maximum value and what we do best, innovation and advancing our antisense technology. We believe investing in the commercialization of drugs coming out of our pipeline is one of the best uses we could make of our cash.

And with greater than $2 billion in cash, following the close of the transaction with Biogen, we plan to invest in commercializing even more of our drugs through our commercial affiliates. We’re continuing to focus aggressively on bringing the greatest value to the broadest range of patients, and maximizing the commercial potential of our drugs. And we believe we’ve been successful. Now I’ll turn it over to — the call over to Beth, who will discuss our financial performance in more detail.

Sarah will then provide an update to — on our commercial preparations for Tegsedi and volanesorsen, now Waylivra, and Brett will review our key pipeline accomplishments. Finally, I’ll summarize very briefly at the end of the call and we’ll open up the call for questions.

Beth HougenChief Financial Officer

In the first quarter, we continued our strong financial performance from 2017 and made further progress toward our goal of being a multiproduct profitable company. We ended the first quarter with operating income of $25 million and net income of $27 million, both on a pro forma basis. Our strong Q1 results were driven by a 25% increase in revenue, primarily from the royalties we earned from Spinraza sales. In the first quarter, we earned $144 million of revenue, including $41 million of commercial revenue from Spinraza.

Completing our seventh consecutive quarter of pro forma operating income, keeps us on track to achieve our third consecutive year of pro forma operating income. As a reminder, we earn tiered royalties on annual Spinraza sales and pay nominal fixed third-party royalties that are non-tiered. This means that at the beginning of each year, we start at the lowest royalty tier and progress through the tiers throughout the year as sales grow. We advance through the royalty tiers fairly quickly, and for this reason, our share of Spinraza’s product sales will increase during the rest of 2018.

In addition to commercial revenues, in the first quarter of 2018, we had more than $100 million of R&D revenue, which was on par with the first quarter of last year. R&D revenue in Q1 included $32 million of amortization, $60 million we earned from AstraZeneca from licensing two drugs, and $6 million we earned for services we performed for our partners. Our pro forma operating expenses for the first quarter of 2018 were $119 million. And as we anticipated, our first-quarter expenses increased compared to the same quarter in 2017.

The increase was primarily related to the expenses we incurred as we continue to prepare to launch, both Tegsedi and Waylivra this year. We also ended the first quarter with more than $1 billion in cash and investments, which will grow to $2 billion when we receive the upfront payment from Biogen later this quarter. In the first quarter, we expanded our strategic research collaboration with Biogen and licensed Tegsedi to Akcea. Each of these transactions reflects our strategy to identify the best development and commercialization plan for each of the drugs in our pipeline.

This strategy enables us to create the most value for each program, while keeping the core of our company focused on innovation. This morning, I will describe how we anticipate each of these transactions will improve our financial performance in the near term and over the coming years. As the Biogen collaboration demonstrates, partners today are willing to pay a substantially higher price for access to our antisense technology. Under the Biogen collaboration, Biogen will pay us an upfront payment of $1 billion; $500 million of this payment is for stock that Biogen is purchasing, so you can view the other $500 million as a fee to access our antisense technology for neurological diseases.

We will begin to amortize the technology access fee in the second quarter, which should provide more than $30 million of revenue this year. Beginning next year, the amortization will be approximately $50 million annually. In addition to the technology access fee, we can earn milestone payments and license fees of up to $270 million per drug. With the productivity we are expecting from this collaboration, these payments constitute a substantial economic opportunity for Ionis.

In addition, as drugs from this collaboration reach the market, we will earn royalties of up to 20%. Under the collaboration, we will work on approximately five targets per year to identify drugs that are ready to enter development. Once we identify a drug, Biogen will be responsible for and pay for all development activities thereafter. The value of this in-kind contribution is meaningful and not included in the dollars I just enumerated for each program.

The hundreds of millions of dollars required to develop a drug through commercialization will all be paid by Biogen. Importantly, this means that all of the milestone payments, license fees, and royalties we earn after identifying a drug drop directly to our bottom line as profit for us. We also realize significant financial benefit because we can leverage Biogen Resource’s infrastructure and expertise throughout the development process. And in doing so, we can focus our internal Ionis resources to advance and expand our development pipeline, including our pipeline of Ionis-owned drugs.

We expect the impact of this new collaboration on our future financial results to be substantial. Our existing Biogen collaboration has been financially successful, and we expect this new collaboration to be even more so. Historically, in our Biogen relationships, we have earned on average over $100 million per year in revenue from amortization, milestone payments, and license fees. And our revenue is increasing every year.

We expect that once this new collaboration gets going, it will be at least as productive as their previous collaborations. This means we should be adding, on average, over $100 million per year in revenue from milestone payments and license fees, together with approximately $50 million per year of amortization from the upfront technology access fee. And, of course, we expect to continue to receive milestone payments and license fees from our previous collaborations as programs advance. When drugs are commercialized from either the existing or new collaboration, we will add royalties from those drugs for our growing commercial revenue, as we are currently doing with Spinraza.

Of course, Biogen is not our only partner, so we expect a substantial growth in our R&D revenue that we have shown over the last six years to continue, and we expect to add to that not only our growing Spinraza commercial revenue, but also commercial revenue from Tegsedi, Waylivra, plazomicin, and then other drugs from our pipeline as they advance to the market. Our substantial and growing cash balance increases our ability to advance and expand our pipeline, retain our drugs longer and build a growing pipeline of drugs for our own account. It also enhances our ability to make strategic investments like the one we recently made with Tegsedi. As we discussed on our recent conference call, we considered a range of options for commercializing Tegsedi.

After thoroughly considering all of our options, we concluded that by far, the best approach to assuring the maximum commercial success at achieving a substantial market share was to fold Tegsedi and the Tegsedi team into Akcea. Assuming Tegsedi is a commercial success we believe it will, we benefit in several ways from investing in Tegsedi’s commercialization through Akcea. The most important benefit is the potential to maximize Tegsedi sales. Also, we will realize significant increases in cash from the up to $1.5 billion in milestone payments and the 60% of Tegsedi’s profits that we receive from Akcea.

Also, because we consolidate Akcea’s financial results with ours, we will record 100% of Tegsedi product sales on our P&L, driving our top-line revenue growth. And as Akcea successfully commercializes Tegsedi, we expect Tegsedi to generate substantial earnings growth, typical for successful rare disease drugs. In addition to these independent drivers of value for Ionis, as Akcea’s market cap increases, the value of our 75% ownership increases. We believe our investment in Tegsedi’s commercialization, through Akcea, should maximize the commercial value of both Tegsedi and Waylivra, and Ionis’ participation in this value for both drugs.

Now turning to two housekeeping items. First, as many of you are aware, beginning this year, companies are required to adopt new accounting rules for revenue recognition. We adopted the standard retrospectively, which means that we adjusted prior periods for these new rules and show updated amounts for all the periods we present in our financial statements. We chose this adoption method so that when we compare to prior periods, we are using an apples-to-apples comparison.

This adoption method ensures that historical trends in our revenue are meaningful. The primary change resulting from the new standards is in highly recognized revenue from milestone payments. Previously, through recognized milestone payments, we earned for performing R&D activities, in full, when we achieve the milestone event. Under the new guidance, we will now amortize those payments over the periods we’re obligated to perform R&D activities for our partners.

We will continue to recognize milestone payments we earn based on our partners’ activities, in full, when the milestone is achieved. Secondly, to aid in understanding how Ionis’ and Akcea’s financial statements work, in our earnings press release, we included a schedule that shows the stand-alone P&Ls for Ionis and Akcea, the intercompany transactions and Ionis’ consolidated P&L. We also included schedule that shows the same information for the company’s balance sheet. We are on track to meet our 2018 P&L guidance, consistent with our goal of being a multiproduct, profitable company, we project 2018 will be our third consecutive year of pro forma operating profitability, even as we prepare to launch Tegsedi and Waylivra.

We are looking forward to adding revenue from these two drugs to what we believe will be growing Spinraza revenue and our substantial base of R&D revenue, that beginning in the second quarter will include revenue from our new Biogen collaboration. For 2018, we’re projecting R&D expenses of $360 million to $390 million and SG&A expenses of $180 million to $210 million, both on a pro forma basis. These strength levels reflect our commitment to retain a significant portion of the commercial value of our drugs, by launching Tegsedi and Waylivra. They also reflect the investment we are making in this — pardon me, in advancing and expanding our pipeline.

With the $2 billion of cash we’ll have shortly, we expect to significantly exceed our cash guidance of more than $800 million of cash at year-end. Our substantial cash position supports our ability to advance, broaden and deepen our portfolio, retain our drugs longer and build a growing pipeline of drugs for our own accounts. This also means we can make strategic investments like the one we recently made with Tegsedi. In 2018, we expect that commercial revenues from Spinraza, Tegsedi, Waylivra and plazomicin, coupled with revenue from our partners, will help us achieve our goals of being a multiproduct profitable company, delivering important medicines to patients with serious illnesses.

And now, I’d like to turn the call over to Sarah to provide an update on Tegsedi and Waylivra.

Sarah BoycePresident, Akcea Therapeutics

Thank you, Beth. We are in late-stage discussions with regulatory authorities and finishing our preparations to launch both drugs. We have an advisory committee meeting for Waylivra next week. And we look forward to supporting the committee’s review of Waylivra’s data-rich package.

First, some additional details about the FDA decision to extend the review time for the Tegsedi NDA. This extension is with relation to the volume of information that we provided the FDA in response to their standard information request. Let me give you some context for this extension. The FDA determines that the information we provided represented a major amendment to the NDA.

To clarify, no new data were requested and no new clinical or preclinical studies were requested. This extension of the PDUFA date is to allow the FDA time to review existing data. We appreciate the close collaborative relationship we have with the Neurological Division of the FDA, and we’ll continue to work closely with them to advance the review of our filings as quickly as possible. Additionally, our discussions with the EU and Canada continue to progress well.

We have received Priority Review designation from Health Canada for Tegsedi, again, underscoring the severity and significant unmet need in the treatments of HATTR amyloidosis. With the leave, we are prepared to successfully launch both Tegsedi and Waylivra, following their approval. We have built highly skilled teams across the critical functions needed to successfully launch both of these drugs. This morning, I will talk briefly about our progress.

For additional details about our commercial preparations, I think you’ll find Akcea’s earnings call from yesterday quite informative. The major advantage of licensing Tegsedi to Akcea is that it enhances our readiness for a successful launch. In addition, due to the similar needs of both drugs, there are a number of synergies that we are taking advantage of that will support greater profitability, meaning, we are spending more efficiently, such as patient support, distribution, and market access. Our patient support program includes the support with monitoring, diet and nutrition, injection training and in the U.S.

reimbursement. We believe we have built a robust, high-touch program to meet our goal of promoting the long-term adherence to therapy. And thus, optimizing patient benefit from Tegsedi and Waylivra. We are using the same supply chain strategy for Tegsedi and Waylivra, which should provide us with valuable operational synergies in the U.S.

Our specialty pharmacies and third-party logistic providers are in place in the U.S, EU, and Canada, and are ready for launch. Importantly, our launch supplies for both Tegsedi and Waylivra are ready and waiting to be labeled. We are advancing our market research activities, including health economic and pricing research. We are also engaging with payers in our initial markets.

Our goal is to ensure patients have access to these transformative medicines and that the economics of these drugs reflect their potential substantial value to patients and the healthcare system. Importantly, our field sales and medical teams are making excellent progress with disease awareness and patient identifications. We continue to build and strengthen our ties to the physicians, KOLs and the patient efficacy community, building on the strong foundation created while Ionis and Akcea were advancing Tegsedi and Waylivra in clinical trials. We’ve had several high-visibility presentations of Tegsedi data at ISA and AAN, demonstrating the long-term potential benefit for the safety of Tegsedi in patients with hereditary HTTR amyloidosis.

In addition, the medical symposium we held at both of these meetings was very well attended with standing room only. And finally, the expanded access programs for Tegsedi and Waylivra are well under way and patients are enrolling rapidly. In response to the enthusiasm from physicians and patients, we continue to expand the number of sites in the extended access program. We are poised to successfully launch both of these drugs quickly after approval with the goal to transform the lives of patients living with these debilitating life-threatening diseases.

And now I’d like to turn the call over to Brett to talk about Spinraza and the progress of other drugs in our pipeline.

Brett MoniaChief Operating Officer

Thank you, Sarah. As Stan mentioned in his opening, we are in our strongest position ever as a company. This strong position is directly fueled by the successes of our drugs in treating patients with a wide range of diseases, both in clinical trials and in the commercial setting. Our success today and in the future is supported with the advances we continue to make in our antisense technology.

Our productivity across our broad and deep pipeline is at an all-time high. We continue to leverage the substantial expertise, contributions and resources of our partners to advance both our Ionis-owned and partnered programs and to expand the utility of our antisense technology. Spinraza is an exceptional example of the type of first and best-in-class drugs that we can create by combining the unique advantages and efficiency of our antisense technology, coupled with strategic contributions from handpicked partners like Biogen. Spinraza is the first commercial drug from our neurological disease franchise, and with global sales of $364 million in the first quarter of 2018, this launch continues to be one of the most successful rare disease drug launches in history.

Biogen’s goal is to significantly grow the number of treated patients globally and Biogen continues to put substantial resources into Spinraza’s commercialization. Q1 saw meaningful progress toward this goal, both in the U.S. and outside the U.S. In the U.S, the number of patients on Spinraza increased by over 25% from last quarter to approximately 4,100.

While Biogen believes there is still significant growth opportunity with infant and pediatric patients in the U.S, they believe the largest long-term growth opportunity in the U.S. is to reach older patients. We are encouraged by Biogen’s efforts to reach these older patients as evidenced by the increase in adult patients treated in the first quarter. Outside the U.S, Biogen secured access in seven additional markets bringing the total to 24 countries that are reimbursing Spinraza treatment.

And Biogen expects to receive reimbursement in an additional seven countries by the end of this year. We believe Biogen’s efforts will lead to additional growth in Spinraza sales over the course of the year. To build upon our success with Spinraza, and our already very productive relationship with Biogen, we are very pleased to expand the collaboration on neurological diseases to produce more Spinraza like drugs over the next 10 years. Our opportunity in neurological diseases is very broad and covers a range of diseases.

We and Biogen are doubling down on our investment and focus in this area, because we are confident in our abilities to directly target the root causes of neurological diseases with antisense technology. We aim to take advantage of new mechanisms, new chemical classes, evaluate novel pathways and address many types of neurological diseases. In parallel, we will also continue to build and advance our own neurological diseases pipeline and plan to commercialize these drugs ourselves through an affiliate. We currently have five Ionis-owned programs for rare neurological diseases.

These are Tegsedi and LICA follow-on, AKCEA-TTR-LRx, Lafora disease, Alexander’s disease, and Charcot-Marie-Tooth. And over the next 18 months, we expect to add several more. Our antisense technology’s unique advantages make it well-suited to create drugs to treat a broad range of diseases, including neurological diseases. We have been very successful in this therapeutic area and have built an industry-leading neurological disease franchise with a blockbuster commercial drug, Spinraza, Tegsedi, under regulatory review, four drugs in development, including IONIS-TTRRx for Huntington’s disease, six drugs in preclinical studies and more than 20 discovery-stage programs.

The breadth of our success in neurological diseases was recently highlighted by the major presence of our antisense drugs at the American Academy of Neurology annual meeting. Ionis researchers and study investigators gave 14 presentations on our drugs for several neurological diseases, including SMA, hereditary ATTR amyloidosis, Huntington’s disease, Alzheimer’s disease, ALS and Lafora disease. In addition, there was a signal special 2-hour session at the conference that was dedicated to antisenses, a major therapeutic platform for neurological diseases. Dr.

Sara Tabrizi highlighted new data from our Huntington’s disease program during a preliminary session of the meeting. She reported that in addition to the substantial reduction in mutant Huntington protein, we observed a correlation between reduction of mutant Huntington protein and improvement in certain clinical measures of Huntington’s disease. Roche is working to advance this drug into a pivotal study later this year. In addition to the substantial progress we’ve made in neurological diseases, we’ve also advanced our technology in oncology, cardiac, renal, and metabolic diseases with AstraZeneca.

We currently have five drugs advancing in development with AstraZeneca, that use our Generation 2.5 and Generation 2.5 LICA technologies. In the first quarter, AstraZeneca licensed their second and third antisense drugs under our cardio, renal, and metabolic collaboration. The AstraZeneca pipeline now includes two drugs for cancer and three drugs out of our cardio, renal and metabolic collaboration. The first drug AstraZeneca licensed under our cardio, renal and metabolic collaboration is our first Generation 2.5 LICA drug, IONIS-AZ4-2.5-LRx.

This drug is being developed for people with cardiovascular disease and is expected to enter a Phase I study later this year. This drug, along with our Generation 2.5 LICA drug to treat patients with NASH, incorporates many of the recent advances we have made in our antisense technology. By combining Generation 2.5 and LICA, we generate drugs that have both higher affinity chemistry and efficient cell-specific targeting. This combination provides us with drugs that are substantially more potent than either Generation 2.5 or LICA alone, and supports infrequent administration at very low doses.

We’re also anticipating our next set of commercial opportunities with multiple drugs that we or our partners plan to advance into pivotal studies in the next year or so. These include IONIS-HTTRx for patients with Huntington’s disease, Danvatirsen, or IONIS-STAT3-2.5Rx for patients with head and neck cancer, and AKCEA-APO(a)-LRx for patients with high Lp(a) levels or at risk for Lp(a)- driven cardiovascular disease. We are also focusing on our Ionis-owned drugs that have the potential to move quickly toward the market, including IONIS-GHR-LRx for patients with acromegaly and IONIS-TMPRSS6-LRx for patients with beta thalassemia. With the potential launches of Tegsedi, Waylivra and plazomicin and the progress we are making with so many other drugs in our pipeline, we expect 2018 to be another exciting year.

With that, I’ll turn the call over to Stan to close.

Stan CrookeChairman and Chief Executive Officer

Thanks, Brett. The financial results we’ve reported today demonstrate that we are in our strongest financial position ever. With more than $2 billion of cash and potential for growing commercial and R&D revenues and increased commercial participation and the drugs in our pipeline, we’ve made important progress toward continuing our financial success. Our strong financial position means that we can invest more aggressively in advancing our current pipeline of Ionis-owned drugs while adding new drugs from own account.

So this is an exciting time for us. We’ve made progress — substantial progress already in this year and we’re not slowing down. Together with our partners, we have the potential to put three new drugs on the market this year. We plan to deepen our late-stage pipeline with multiple drugs that we and our partners plan to advance into pivotal studies in the next year or so.

We also have more than six Phase II readouts this year. The drugs from these studies could also grow our late-stage pipeline and increase our commercial potential opportunities in the next few years. We now have more than 18 programs that we’re developing as Ionis-owned programs, many of which are candidates to commercialize ourselves through a — one of our commercial affiliates. With our recent successes and the many exciting events on the horizon, we are on the verge of becoming a multiproduct profitable company, delivering innovative medicines to patients with a range of diseases and generating substantial value for the patients we serve and our shareholders.

And with that, I’ll now open the call for Q&A. Brian, if you can set us up, please?

Questions and Answers:


Yes. Absolutely. We will now begin the question-and-answer session. [Operator instructions] And our first question today comes from Jessica Fye with J.P.Morgan.

Please go ahead.

Jessica FyeJ.P.Morgan — Analyst

Great. Thanks, guys. on I wanted to ask about Tegsedi. And specifically, can you elaborate on whether the responses the FDA needs more time to review are related to questions on safety or efficacy? And can you also just explain the mechanism through which the FDA extended the PDUFA i.e., did they just kind of go ahead and take and characterize your responses as a major amendment in order to be able to extend it by three months?

Stan CrookeChairman and Chief Executive Officer

The answer — thanks, Jess. The question is focused primarily on just understanding the drug broadly. So there is a great deal of information and a lot of it has to do with safety. So they’re focused on getting — just having the time to understand the drug well.

And they did use the opportunity. They used the mechanism by calling this a major amendment.

Jessica FyeJ.P.Morgan — Analyst

OK. And on Waylivra, can you also just set expectations heading into the recent documents in the AdCom next week? I think particularly, some folks have been focused on safety for that product too. So can you maybe set the stage for what we should expect when we see those documents? And then the potential focus of the advisory committee.

Stan CrookeChairman and Chief Executive Officer

I think the focus will be on both benefit and risk. We think that the benefits of Waylivra are obvious and substantial, particularly in the context of the type of studies that can be conducted in a rare disease patient population. And of course, there will be extensive focus on safety as it should be. And there will be a focus on monitoring and how we manage the information to assure that patients are dosed properly.

As we’ve reported, platelet — excursions from platelet counts are a common feature of the disease FCS. And clearly, Waylivra in some patients, exacerbates those excursions in platelet count. And so, we certainly have to manage the monitoring of platelets in response to the disease and the drug. And then, of course, there will be the other usual laundry list of additional concerns that the FDA would want to discuss with the panel.

And I believe there will be a meaningful focus on monitoring and managing the side effects from the dosing.

Jessica FyeJ.P.Morgan — Analyst

Thank you.

Stan CrookeChairman and Chief Executive Officer

You bet.


Next question comes from I-Eh Jen with Laidlaw and Company. Please go ahead.

I-Eh JenLaidlaw & Company — Analyst

Thanks for taking the questions. My first two here. First one is that if currently have or to have roughly $2 billion cash. And, Beth, I know you mentioned a few things the company will do, but would you elaborate a little bit more in terms of any other specific things you could contemplate with this amount of cash in hand?

Beth HougenChief Financial Officer

Sure, I-Eh. So I think with $2 billion in cash, obviously, and the technology as powerful and productive and efficient as antisense technology, the best use of our cash is to invest in the technology, in our pipeline, in retaining our drugs longer, building our Ionis-owned pipeline and investing and commercializing drugs out of our own pipeline for our own account.

Stan CrookeChairman and Chief Executive Officer

We’ll be providing more detail on our overall capital allocation plans somewhat later in the year, I-Eh. So we consider that a very high-quality problem.

I-Eh JenLaidlaw & Company — Analyst

Definitely. And maybe one follow-up here. The Tegsedi, which — the PDUFA date push out to October, whereas the [Inaudible] probably would be — having entered the market earlier — ahead of you guys. Does that affect anything in terms of your marketing plan or any other dynamics you were thinking about?

Stan CrookeChairman and Chief Executive Officer

Sarah, would you like to handle that?

Sarah BoycePresident, Akcea Therapeutics

Yes. So can you just repeat the question, please?

I-Eh JenLaidlaw & Company — Analyst

I mean the Tegsedi just comes — probably entered the market a little bit later than you anticipated. Which would make potentially [Indiscernible] enter the market slightly earlier. If that’s the case, do you feel there is any impact on that? Or you feel there’s a lack of it?

Sarah BoycePresident, Akcea Therapeutics

Yes. We don’t really feel that’s going to have any impact and the drugs will be close enough together from a launch perspective. So not really to make any adjustments and we’re very well prepared to be ready to launch following approval.

Stan CrookeChairman and Chief Executive Officer

In the end, it will be the profiles for the two drugs that determine the market share. And we’re confident that the profile of Tegsedi is going to be attractive for many patients to use. We think both drugs will be used in the market and both drugs are good additions to the treatment of these patients.

I-Eh JenLaidlaw & Company — Analyst

Thanks a lot. I appreciate it, and congrats on a good quarter.

Sarah BoycePresident, Akcea Therapeutics

Thank you.


Next question today comes from Stephen Willey with Stifel. Please go ahead.

Stephen WilleyStifel Financial Corp. — Analyst

Thanks for taking the questions. Just a couple on the pipeline actually. So you’ve got more than a few oncology products in Phase II now. And I guess, just wondering how you’re thinking about the utility of antisense as a treatment modality in oncology, specifically with respect to not being able to achieve complete target innovation.

I guess, I understand how modulation might be sufficient for something like STAT3, but curious how you think about that concept with respect to the androgen receptor and KRAS programs?

Brett MoniaChief Operating Officer

Thanks, Steve, this is Brett, and I’ll try to respond to that. So the generation — the development of Generation 2.5 chemistry at Ionis was a real breakthrough in our ability to get actually very robust reductions in target in cancer cells as well as in the cancer tumor microenvironment. And this has really enabled us to target tumors directly as well as conducting new oncology strategies with Generation 2.5 chemistry. Our STAT3 program actually has the benefits of both mechanisms.

We’ve shown and AstraZeneca has shown remarkable activity both preclinically and clinically in targeting tumor-associated macrophages and T cells and those sorts of things, which contribute dramatically to the tumor shrinkages and tumor responses we’ve seen both preclinically and clinically. And we’re applying that and they are applying that to other programs too. We have the KRAS program, which has shown great preclinical data for direct tumor targeting, and then we have a number of other programs that are emerging forward too. So we actually get much more robust reductions in target with our new chemistries than you may be suggesting in both tumors and in the tumor microenvironment.

AstraZeneca is currently developing the drug in late-stage Phase II for head and neck cancer, both second-line and first-line. And we expect news on the outcome of that study and the future development in the second half of this year.

Stan CrookeChairman and Chief Executive Officer

Thanks, Brett. And again, something that’s perhaps gone a bit unnoticed in cancer for us is, we — in addition to AZ, we’ve established a broad collaboration with MD Anderson. And that program is going well. And we think it’s really an important extension of Ionis, because it gives us access to some of the best brains in cancer and so many interesting insights into new targets, new approaches to cancer as well as then the strength that MD Anderson has in developing drugs in cancer through clinical trials.

So we’re in a quite different position from what we were three, four years ago in cancer and we’re now confident that we have drugs that can provide benefit in cancer. And we’re getting — and we’re confident because we’re seeing it in the clinic.

Stephen WilleyStifel Financial Corp. — Analyst

Got it. Thank you. And then just one more. You’ve got a couple of cardiometabolic assets that are targeting the liver, which I believe don’t utilize LICA technology.

I think this is the GCGR and DGAT programs. Should we expect that — these drugs to get push forward as it is? Or do you think about maybe trying to incorporate LICA conjugation into the backbone of these things?

Brett MoniaChief Operating Officer

Yes. So we are continuing to push forward these programs, Steve, but we also have LICA strategies coming behind them. We’ll make decisions based on the clinical data we see and what it is we want to approve, but certainly, we have preclinical data and we’re ready to pull the trigger on LICA strategies for both of these programs at the right time.

Stan CrookeChairman and Chief Executive Officer

As you know, Steve, we’ve converted a number of programs directly to LICA. But for some others where the parent compound was getting ahead and we thought there was real opportunity for the parent compound, we’ve continued to develop like volanesorsen versus APOCIII-L RX and the like. So each drug in the pipeline reflects a very individual situation, and what we try to do is, is optimize — make the best decision we can from each of the drugs.

Stephen WilleyStifel Financial Corp. — Analyst

Great. Thanks for taking the questions.

Stan CrookeChairman and Chief Executive Officer

You bet. Thanks.


The next question comes from Jim Birchenough with Wells Fargo Securities. Please go ahead.

Yanan ZhuWells Fargo Securities — Analyst

Hi. Thanks for taking the questions. This is Yanan in for Jim. So first question, if there’s a chance that Tegsedi is approved ahead of new PDUFA date i.e.

perhaps the FDA may not need the three months allowed by the extension.

Stan CrookeChairman and Chief Executive Officer

I think the date that you should focus on is the PDUFA date. I certainly am not going to predict what the FDA will do specifically. Of course, we hope for an earlier approval.

Yanan ZhuWells Fargo Securities — Analyst

Got it. And then on the Spinraza launch. Biogen highlighted that they hope to have adult patients driving future growth with the current proportion of the infant and pediatric patients treated currently. They think that future growth could be driven by the adult patients.

What’s your thoughts on that hypothesis? How feasible would that be?

Stan CrookeChairman and Chief Executive Officer

Lynne, do you want to handle that question? Must be something wrong with the phone. We think growth in Spinraza is going to come from additional growth in markets outside the U.S. And as Biogen has said, growth in the U.S, which will be, to some extent, driven by the addition of more and more adult patients. We’re also seeing more and more patients who had been treated with the AveXis’ drug now being treated with Spinraza.

And obviously, as new patients are born with SMA, those patients become candidates for Spinraza as well. So it’s a combination of all those things, in our view.

Yanan ZhuWells Fargo Securities — Analyst

Got it. Last question is about the neurology collaboration with Biogen. Because I think the original collaboration you have probably five programs ongoing. So in terms of from the new collaboration, designation of diseases and beginning — we’re beginning to see activity from the new collaboration, do you have a sense of when that might happen? Do you have to deplete the first collaboration’s target before moving on to the second collaboration? Or it could happen in parallel?

Stan CrookeChairman and Chief Executive Officer

Real quickly on the last part, you should think of this entirely organically. We — while we have different economics and different other elements of the contract, the basics of the research are exactly the same. And the teams are working and have been working seamlessly assuming that we get this other transaction done. So I wouldn’t think — you shouldn’t be thinking about sort of [Indiscernible] moving from the current partnership to the next partnership, much more that this is simply a much more attractive transaction for us and for Biogen and that is the extent that expends the relationship that has already been so productive.

Brett MoniaChief Operating Officer

Yes. I’ll just add to that, Stan. It’s exactly right. And, of course, we have a very rich pipeline of drugs emerging toward clinical development from our prior collaborations with Biogen, and that’s just going to only continue with the new collaborations.

It’s just going to continue with new drugs. So we expect news to be coming out from this partnership with Biogen for many years to come.

Stan CrookeChairman and Chief Executive Officer

Of course, the fruits of the new targets that we’re working on, whether they’re in the old collaboration or new collaboration, they’ll become apparent as those — as drugs from those targets begin to move into the clinic. And that takes a bit of time. But financially, the way you should think about it is we’ll be getting milestones from drugs that advance from the old collaboration and then there will be milestones that begin to accrue from drugs from the new collaboration.

Yanan ZhuWells Fargo Securities — Analyst

Got it. Very helpful. Thank you.

Stan CrookeChairman and Chief Executive Officer

You bet.


The next question comes from Gena Wang with Barclays. Please go ahead.

Gena WangBarclays — Analyst

Thank you for taking my questions. Maybe the first one regarding Spinraza royalty, and just try to understand, I think that this quarter and the last quarter, the revenue from Biogen perspective, the Spinraza revenue looks very similar, but the royalty from Ionis’ perspective seems like lower for this quarter. Just wanted to get a sense. I think in this quarter, if we calculate it is about 11.5%.

While the last quarter is about 14.3%. So wondering if you can give us some more color on that.

Beth HougenChief Financial Officer

Gena, it’s Beth. So on the Spinraza royalties, they’re tiered royalties and they start over at the lower tier at the beginning of each year. So — and what you’ll see is because we go through those tiers quickly, you’ll see the effective royalty rate each quarter increasing up to those maximum levels. And so while the sales are up, the royalty is down a little bit, but you’ll see tremendous growth as we continue to work through those levels — those tiers over the course of the year.

Does that help?

Gena WangBarclays — Analyst

Yes. I mean, wouldn’t that be,¬†actually royalty rate would be higher instead of lower? Because this quarter actually it is lower than last quarter. So is it tier, like usually you will see increasing royalty rates?

Beth HougenChief Financial Officer

Yes. So the royalty — the tiers — and we’ve said this publicly, the tiers are 11% to up to 15%. And they start over at the 11% each year. So at the beginning of the year, those first royalties are at the 11% rate and then as we go through the tiers, that rate will increase over the course of the year.

So you don’t stay at the top tier, year after year, year after year, you start over at the lower tier and you work yourself through those tiers to the highest tier by — through the year.

Gena WangBarclays — Analyst

I see. So every first quarter, we should expect in the lower end of the range in terms of the tier — royalty tier, right?

Beth HougenChief Financial Officer

In terms of the percent, but of course, as your sales grow, your absolute royalty dollars will be growing.

Gena WangBarclays — Analyst

OK. OK. Sounds good. And another quick question, I think it has been asked earlier, but I wanted ask slightly differently in terms of the Tegsedi’s commercial opportunity, I know it is one-quarter delay and — but it is increasingly competitive market landscape, especially also Pfizer’s [Indiscernible] drug may also come in.

So every month actually counts, and just wondering what is your thought on this one-quarter delay that impacts in terms of the commercial opportunity for Tegsedi? And any impact on profitability later this year, with this delay.

Beth HougenChief Financial Officer

So from our perspective, we — I just reiterated our original guidance, which is the profitable for the third consecutive year. And I still — we’re still sticking to our original guidance for expense level. So we don’t see a change in our guidance associated with this extension. And I think one of the key things in relation to Tegsedi is also to mention is our expanded access program.

The expanded access program is open. We’re rapidly enrolling patients in the U.S. We actually opened additional sites because there’s request to commence the program. So from a patient-access perspective, where there is that need and the physician and patient have identified it, patients can start on Tegsedi treatment today.

Stan CrookeChairman and Chief Executive Officer

Thank you. I think in addition to that, I — well, any delay is a disappointment. But I think in this case, it will boil down to profile and launch readiness and the extra time will give us a little more time to muffle up the launch readiness. And, as you know, we’ve been working very hard to get ready, despite having had to — the drug return relatively late in its history.

Gena WangBarclays — Analyst

Thank you. Just very quick follow-up regarding that. I know you have both expanded programs ongoing for both, FCS and ATTR. Just wondering if you can share with us the number of the patients have been enrolled so far?

Sarah BoycePresident, Akcea Therapeutics

Yes, we haven’t disclosed that

Stan CrookeChairman and Chief Executive Officer

What we can tell you is, demand is high and because of it we’re constant. We’re continuing to open new sites and we’re also pleased with the support we have from KOLs, patient efficacy groups and so on. So we’re really excited about Tegsedi, and we think the opportunity in the commercial — for its commercial opportunity is a very attractive opportunity. [Inaudible] How many more — we’ll take one more question because it is getting close to the hour.


The last question will come from Laura Christianson with Cowen. Please go ahead.

Laura ChristiansonCowen & Company — Analyst

Hi, guys. Thanks for taking the question. Just a quick one on the development timeline for TTR-LRx. I’m just curious what’s limiting to initiating the Phase I? And how quickly you anticipate being able to move into Phase III? Thanks.

Stan CrookeChairman and Chief Executive Officer

The rate limiting and steps are simply to get the documents prepared for the IND. And we expect the study to start later this year. And we expect to move very rapidly through initial studies and then move very quickly toward the key studies that we will need to do. And with that, I think we’re going to — call to get closed.

Once again, I want to thank, everyone, for your participation, and for the questions, the opportunity to address them. We’re excited about where we are. We have achieved, I think, substantial success. And that’s set the stage for the rest of this year being even more successful.

We look forward next week to the Waylivra panel meeting, and to approval of both of these drugs as the year progresses. Thanks, everybody.


[Operator signoff]

Duration: 61 minutes

Call Participants:

Wade Walke — Vice President of Corporate Communications and Investor Relations

Stan Crooke — Chairman and Chief Executive Officer

Beth Hougen — Chief Financial Officer

Sarah Boyce — President, Akcea Therapeutics

Brett Monia — Chief Operating Officer

Jessica Fye — J.P.Morgan — Analyst

I-Eh Jen — Laidlaw & Company — Analyst

Sarah Boyce — President, Akcea Therapeutics

Stephen Willey — Stifel Financial Corp. — Analyst

Yanan Zhu — Wells Fargo Securities — Analyst

Gena Wang — Barclays — Analyst

Laura Christianson — Cowen & Company — Analyst

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