IONIS PHARMACEUTICALS INC - Annual Report: 2016 (Form 10-K)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2016

 

Commission file number 0-19125

Ionis Pharmaceuticals, Inc.

(Exact name of Registrant as specified in its charter)

 

 

2855 Gazelle Court, Carlsbad, CA 92010

(Address of principal executive offices, including zip code)

 

760-931-9200

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 Par Value

Indicate by check mark whether the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  No 

 

Indicate by check mark whether the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  No 

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  No 

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  No 

 

The approximate aggregate market value of the voting common stock held by non-affiliates of the Registrant, based upon the last sale price of the common stock reported on The NASDAQ Global Select Market was $2,337,558,702 as of June 30, 2016.*

 

The number of shares of voting common stock outstanding as of February 21, 2017 was 123,749,472.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive Proxy Statement to be filed on or about April 5, 2017 with the Securities and Exchange Commission in connection with the Registrant’s annual meeting of stockholders to be held on May 24, 2017 are incorporated by reference into Part III of this Report. The Exhibit Index (Item No. 15) located on pages 70 to 76 incorporates several documents by reference as indicated therein.

*

Excludes 20,485,236 shares of common stock held by directors and officers and by stockholders whose beneficial ownership is known by the Registrant to exceed 10 percent of the common stock outstanding at June 30, 2016. Exclusion of shares held by any person should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the Registrant, or that such person is controlled by or under common control with the Registrant.

FORWARD-LOOKING STATEMENTS

This report on Form 10-K and the information incorporated herein by reference includes forward-looking statements regarding our business, the business of Akcea Therapeutics, Inc., a subsidiary of Ionis Pharmaceuticals, and the therapeutic and commercial potential of SPINRAZA (nusinersen), volanesorsen and IONIS-TTR_Rx and other of our drugs in development. Any statement describing our goals, expectations, financial or other projections, intentions or beliefs, is a forward-looking statement and should be considered an at-risk statement. Such statements are subject to certain risks and uncertainties, 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. Our forward-looking statements also involve assumptions that, if they never materialize or prove correct, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this report on Form 10-K, including those identified in Item 1A entitled “Risk Factors”. Although our forward-looking statements reflect the good faith judgment of our management, these statements are based only on facts and factors currently known by us. As a result, you are cautioned not to rely on these forward-looking statements.

In this report, unless the context requires otherwise, “Ionis,” “Company,” “we,” “our,” and “us” refers to Ionis Pharmaceuticals, Inc. and its subsidiaries.

TRADEMARKS

Ionis Pharmaceuticals^TM is a trademark of Ionis Pharmaceuticals, Inc.

Akcea Therapeutics™ is a trademark of Ionis Pharmaceuticals, Inc.

Regulus Therapeutics^® is a registered trademark of Regulus Therapeutics Inc. 

SPINRAZA^TM is a trademark of Biogen, Inc.

KYNAMRO^® is a registered trademark of Kastle Therapeutics LLC

Glybera^® is a registered trademark of uniQure NV

CORPORATE INFORMATION

We incorporated in California in 1989 and in January 1991 we changed our state of incorporation to Delaware. In December 2015, we changed our name to Ionis Pharmaceuticals, Inc. from Isis Pharmaceuticals, Inc. Our principal offices are in Carlsbad, California. We make available, free of charge, on our website, www.ionispharma.com, our reports on Forms 10-K, 10-Q, 8-K and amendments thereto, as soon as reasonably practical after we file such materials with the Securities and Exchange Commission. Any information that we include on or link to our website is not a part of this report or any registration statement that incorporates this report by reference. You may also read and copy our filings at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-732-0330. The SEC also maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is www.sec.gov.

In December 2014, we formed our wholly owned subsidiary, Akcea Therapeutics, Inc., as a Delaware corporation, with its principal office in Cambridge, Massachusetts, to develop and commercialize drugs to treat patients with serious cardiometabolic diseases caused by lipid disorders.

IONIS PHARMACEUTICALS, INC.

FORM 10-K

For the Fiscal Year Ended December 31, 2016

Table of Contents

PART I

 

Item 1. Business

 

Overview

We are leaders in discovering and developing RNA-targeted therapeutics. We have created an efficient and broadly applicable drug discovery platform. Using this platform, we have developed a large, diverse and advanced pipeline of potentially first-in-class and/or best-in-class drugs that we believe can provide high value for patients with significant unmet medical needs. In this way, we believe we are fundamentally changing medicine with the goal to transform the lives of those suffering from severe, often life-threatening, diseases. The recent U.S. approval of SPINRAZA for pediatric and adult patients with spinal muscular atrophy, or SMA, highlights our progress toward this goal. Our pipeline also contains two near-term potentially transformative medicines for two different severe and rare diseases, each with significant commercial potential. We plan to report data from our Phase 3 study of volanesorsen in patients with familial chylomicronemia, or FCS in the first quarter of 2017. We also plan to report data from our Phase 3 study of IONIS-TTR_Rx in patients with familial amyloid polyneuropathy, or FAP, in the second quarter of 2017.

With FDA approval in December 2016, SPINRAZA™ (nusinersen) injection became the first and only approved drug  to treat pediatric and adult patients with SMA. SMA is a leading genetic cause of death in infants and toddlers that is marked by progressive, debilitating muscle weakness.  We and Biogen conducted a broad, innovative clinical development program that moved SPINRAZA from its first dose in humans in 2011 to its first regulatory approval five years later. We conducted two sham-controlled Phase 3 studies, one in babies with infantile-onset SMA called ENDEAR and one in children with later-onset SMA called CHERISH. Both of these studies achieved statistically significant improvements in their primary endpoints and the drug demonstrated a favorable safety profile. Biogen has filed for marketing authorization in the EU, Japan, Australia and Canada, and plans to file in other countries this year. The European Medicines Agency, or EMA, is reviewing the SPINRAZA marketing application under accelerated assessment. Biogen estimates that there are approximately 20,000 patients with SMA in the U.S., EU and Japan, with a large percentage in the United States.

Akcea Therapeutics, Inc. is our wholly owned subsidiary focused on developing and commercializing volanesorsen and three other clinical-stage drugs for serious cardiometabolic diseases caused by lipid disorders, AKCEA-APO(a)-L_Rx, AKCEA- AKCEA-APOCIII-L_Rx and ANGPTL3-L_Rx. Each of these four drugs could potentially treat multiple patient populations. Moving these drugs into a company that we own allows us to retain substantial value from them and ensures Ionis’ core focus remains on innovation. Akcea is assembling the global infrastructure to continue developing the drugs in its pipeline, to commercialize them with a focus on lipid specialists as the primary call point and to provide the specialized patient and physician support required to address rare disease patient populations.

We and Akcea are developing volanesorsen to treat two severe and rare, genetically defined diseases, FCS and familial partial lipodystrophy, or FPL. FCS and FPL are orphan diseases characterized by severely high triglyceride levels that result in severe, daily symptoms and a high risk of life-threatening pancreatitis. Volanesorsen acts to reduce triglyceride levels by inhibiting the production of ApoC-III, a protein that is a key regulator of triglyceride clearance. The clinical development program for volanesorsen consists of three Phase 3 studies called APPROACH, BROADEN and COMPASS. The APPROACH study is in patients with FCS. It is fully enrolled and we plan to report data from it in the first quarter of 2017. We plan to file for marketing authorization in the U.S., Europe and Canada in 2017 if the data are positive. The BROADEN study is in patients with FPL. The study is currently enrolling patients and we plan to have data from this study in 2019. We also recently completed the COMPASS study in patients with triglycerides above 500 mg/dL to expand the exposure database for volanesorsen to support global regulatory filings. In December 2016, we reported that the COMPASS study met its primary endpoint of a statistically significant 71% mean reduction in triglycerides in volanesorsen-treated patients. In a small subset of patients with FCS, volanesorsen-treated patients achieved a mean reduction in triglycerides of 73% from baseline. Safety in this study was supportive of continuing development. We estimate that FCS and FPL each affect 3,000 to 5,000 patients globally. If approved, we plan to commercialize volanesorsen for both FCS and FPL through Akcea.

In addition to our Phase 3 programs, we have a pipeline of drugs with the potential to be first-in-class and/or best-in-class drugs to treat patients with diseases that have inadequate treatment options. We are addressing a broad spectrum of diseases from common diseases affecting millions, such as cardiovascular disease, clotting disorders, Alzheimer’s and Parkinson’s disease, to rare diseases, such as amyotrophic lateral sclerosis and Huntington’s disease. Our pipeline has over a dozen drugs in Phase 2 development, many of which we believe have the potential to be significant commercial opportunities. In particular, IONIS-FXI_Rx and AKCEA-APO(a)-L_Rx represent the value we have created. IONIS-FXI_Rx is the first antithrombotic in development that has shown it can decrease the risk of blood vessel obstruction caused by a blood clot without increasing bleeding risk. Given the unique profile of IONIS-FXI_Rx, we believe that IONIS-FXI_Rx has the potential to be an important therapy for the many patients who need an antithrombotic but cannot take currently available therapies due to the high risk of bleeding. AKCEA-APO(a)-L_Rx is the first and only drug in clinical development designed to selectively and robustly lower Lp(a), a key driver of cardiovascular disease. We believe that addressing Lp(a) is the next important horizon in lipid-focused cardiovascular disease treatment.

The depth of our knowledge and expertise with antisense technology, together with our strong financial position, provides us the flexibility to determine the optimal development and commercialization strategy to maximize the near- and longer-term value of our drugs. We have distinct partnering strategies that we employ based on the specific drug, therapeutic area and expertise and resources our potential partners may bring to the collaboration. For some drugs, we may choose to develop and commercialize them through wholly owned subsidiaries like Akcea.  In general, these are drugs, such as volanesorsen, that we have the internal expertise to advance, that have a clear development path with manageable costs and that have the potential for initial rare disease indications. For other drugs, we may form partnerships that enable us to leverage our partner’s global expertise and resources needed to support large commercial opportunities, as we did with Bayer and Novartis.

We have established alliances with a cadre of leading global pharmaceutical companies that are working alongside us in developing our drugs, advancing our technology and preparing to commercialize our products. Our partners bring substantial resources and expertise that augment and build upon our internal capabilities. We have strategic partnerships with Biogen and AstraZeneca through which we can broadly expand our drug discovery efforts to new disease targets in specific therapeutic areas for which our partners can provide expertise, tools and resources to complement our drug discovery efforts. We also have partnerships with Bayer, GSK, Janssen, Novartis and Roche. Each of these companies brings significant expertise and global resources to develop and potentially commercialize the drugs under each partnership. Most recently, in January 2017, we and Akcea initiated a collaboration with Novartis to develop and commercialize AKCEA-APO(a)-L_Rx and AKCEA-APOCIII-L_Rx. As a leader in the cardiovascular disease space, Novartis brings significant resources and expertise that should support the development and commercialization of these two drugs for significant high-risk patient populations. The collaboration with Novartis should enable us to accelerate the development of these drugs for broader patient populations as Novartis plans to conduct a cardiovascular outcomes study for each of these drugs. In addition, Akcea has the right to co-commercialize these drugs using its specialized sales force focused on lipid specialists in select markets. We also form early stage research and development partnerships that allow us to expand the application of our technology to new therapeutic areas. For example, we established a collaboration with Janssen, which brings together our RNA-targeted technology platform and Janssen’s expertise in autoimmune disorders and therapeutic formulation to discover and develop antisense drugs to treat autoimmune disorders in the gastrointestinal, or GI, tract. Lastly, we also work with a consortium of companies that can exploit our drugs and technologies outside our primary areas of focus. We refer to these companies as satellite companies.

Through our partnerships, we have created a broad and sustaining base of potential research and development, or R&D, revenue in the form of license fees, upfront payments and milestone payments while spending prudently to advance our pipeline and technology. Our R&D revenue has consistently grown year over year since 2011. In 2016, we earned more than $345 million in R&D revenue. Moreover, we have the potential to earn nearly $13 billion in future milestone payments and licensing fees from our current partnerships. We also have the potential to share in the future commercial success of our inventions and drugs resulting from our partnerships through earn out or royalty arrangements. With the approval of SPINRAZA in the U.S., we are adding commercial revenue from SPINRAZA royalties to our existing R&D revenue base. Looking forward, we have the potential to increase our commercial revenue from SPINRAZA royalties if Biogen achieves marking authorization in additional countries. We also have the potential to further increase our commercial revenue with volanesorsen product sales and IONIS-TTR_Rx royalties. We believe we have the key elements in place to achieve sustained long-term financial growth, including multiple drivers of revenue; a mature, broad and rapidly-advancing clinical pipeline; a partnership strategy that leverages our partner resources; and an innovative drug technology that we continue to deploy across a range of therapeutic areas to address both rare and large patient populations.

●	We and Biogen achieved FDA approval of SPINRAZA in three months under Priority Review for the treatment of SMA in pediatric and adult patients.

●	Biogen filed for marketing authorization in the EU and was granted Accelerated Assessment.

●	Biogen filed for marketing authorization in Canada, Japan, and Australia.

●

Biogen reported positive data from an end of study analysis of the ENDEAR Phase 3 study in patients with infantile-onset (consistent with type 1) SMA at the British Pediatric Neurology Association annual conference. We previously reported data from an interim analysis of ENDEAR, which along with several other studies, formed the basis for the marketing application for SPINRAZA in the U.S.

●	We and Biogen reported positive data from an interim analysis of the Phase 3 CHERISH study in patients with later-onset (consistent with Type 2) SMA.

●	We and Biogen presented new positive clinical data with SPINRAZA at the World Muscle Society Congress supporting the companies' efforts to rapidly make SPINRAZA available to patients with SMA, including:

o	Safety results from the interim analysis of the Phase 3 ENDEAR study in patients with infantile-onset (consistent with Type 1) SMA;

o	Encouraging preliminary results from NURTURE, a Phase 2 open-label study in pre-symptomatic infants; and

o	A recent analysis of the ongoing Phase 2 open-label study in patients with later-onset SMA.

●	We and Biogen reported positive data from an interim analysis of the ENDEAR Phase 3 study in patients with infantile-onset (consistent with Type 1) SMA. Biogen paid us $75 million to license the drug.

●	We earned more than $200 million from Biogen in 2016, including payments related to SPINRAZA.

●

We and Akcea formed a strategic collaboration with Novartis to develop and co-commercialize AKCEA-APO(a)-LRx and AKCEA-APOCIII-LRx for the treatment of lipid disorders, for which Ionis and Akcea are eligible to receive $225 million in near-term payments, including $100 million we have received and $75 million we expect to receive in the first quarter of 2017. The transaction has a potential value of up to over $1 billion.

●	We earned $75 million from Bayer to advance both IONIS-FXIRx and its LICA follow on, IONIS-FXI-LRx.

●	We sold the global rights to develop and commercialize Kynamro to Kastle Therapeutics and earned a $15 million upfront payment.

●	We and MD Anderson Cancer Center formed a strategic alliance to advance novel cancer therapies.

●	We added to our pipeline our first oral locally acting drug for gastrointestinal autoimmune diseases for which Ionis earned a $10 million license fee from Janssen.

●	We advanced IONIS-KRAS-2.5Rx into development and earned $28 million from AstraZeneca.

●	We advanced IONIS-AZ4-2.5-LRx, our first Generation 2.5 LICA drug, into development and earned $25 million from AstraZeneca.

●	Our CEO, Dr. Stanley Crooke, received two awards, the E. B. Hershberg Award from the American Chemical Society and the Lifetime Achievement Award from the Oligonucleotide Therapeutics Society, recognizing his achievements in the field of oligonucleotide therapeutics.

●

We continued to advance our pipeline of innovative first-in-class or best-in-class drugs, reported positive data from 11 clinical studies with six drugs. These data and clinical advancements represent the broad applicability of our technology to address unmet medical needs across multiple disease targets.

●	The FDA and EMA granted orphan drug designation to IONIS-HTTRx for the treatment of patients with Huntington's disease.

●	Akcea launched IN-FOCUS, a research study to assess the impact of FCS.

●	Akcea published positive clinical data from a Phase 2 study of volanesorsen in patients with high plasma triglyceride levels and type 2 diabetes in Diabetes Care.

●	We published a paper in Nature Biotechnology on the novel mechanism of action for antisense drugs that significantly expands therapeutic opportunities for the technology.

·	We published a paper in Nucleic Acid Therapeutics on the analysis of its Integrated Safety Database, which demonstrated no class generic effect of 2’-O-methoxyethyl (2’MOE)-modified antisense oligonucleotides (ASOs) on platelet numbers and function.

Drug Discovery and Development

 

Introduction to Drug Discovery

 

Proteins are essential working molecules in a cell. Almost all human diseases result from inappropriate protein production, improper protein activity or loss of a protein. Scientists use traditional drug discovery methods to design drugs to interact with the proteins in the body that are supporting or causing a disease. Antisense drugs are different from traditional small molecule drugs because antisense drugs can modify the production of proteins by targeting RNAs. In this way, antisense drugs can reduce the production of a disease-causing protein or increase the production of a protein that, when absent, causes disease. Antisense drugs also can treat disease by targeting and reducing RNAs that may be causing disease. RNAs are naturally occurring molecules in the body that primarily provide the information the cell needs to produce proteins. When our antisense drugs bind to the specific RNAs of a particular gene, they will ultimately alter the production of the protein encoded in the target gene or, in the case of disease-causing RNAs, degrade the RNA.

Our Development Projects

 

We are the leader in the discovery and development of an exciting class of RNA-targeted drugs called antisense drugs. With our proprietary drug discovery platform, we can rapidly identify drugs from a wealth of potential targets to treat a broad range of diseases. We focus our efforts in therapeutic areas where our drugs will work best, efficiently screening many targets in parallel and carefully selecting the best drugs. By combining this efficiency with our rational approach to selecting disease targets, we have built a large and diverse portfolio of drugs we designed to treat a variety of health conditions, with an emphasis on severe and rare diseases, including neurodegenerative diseases, cardiovascular, metabolic diseases, and cancer. We are developing antisense drugs for systemic, intrathecal and local delivery. We expect to continue to add new drugs to our pipeline, building a broad proprietary portfolio of drugs to treat many diseases and creating opportunities to generate substantial revenue. We also continue to improve our scientific understanding of our drugs, including how our drugs impact the biological processes of the diseases we target.

With our expertise in discovering and characterizing novel antisense drugs, our scientists can optimize the properties of our antisense drugs for use with particular targets. Our scientists have made significant advances in chemistries. Our Generation 2.0+ antisense drugs have increased potency and an improved side effect profile over our earlier generation drugs. Our scientists have further improved upon our second-generation chemistry with our Generation 2.5 chemistry, an advancement that further increases the potency of our drugs and broadens the tissues in which our drugs can work. We currently have six Generation 2.5 drugs in development, and we expect that some of our future drugs will also incorporate our Generation 2.5 chemistry. In addition to improving the chemical foundation of our drugs, we have also created LIgand-Conjugated Antisense, or LICA, technology, which we

designed to enhance the delivery of our drugs to particular tissues. We believe that our LICA technology could further enhance the potency of our drugs. For example, our LICA technology directed toward liver targets produced a ten-fold increase in potency in preclinical studies in both our Generation 2.0+ and our Generation 2.5 drugs. Our LICA technology conjugates specific chemical structures or molecules to antisense drugs and has shown to increase the efficiency of drug uptake in a particular tissue and increase drug potency from 20 to over 30 fold compared to non-conjugated antisense drugs. We currently have ten Generation 2.0+ LICA drugs in our pipeline, all of which we designed to inhibit targets in the liver. We also recently added IONIS-AZ4-2.5-L_Rx a drug that combines our Generation 2.5 and LICA technology, to our preclinical pipeline.

 

We have utilized our chemistry advancements to expand the therapeutic and commercial opportunities of our pipeline. These advancements, along with the manufacturing and analytical processes that are the same for all of our drugs, shorten our timeline from initial concept to the first human dose when compared to small molecule drugs.

The above table lists our pipeline, including the disease indications, our partner if the drug is partnered, and the development status of each drug. Typically, the names of our drugs incorporate the target of the drug, such as IONIS-TTR_Rx. In this case, TTR is the target of the drug. Unless indicated otherwise, the majority of the drugs in our pipeline are Generation 2.0+ antisense drugs. We differentiate drugs that Akcea is developing by starting the drug name with AKCEA, instead of IONIS, such as AKCEA-ANGPTL3-L_Rx. We differentiate our Generation 2.5 drugs by adding a 2.5 notation at the end of the drug name, such as IONIS-STAT3-2.5_Rx. We differentiate our LICA drugs by adding an L at the end of the drug name, such as AKCEA-APO(a)-L_Rx. We also recently added IONIS-AZ4-2.5-L_Rx, a drug that combines our Generation 2.5 and LICA technology, to our preclinical pipeline. As the drugs in our pipeline advance in clinical development, we will adopt nonproprietary names given to each drug from the United States Adopted Names Council. For example, volanesorsen is a nonproprietary name that we obtained for ISIS-APOCIII_Rx. Once we or our partners establish a brand name, we will adopt the brand name. For example, SPINRAZA is the brand name for nusinersen, which was formerly ISIS-SMN_Rx.

With a pipeline as large and advanced as ours, we have a number of clinical events each year as we initiate new clinical studies, complete and report data from clinical studies and add new drugs to our pipeline. In 2017, we plan to initiate multiple clinical studies, report data on multiple drugs and add three to five new drugs into development.

Our Newly Marketed Drug

SPINRAZA – SPINRAZA is a Generation 2.0+ antisense drug and is the first and only approved treatment for SMA in pediatric and adult patients in the U.S.

SMA is characterized by loss of motor neurons in the spinal cord and lower brain stem, resulting in severe and progressive muscular atrophy and weakness. Ultimately, individuals with the most severe type of SMA, infantile-onset SMA, can become paralyzed and have difficulty performing the basic functions of life, like breathing and swallowing. Due to a loss of, or defect in, the SMN1 gene, people with SMA do not produce enough survival motor neuron, or SMN, protein, which is critical for the maintenance of motor neurons. The severity of SMA correlates with the amount of SMN protein a patient can produce on his/her own. Patients with infantile-onset, consistent with Type 1, SMA, the most severe life-threatening form, produce very little SMN protein and do not achieve the ability to sit without support or live beyond two years without respiratory support. Patients with later-onset, consistent with Type 2 or Type 3 SMA, produce greater amounts of SMN protein and have less severe, but still life-altering, forms of SMA.

SPINRAZA is administered via intrathecal injection, which delivers therapies directly to the cerebrospinal fluid, or CSF, around the spinal cord, where motor neurons degenerate in patients with SMA due to insufficient levels of SMN protein.

In December 2016, the FDA approved SPINRAZA for the treatment of pediatric and adult patients with SMA. The European Medicines Agency, or EMA, has validated the Marketing Authorization Application, or MAA, for SPINRAZA for the treatment of SMA and the Committee for Medicinal Products for Human Use, or CHMP,  has granted SPINRAZA Accelerated Assessment. The Accelerated Assessment designation can reduce the standard review time. The EMA has granted Orphan Drug Designation to SPINRAZA for the treatment of patients with SMA. Biogen has also submitted regulatory filings in Japan, Canada and Australia and will be initiating regulatory filings in additional countries in 2017.

We and Biogen submitted marketing applications for SPINRAZA in the U.S. and EU in less than two months after announcing positive results from the ENDEAR interim analysis. ENDEAR was a pivotal Phase 3 controlled study evaluating SPINRAZA in patients with infantile-onset SMA. The data package included the interim analysis of ENDEAR, as well as open-label data in pre-symptomatic and symptomatic patients with SMA, or likely to develop, Types 1, 2 and 3 SMA.

In ENDEAR, infantile-onset SMA patients treated with SPINRAZA achieved and sustained clinically meaningful improvement in motor function compared to untreated study participants. In addition, a greater percentage of patients on SPINRAZA survived compared to untreated patients. In January 2017, Biogen presented the ENDEAR pre-specified primary endpoint, time to death or permanent ventilation, from the end of study, or EOS, analysis, which includes data from patients’ final study visit, which occurred after the announcement that the study was being stopped and was not part of the interim analysis. SPINRAZA met the pre-specified primary endpoint at the ENDEAR EOS, demonstrating a statistically significant 47% reduction in the risk of death or permanent ventilation (p<0.01). SPINRAZA demonstrated a favorable safety profile, with commonly reported adverse events including respiratory events and constipation, consistent with those expected in the general population of infants with SMA.

We also conducted CHERISH, our Phase 3 study in patients with later-onset SMA. CHERISH also met the primary endpoint for the pre-specified interim analysis. The analysis found that children receiving SPINRAZA experienced a highly statistically significant improvement in motor function compared to those who did not receive treatment.  SPINRAZA demonstrated a favorable safety profile in the study.

Additionally, Biogen conducted NURTURE, a Phase 2 open-label study in pre-symptomatic infants. At the 2016 World Muscle Society Congress in October 2016, encouraging preliminary results from NURTURE were presented in addition to an analysis of the then ongoing Phase 2 open-label study in patients with later-onset SMA. The interim analysis of the ongoing, open-label, 30-month, Phase 2 NURTURE study showed that SPINRAZA-treated pre-symptomatic infants exhibited improvements in motor function and motor milestones such as full head control, independent sitting, standing with support, standing unaided, and walking with support, as measured by validated scales. At the time of the interim analysis all patients were alive and did not require respiratory intervention. Three infants experienced AEs considered possibly related to SPINRAZA, all of which were resolved.

Further, in open-label studies, some patients achieved milestones that they would not be expected to achieve, such as the ability to sit unassisted, stand or walk, and maintained milestones at ages that they would expect to lose. The overall findings of these studies support the effectiveness of SPINRAZA across the range of SMA patients, and appear to support the early initiation of treatment.

The most common adverse reactions reported for SPINRAZA were upper respiratory infection, lower respiratory infection and constipation. Serious adverse reactions of partial or complete lung collapse were more frequent in SPINRAZA-treated patients.

We and Biogen entered into an alliance to develop and commercialize SPINRAZA in January 2012. In July 2016, Biogen licensed SPINRAZA from us and paid us a $75 million license fee. We have transitioned all SPINRAZA development activities to Biogen as they are now responsible for all global development, regulatory and commercialization activities and costs.

Our Phase 3 Drugs

We have two drugs for which we are conducting pivotal Phase 3 studies: volanesorsen and IONIS-TTR_Rx. Both of these drugs have the potential to transform the treatment of patients with an orphan disease, and we believe these drugs are close to commercialization. In 2015, we completed target enrollment in a Phase 3 study for each of these drugs.

Volanesorsen – Volanesorsen is a Generation 2.0+ antisense drug we and Akcea are developing to treat patients with FCS and FPL, orphan diseases characterized by extremely elevated triglyceride levels and a high risk of life-threatening pancreatitis.

Due to the high levels of triglycerides in their blood, patients with FCS and FPL experience a variety of debilitating and potentially life-threatening conditions, including pancreatitis, persistent and often severe abdominal pain and abnormal enlargement of the liver or spleen. In addition, patients with FCS or FPL have to adhere to a very low fat diet. As a result of these factors, patients with FCS and FPL are often unable to work, adding to the burden of the disease. While all the complications of FCS or FPL cause patients to have a lower quality of life, pancreatitis is the most serious consequence of the disease. Patients with FCS and FPL suffer from acute pancreatitis, a sudden inflammation of the pancreas that may be fatal. The symptoms of an acute pancreatitis episode are severe, debilitating upper abdominal pain that radiates into the back, fever and nausea and vomiting. In severe cases, patients can have bleeding into the pancreas, serious tissue damage, infection and cyst formation, as well as damage to other vital organs such as the heart, lungs and kidneys. We estimate there are 3,000 to 5,000 FCS patients and an additional 3,000 to 5,000 FPL patients globally.

Volanesorsen acts to reduce triglyceride levels by inhibiting the production of ApoC-III, a protein that is a key regulator of triglyceride clearance. People who have low levels of ApoC-III or reduced ApoC-III function have lower levels of triglycerides and a lower incidence of cardiovascular disease, or CVD. By inhibiting the production of ApoC-III, volanesorsen is able to increase triglyceride clearance in FCS patients, reducing their triglyceride levels.

We demonstrated in Phase 2 studies that volanesorsen robustly reduced ApoC-III and triglycerides in patients, including in patients with FCS, and also had a beneficial impact on insulin sensitivity. We published our findings from the Phase 2 studies with volanesorsen in two publications in the New England Journal of Medicine.

We and Akcea are currently conducting two Phase 3 studies of volanesorsen. The study in patients with FCS, called APPROACH, is fully enrolled and we and Akcea plan to report data from this study in the first quarter of 2017. The study in patients with FPL, called BROADEN, is currently enrolling and we and Akcea plan to report data from this study in 2019. We and Akcea also conducted an additional Phase 3 study, called COMPASS, in patients with triglycerides above 500 mg/dL to expand the exposure database for volanesorsen to support global regulatory filings.

In December 2016, we and Akcea announced that the COMPASS study met its primary endpoint. The treatment effect observed was sustained through the end of the 26 week treatment period for both the full study population and the subset of patients with FCS.

Volanesorsen has been granted orphan drug status in both the U.S. and EU for the treatment of FCS. Further, volanesorsen has been granted orphan drug status in the EU for the treatment of FPL, and we are in the process of applying for this status for this indication in the U.S. Akcea plans to globally commercialize volanesorsen for both FCS and FPL if approved.

See our separate section below where we further discuss our subsidiary, Akcea.

IONIS-TTR_Rx – IONIS-TTR_Rx is a Generation 2.0+ antisense drug we are developing to treat patients with all forms of TTR amyloidosis. TTR amyloidosis is a severe, progressive and fatal disease. In all forms of TTR amyloidosis TTR protein forms amyloid deposits in various tissues and organs, including peripheral nerves, heart, intestinal tract, eyes, kidneys, central nervous system, thyroid and bone. The progressive accumulation of TTR amyloid deposits in these tissues and organs leads to organ failure and eventually death. We designed IONIS-TTR_Rx to be administered as one subcutaneous injection, once a week for all TTR amyloidosis patients.

TTR amyloidosis is a single disease that clinicians characterize into three forms that can have multiple overlapping clinical manifestations: FAP, FAC and wt-TTR. FAP affects approximately 10,000 patients worldwide and is a painful, fatal disease that ultimately leads to multi-organ failure and death within five to 15 years after symptom onset and diagnosis. FAP patients primarily have TTR build up in the peripheral nervous system, but can also have significant TTR build up in multiple organs. FAC affects approximately 40,000 patients worldwide and wt-TTR amyloidosis affects approximately 200,000 patients worldwide. While both FAC and wt-TTR differ in the genetic cause of TTR amyloidosis, both diseases progress in similar ways. Patients with FAC and wt-TTR amyloidosis have TTR build up in the heart muscle and succumb to heart failure within three to five years after symptom onset and diagnosis. TTR amyloidosis is fatal and there are limited therapeutic options to treat patients with this disease.

We are evaluating IONIS-TTR_Rx in NEURO-TTR, a randomized, double-blinded, placebo-controlled, international Phase 3 study for FAP patients. We have completed target enrollment. We plan to report data from this study in the second quarter of 2017. We designed this study to support an application for marketing authorization of IONIS-TTR_Rx in patients with FAP. Our study is measuring the effects of IONIS-TTR_Rx on neurological dysfunction and on quality-of-life.

The FDA has granted Orphan Drug Designation and Fast Track Status to IONIS-TTR_Rx for the treatment of patients with FAP. The EMA has granted Orphan Drug Designation to IONIS-TTR_Rx for the treatment of patients with TTR amyloidosis.

Severe and Rare Disease Franchise

Our severe and rare disease franchise is the largest franchise in our pipeline. We are discovering and developing antisense drugs to treat patients with severe and rare and neurodegenerative diseases who need new treatment options.  We believe our antisense technology could offer effective therapies for these patients. According to the National Institutes of Health, or NIH, there are approximately 5,000 to 8,000 rare diseases and more than 600 neurological diseases, many life-threatening or fatal. Unfortunately, patients with many of these severe and rare diseases have few effective therapies available. Since most of these diseases are genetic or have a genetic component, parents often pass the disease to their children, creating a legacy of the disease resulting in profound effects on the family.

Due to the severe nature of these diseases and the lack of available treatments, there is an opportunity for more flexible and efficient development paths to the market. This means that, in some cases, the studies necessary for us to demonstrate proof-of-concept with a particular drug may also be the studies that complete our marketing registration package, thereby providing us with a relatively rapid path to market for potential new treatments for these devastating and often fatal diseases. For example, SPINRAZA was approved five years after we began the Phase 1 study for it.

IONIS’ Severe and Rare Disease Pipeline

SPINRAZA – SPINRAZA is our recently marketed Generation 2.0+ antisense drug to treat patients with SMA. SMA is a severe motor neuron disease that is the leading genetic cause of infant mortality. For more information on SPINRAZA, see the drug description under Our Newly Marketed Drug.

Kynamro – Kynamro (mipomersen sodium) injection is an oligonucleotide inhibitor of apolipoprotein B-100 synthesis indicated as an adjunct to lipid-lowering medications and diet, to reduce low density lipoprotein-cholesterol, or LDL-C, apolipoprotein B, total cholesterol, and non-high density lipoprotein-cholesterol in patients with HoFH. Kynamro is approved for use in patients with HoFH in the U.S. and several other countries. In 2016 Kastle acquired the global rights to develop and commercialize Kynamro and also began marketing and selling Kynamro.

Volanesorsen – Volanesorsen is a Generation 2.0+ antisense drug we and Akcea are developing to treat patients with FCS and FPL. FCS and FPL are orphan diseases characterized by severely high triglyceride levels that result in severe, daily symptoms and a high risk of life-threatening pancreatitis. For more information on the development plan for volanesorsen see the drug description under Our Phase 3 Drugs.

IONIS-TTR_Rx – IONIS-TTR_Rx is a Generation 2.0+ antisense drug we designed to treat all forms of TTR amyloidosis. TTR amyloidosis is a severe, progressive and fatal disease. For more information on the development plan for IONIS-TTR_Rx see the drug description under Our Phase 3 Drugs.

IONIS-HTT_Rx – IONIS-HTT_Rx is a Generation 2.0+ antisense drug we designed to reduce the production of the huntingtin, or HTT, protein, the genetic cause of Huntington's disease, or HD. We are collaborating with Roche to develop IONIS-HTT_Rx to treat patients with HD.

HD is an inherited genetic brain disorder that results in the progressive loss of both mental faculties and physical control. HD is a triplet repeat disorder and is one of a large family of genetic diseases in which the body mistakenly repeats certain gene sequences. The resulting HTT protein is toxic and gradually destroys neurons. Symptoms of HD usually appear between the ages of 30 to 50 years and continually worsen over a 10 to 25 year period. Ultimately, the weakened individual succumbs to pneumonia, heart failure or other complications. Presently, there is no effective disease-modifying treatment, and current approaches only focus on managing the severity of some disease symptoms.

We are evaluating IONIS-HTT_Rx in a randomized, placebo-controlled, dose escalation, Phase 1/2 clinical study in patients with early stage HD.

The FDA and EMA have granted Orphan Drug Designation for IONIS-HTT_Rx to treat patients with HD.

IONIS-SOD1_Rx – IONIS-SOD1_Rx is a Generation 2.0+ antisense drug we designed to reduce the production of superoxide dismutase 1, or SOD1, which is the best understood genetic cause of familial amyotrophic lateral sclerosis, or ALS. We are collaborating with Biogen to develop IONIS-SOD1_Rx to treat patients with an inherited form of ALS, SOD1-ALS.

ALS is a rare, fatal neurodegenerative disorder. Patients with ALS suffer progressive degeneration of the motor neurons, which results in a declining quality of life and ultimately death. The second most common familial form of ALS is SOD1-ALS, in which patients have a mutation in the SOD1 gene that causes a progressive loss of motor neurons. As a result, patients with SOD1-ALS experience muscle weakness, loss of movement, difficulty in breathing and swallowing and eventually succumb to their disease. Currently, treatment options for patients with ALS are extremely limited with no drugs that significantly slow disease progression.

We are evaluating IONIS-SOD1_Rx in a randomized, placebo-controlled, dose escalation, Phase 1/2 clinical study in patients with ALS, including patients with SOD1-ALS.

AKCEA-ANGPTL3-L_Rx – AKCEA-ANGPTL3-L_Rx is a LICA drug we designed to reduce angiopoietin-like 3 protein, or ANGPTL3, an independent risk factor for cardiovascular disease. We and Akcea are developing AKCEA-ANGPTL3-L_Rx to treat multiple lipid disorders, or mixed dyslipidemias. For more information on the development plan for AKCEA-ANGPTL3-L_Rx, see the drug description under the Akcea Therapeutics section below.

IONIS-PKK_Rx – IONIS-PKK_Rx is a Generation 2.0+ antisense drug we designed to reduce the production of prekallikrein, or PKK, to treat patients with hereditary angioedema, or HAE. HAE is a rare genetic disease that is characterized by rapid and painful attacks of inflammation in the hands, feet, limbs, face, abdomen, larynx and trachea and can be fatal if swelling occurs in the larynx. PKK plays an important role in the activation of inflammatory mediators associated with acute attacks of HAE. By inhibiting the production of PKK, IONIS-PKK_Rx could be an effective prophylactic approach to preventing HAE attacks. In patients with frequent or severe attacks, doctors may use prophylactic treatment approaches to prevent or reduce the severity of HAE attacks. However, current prophylactic treatment approaches are very limited and have major tolerability issues due to challenging administration requirements leaving patients with few therapeutic options.

We have completed a Phase 1 study evaluating IONIS-PKK_Rx in healthy volunteers and we are exploring potential development options.

Cardiovascular Franchise

Cardiovascular disease is an important area of focus for us. Our cardiovascular franchise includes the drugs Akcea is developing that we describe below and IONIS-FXI_Rx, which we are developing and have licensed to Bayer. The drugs in our cardiovascular franchise target all the key components of cardiovascular disease, including various atherogenic lipids, inflammation and thrombosis.

IONIS’ Cardiovascular Disease Pipeline

 

IONIS-FXI_Rx – IONIS-FXI_Rx is a Generation 2.0+ antisense drug we designed to reduce the production of Factor XI. Factor XI is a clotting factor produced in the liver that is important in the growth of blood clots. High levels of Factor XI increase the risk of thrombosis, which is the formation of a blood clot inside blood vessels. Thrombosis can cause heart attacks and strokes. People who are deficient in Factor XI have a lower incidence of thromboembolic events with minimal increase in bleeding risk. Although currently available anticoagulants reduce the risk of thrombosis, physicians associate these anticoagulants with increased bleeding, which can be fatal. Given the mechanism of Factor XI inhibition, we believe that our drug has the potential to be used broadly as an anti-thrombotic in many different therapeutic settings for which additional safe and well tolerated anti-thrombotic drugs are needed.

We completed a Phase 2 open-label, comparator-controlled global study evaluating IONIS-FXI_Rx in patients undergoing total knee replacement surgery. The study compared the safety and activity of IONIS-FXI_Rx to enoxaparin. In this study patients treated with 300 mg of IONIS-FXI_Rx experienced a seven-fold lower rate of venous thromboembolic events, such as blood clots in a deep vein or in a lung, compared to those patients treated with enoxaparin. The data from this study were published in the New England Journal of Medicine in December 2014. In May 2015, we exclusively licensed IONIS-FXI_Rx to Bayer.

In November 2016, we completed a Phase 2 double-blinded, randomized, placebo-controlled study of IONIS-FXI_Rx in patients with end-stage renal disease on hemodialysis. In this Phase 2 study, patients treated with IONIS-FXI_Rx achieved statistically significant, dose-dependent reductions in Factor XI activity. There were no clinically meaningful reductions in platelets and no treatment-related major or clinically relevant non-major bleeding events.

In February 2017 we announced the advancement of IONIS-FXI_Rx in clinical development under the existing exclusive license agreement with Bayer. We plan to conduct a Phase 2b study evaluating IONIS-FXI_Rx in approximately 200 patients with end-stage renal disease on hemodialysis to finalize dose selection. We will also initiate development of IONIS-FXI-L_Rx which is currently in preclinical development and is shown in our Preclinical Pipeline section below.

AKCEA-APO(a)-L_Rx – AKCEA-APO(a)-L_Rx is a LICA drug we designed to reduce apolipoprotein(a) in the liver to offer a direct approach for reducing lipoprotein(a), or Lp(a). Lp(a) is an independent risk factor for CVD. We believe addressing Lp(a) is the next important horizon in lipid focused CVD treatment. For more information on the development plan for AKCEA-APO(a)-L_Rx, see the drug description under the Akcea Therapeutics section below.

AKCEA-APOCIII-L_Rx – AKCEA-APOCIII-L_Rx is a LICA-conjugated Generation 2.0+ antisense drug designed to inhibit the production of apoC-III, the same protein inhibited by volanesorsen, for the broad population of patients who are at risk for cardiometabolic disease due to their elevated triglyceride levels. For more information on the development plan for AKCEA-APOCIII-L_Rx, see the drug description under the Akcea Therapeutics section below.

Cancer Franchise

 

Cancer is an area of significant unmet medical need. Cancer is an extremely complex disease that involves a large number of targets. Using our antisense technology, we can validate multiple potential cancer targets from a variety of different cancers, and rapidly identify anti-cancer drugs, which in many cases are the same or similar sequences to those used to validate the target. We preferentially select anti-cancer targets that provide a multi-faceted approach to treating cancer.

Our cancer franchise consists of anti-cancer antisense drugs that act upon biological targets associated with cancer progression and/or treatment resistance. We have a strategic alliance with AstraZeneca, which includes an anti-cancer collaboration that expands our anti-cancer efforts and supports a robust clinical development plan for IONIS-STAT3-2.5_Rx. AstraZeneca brings significant experience that enables the identification of novel genetic and epigenetic targets for cancer. Combining AstraZeneca’s expertise with our drug discovery technology, we plan to expand our cancer franchise with a number of promising new anti-cancer targets. In December 2016 we expanded our cancer franchise when AstraZeneca licensed our preclinical drug, IONIS-KRAS-2.5_Rx.  IONIS-KRAS-2.5_Rx is an antisense drug we discovered and designed to directly target KRAS, one of the most frequently mutated genes in cancer.  We also have a collaboration agreement with University of Texas MD Anderson Cancer Center to identify cancer targets and create novel antisense drugs to treat cancer together.

 

Our Generation 2.5 chemistry enhances the potency and effectiveness of our antisense drugs, and potentially allows us to extend the applicability of our technology to cancers that are difficult to treat. For instance, STAT3 is a protein known to be important in carcinogenesis, however, it has been difficult to approach with traditional drug modalities. Data from a Phase 1/2 clinical study of IONIS-STAT3-2.5_Rx showed evidence of antitumor activity in patients with cancer, including advanced/metastatic hepatocellular carcinoma.

IONIS’ Oncology Pipeline

IONIS-AR-2.5_Rx – IONIS-AR-2.5_Rx is a Generation 2.5 antisense drug we designed to treat patients with prostate cancer by reducing the production of all known forms of androgen receptor, or AR, including variants of the AR gene. Prostate cancer is the second leading cause of cancer deaths in American men. Prostate cancer growth, proliferation and progression are all androgen-dependent and AR function is involved in disease progression at all stages of prostate cancer. For patients diagnosed with metastatic prostate cancer, current treatments largely involve opposing the action of androgens by blocking the AR or removing circulating androgens. Although androgen deprivation therapy approaches are initially effective in delaying disease progression, patients with metastatic prostate cancer will progress in their disease. Resistance to current therapies is frequent and can occur through a variety of mechanisms, including the activation of AR signaling in tumor cells through the amplification, over expression and mutation of the AR gene. Because IONIS-AR-2.5_Rx can inhibit the production of all known forms of AR, we believe that this drug has the potential to be useful in treating patients with all stages of prostate cancer, including those who are resistant to current therapies.

AstraZeneca completed an open-label, dose-escalation, Phase 1/2 clinical study of IONIS-AR-2.5_Rx in patients with advanced tumors for which the androgen receptor pathway is potentially a contributing factor. The drug exhibited a good safety and tolerability profile supportive of continued development. We plan to continue developing IONIS-AR-2.5_Rx, independent of AstraZeneca.

IONIS-STAT3-2.5_Rx – IONIS-STAT3-2.5_Rx, also referred to as AZD9150, is a Generation 2.5 antisense drug we designed to reduce the production of signal transducer and activator of transcription 3, or STAT3, to treat patients with cancer. STAT3 is a protein involved in the translation of key factors critical for tumor cell growth and survival. STAT3 is over-active in a variety of cancers, including brain, lung, breast, bone, liver and multiple myeloma. Physicians believe that overactivity in STAT3 prevents cancer cell death and promotes tumor cell growth. IONIS-STAT3-2.5_Rx is a part of our collaboration with AstraZeneca to discover and develop anti-cancer drugs. We believe the significant potency we observed in our preclinical studies with IONIS-STAT3-2.5_Rx broadens the therapeutic opportunities for IONIS-STAT3-2.5_Rx into many different types of cancer in which STAT3 is implicated.

We and AstraZeneca have evaluated IONIS-STAT3-2.5_Rx in patients with advanced metastatic hepatocellular carcinoma and advanced lymphoma. AstraZeneca is evaluating IONIS-STAT3-2.5_Rx in combination with MEDI4736, AstraZeneca's investigational anti-PD-L1 drug, in patients with head and neck cancer and in patients with diffuse large B cell lymphoma.

Metabolic Franchise

 

Metabolic disorders are chronic diseases that affect millions of people. There is a significant need for new therapies for these patients. According to the Centers for Disease Control and Prevention, diabetes affects more than 29 million people in the U.S., or nine percent of the population, with type 2 diabetes constituting 90 to 95 percent of those cases.

We designed the majority of our drugs in our metabolic franchise to be effective alone or when added to existing therapies to treat metabolic diseases, such as diabetes.

 

We have reported positive Phase 2 data from IONIS-GCGR_Rx, the most advanced drug in our metabolic franchise. We designed this drug to act upon targets in the liver or fat tissue through a distinct mechanism to improve insulin sensitivity, reduce glucose production, or affect other metabolic aspects of this complex disease. In addition to our work in diabetes, we are also evaluating nonalcoholic steatohepatitis, or NASH. NASH is a common liver disease characterized by excessive triglycerides in the liver with concurrent inflammation and cellular damage. Currently, it is estimated that two to three percent of the general population have NASH. However, with the growing obesity epidemic, the number of patients with NASH should also continue to rise. About 20 percent of NASH patients are reported to have a liver that does not function properly due to long-term damage, known as cirrhosis and 30 to 40 percent of patients with NASH cirrhosis experience liver-related death. IONIS-DGAT2_Rx is an antisense drug we designed to treat patients with NASH.

IONIS’ Metabolic Pipeline

AKCEA-ANGPTL3-L_Rx – AKCEA-ANGPTL3-L_Rx is a LICA drug we designed to reduce angiopoietin-like 3 protein, or ANGPTL3, an independent risk factor for cardiovascular disease. We and Akcea are developing AKCEA-ANGPTL3-L_Rx to treat multiple lipid disorders, or mixed dyslipidemias. For more information on the development plan for AKCEA-ANGPTL3-L_Rx, see the drug description under the Akcea Therapeutics section below.

IONIS-GCGR_Rx – IONIS-GCGR_Rx is a Generation 2.0+ antisense drug we designed to reduce the production of glucagon receptors, or GCGR, to treat patients with type 2 diabetes. GCGR is a receptor for the hormone glucagon. Glucagon is a hormone that opposes the action of insulin and stimulates the liver to produce glucose, particularly in type 2 diabetes. We are developing IONIS-GCGR_Rx to provide better glucose control for patients with type 2 diabetes. In patients with advanced diabetes, uncontrolled glucagon action can lead to significant increases in blood glucose level. In addition, reducing GCGR produces more active glucagon-like peptide-1, or GLP-1, a hormone that preserves pancreatic function and enhances insulin secretion.

We have completed two Phase 2 studies with IONIS-GCGR_Rx: 1) a 13-week study in patients with type 2 diabetes who are poorly controlled on stable metformin therapy and 2) a 26-week study to identify the optimal dose and schedule to achieve glucose control with manageable glucagon receptor-related liver enzyme elevations. In January 2017, we reported results from the Phase 2 dose optimization study in which patients treated with IONIS-GCGR_Rx achieved robust and sustained, statistically significant improvements in hemoglobin A1c, or HbA1c, and other measures of glucose control after 26 weeks of treatment. Additionally, IONIS-GCGR_Rx-treated patients experienced a mean increase in total GLP-1 from baseline compared to a decline in placebo-treated patients. The safety and tolerability profile of IONIS-GCGR_Rx in the Phase 2 studies supports continued development.

We are now evaluating partnership opportunities for IONIS-GCGR_Rx.

IONIS-DGAT2_Rx – IONIS-DGAT2_Rx is a Generation 2.0+ antisense drug we designed to reduce the production of DGAT2, or diacylglycerol acyltransferase 2, to treat patients with NASH, a common liver disease. As NASH progresses, scarring, or fibrosis, begins to accumulate in the liver. Ultimately, cirrhosis of the liver develops and the liver can no longer function normally. Currently, liver transplantation is the only treatment for advanced cirrhosis and liver failure. Because of the high prevalence of NASH, it has recently become the third most common indication for liver transplantation in the U.S.

DGAT2 is an enzyme that catalyzes the final step in triglyceride synthesis in the liver. Reducing the production of DGAT2 should therefore decrease triglyceride synthesis in the liver. In animal models of obesity and fatty liver disease, antisense inhibition of DGAT2 significantly improved non-alcoholic fatty liver disease, or NAFLD, lowered blood lipid levels and reversed diet-induced insulin resistance.

We completed a Phase 1 randomized, placebo-controlled, dose-escalation study of IONIS-DGAT2_Rx in healthy, overweight volunteers. We designed this study to give us valuable insights on the effects of IONIS-DGAT2_Rx in a patient population that is closely matched to patients with NASH.

Other Drugs in Development

Together with our partners, we continue to advance drugs in clinical development that are outside of our core therapeutic areas, such as the antiviral drugs we and GSK are developing. 

IONIS’ Pipeline of Drugs in Development for Viral Infection or Ocular Disease

IONIS-GSK4-L_Rx – IONIS-GSK4-L_Rx is a LICA drug we designed to reduce an undisclosed ocular target. We are developing IONIS-GSK4-L_Rx with GSK.

IONIS-HBV_Rx and IONIS-HBV-L_Rx – IONIS-HBV_Rx and IONIS-HBV-L_Rx are antisense drugs we designed to reduce the production of viral proteins associated with hepatitis B virus, or HBV. These include proteins associated with infection and replication, including the hepatitis B surface antigen, which is present in both acute and chronic infections and is associated with a poor prognosis in patients with chronic HBV infection. IONIS-HBV-L_Rx is our first anti-infective drug in development that incorporates our LICA technology. Together with GSK, we are evaluating IONIS-HBV_Rx and IONIS-HBV-L_Rx to treat HBV infection.

HBV infection is a serious health problem that can lead to significant and potentially fatal health conditions, including cirrhosis, liver failure and liver cancer. Chronic HBV infection is one of the most common persistent viral infections in the world. Currently available therapies, although effective in reducing circulating HBV in the blood, do not effectively inhibit HBV antigen production and secretion, which are associated with poor prognosis and increased risk of liver cancer.

We have completed a randomized, placebo-controlled, dose-escalation, Phase 1 study of IONIS-HBV_Rx in healthy volunteers.  The safety and tolerability profile of IONIS-HBV_Rx in the Phase 1 study supports continued development. In January 2016, GSK initiated a Phase 1 study evaluating IONIS-HBV-L_Rx in healthy volunteers. The Phase 1 study of IONIS-HBV-L_Rx is a randomized, placebo-controlled, dose-escalation study in healthy volunteers. GSK is planning to initiate Phase 2 studies for both IONIS-HBV_Rx and IONIS-HBV-L_Rx in the first quarter of 2017.

Preclinical Drugs in Development

The efficiency and broad applicability of our technology provides us with nearly unlimited targets against which to develop drugs. On average, it takes 12 to 18 months to complete the preclinical studies necessary to support clinical development. Over the last year we added six new drugs to our preclinical pipeline, IONIS-PKK-L_Rx, IONIS-ENAC-2.5_Rx, IONIS-KRAS-2.5_Rx, IONIS-JBI1-2.5_Rx, IONIS-FXI-L_Rx and IONIS-AZ4-2.5-L_Rx, our first drug that combines our Generation 2.5 and LICA technology.

IONIS’ Preclinical Pipeline

Akcea Therapeutics: Our Wholly Owned Subsidiary to Develop and Commercialize Drugs for Cardiometabolic Diseases Caused by Lipid Disorders

Akcea is assembling the global infrastructure to develop the drugs in its pipeline, to commercialize them with a focus on lipid specialists as the primary call point and to create the specialized support required to address rare disease patient populations. We and Akcea entered into a collaboration, option and license agreement with Novartis. Akcea granted Novartis an exclusive option to license AKCEA-APO(a)-L_Rx and AKCEA-APOCIII-L_Rx, which have the potential to treat patients who are at high cardiovascular risk due to inadequately treated lipid disorders. After Akcea completes its Phase 2 development of each of these drugs, if Novartis exercises its option, it plans to use commercially reasonable efforts to conduct, at its expense, a Phase 3 cardiovascular outcome study in a high-risk patient population and will be responsible for the worldwide development and commercialization activities for each licensed drug. Novartis brings significant resources and expertise that should support the development and commercialization of AKCEA-APO(a)-L_Rx and AKCEA-APOCIII-L_Rx for significant high-risk patient populations. Akcea also plans to co-commercialize any such drug through its specialized sales force focused on lipid specialists in selected markets.

This report includes financial information for this separate business segment in Note 7, Segment Information and Concentration of Business Risk, in the Notes to the Consolidated Financial Statements.

Volanesorsen – Volanesorsen is an antisense drug we and Akcea are developing to treat patients with FCS and FPL. For more information on the development plan for volanesorsen see the drug description under Our Phase 3 Drugs above.

AKCEA-APO(a)-L_Rx – AKCEA-APO(a)-L_Rx is a LICA drug we designed to reduce apolipoprotein(a) in the liver to offer a direct approach for reducing lipoprotein(a), or Lp(a). Lp(a) is an independent risk factor for CVD. We and Akcea initiated a collaboration with Novartis in January 2017 to advance AKCEA-APO(a)-L_Rx.

Akcea is developing AKCEA-APO(a)-L_Rx for patients who are at significant risk of CVD because of their elevated levels of Lp(a). AKCEA-APO(a)-L_Rx inhibits the production of the apolipoprotein(a), or Apo(a), protein, thereby reducing Lp(a), a very atherogenic (promoting the formation of plaques in the arteries) and thrombogenic (promoting the formation of blood clots) form of low density lipoprotein, or LDL. Elevated Lp(a) is recognized as an independent, genetic cause of coronary artery disease, heart attack, stroke and peripheral arterial disease. Inhibiting the production of Apo(a) in the liver reduces the level of Lp(a) in blood, potentially slowing down or reversing cardiovascular disease in patients with hyperlipoproteinemia(a), a condition in which individuals have elevated levels of Lp(a), which we define as levels greater than 60 mg/dL. Lp(a) is difficult to target using other technologies, like small molecules and antibodies, because there are multiple forms of the Apo(a) molecule that are determined by genetic variation. We believe addressing Lp(a) is the next important horizon in lipid focused CVD treatment and, through Akcea’s collaboration with Novartis, Akcea plans to develop AKCEA-APO(a)-L_Rx to treat patients with CVD in whom hyperlipoproteinemia(a) plays a causal role.

We and Akcea completed a Phase 1/2a study with AKCEA-APO(a)-L_Rx in patients with hyperlipoproteinemia(a)and reported results at the AHA meeting in November 2015. In this clinical study, Akcea observed significant and sustained reductions in Lp(a) after only a single, small volume dose of AKCEA-APO(a)-L_Rx. With multiple doses of AKCEA-APO(a)-L_Rx, we and Akcea observed even greater reductions of Lp(a). Based on these results, Akcea is planning to start a dose range finding Phase 2 study of AKCEA-APO(a)-L_Rx in patients with hyperlipoproteinemia(a) and established CVD in the first half of 2017.

AKCEA-ANGPTL3-L_Rx – AKCEA-ANGPTL3-L_Rx is a LICA drug we designed to reduce angiopoietin-like 3 protein, or ANGPTL3, an independent risk factor for cardiovascular disease. We and Akcea are developing AKCEA-ANGPTL3-L_Rx to treat multiple lipid disorders, or mixed dyslipidemias.

People with elevated levels of the angiopoietin-like 3, or ANGPTL3, protein have high LDL-C and triglyceride levels. Studies show this elevation is associated with an increased risk of premature heart attacks, increased arterial wall thickness and multiple metabolic disorders, such as insulin resistance. In contrast, people with lower levels of ANGPTL3 have lower LDL-C and triglyceride levels and thus lower risk of heart attacks and multiple metabolic disorders. In preclinical studies, an analog of AKCEA-ANGPTL3-L_Rx inhibited the production of the ANGPTL3 protein in the liver, inhibiting liver fat accumulation and lowering blood levels of LDL-C and very low density lipoprotein cholesterol, or VLDL-C. In addition, our preclinical data and initial Phase 1 data suggest that inhibiting the production of ANGPTL3 could improve other lipid parameters, including triglyceride levels and total cholesterol, as well as metabolic parameters, such as insulin sensitivity.

We and Akcea are conducting a Phase 1/2 program for AKCEA-ANGPTL3-L_Rx in people with elevated triglycerides and in patients with FCS. If we find that AKCEA-ANGPTL3-L_Rx can effectively lower triglyceride levels in FCS patients by using a different mechanism of action than volanesorsen, it may represent an opportunity to expand Akcea’s FCS franchise in the future. We and Akcea reported initial results for the initial group of people with elevated triglycerides from this study at the AHA meeting in November 2016. These people achieved dose-dependent, statistically significant mean reductions in ANGPTL3 of up to 83% and also experienced statistically significant mean reductions in triglycerides of up to 66% and in total cholesterol of up to 36%. In this study, AKCEA-ANGPTL3-L_Rx displayed a favorable safety and tolerability profile. We plan to report the data from patients with FCS in the first half of 2018. We plan to begin a study of AKCEA-ANGPTL3-L_Rx in patients with fatty liver disease, which may include patients with nonalcoholic fatty liver disease, or NAFLD, or nonalcoholic steatohepatitis, or NASH, in the second half of 2017. Additional potential indications for which we may consider developing AKCEA-ANGPTL3-L_Rx include mixed dyslipidemias and numerous lipodystrophies.

AKCEA-APOCIII-L_Rx – AKCEA-APOCIII-L_Rx is a LICA-conjugated Generation 2.0+ antisense drug we designed to inhibit the production of apoC-III, the same protein inhibited by volanesorsen, for the broad population of patients who are at risk for cardiometabolic disease due to their elevated triglyceride levels.  We and Akcea initiated a collaboration with Novartis in January 2017 to advance AKCEA-APOCIII-L_Rx.

ApoC-III impacts triglyceride levels and may also increase inflammatory processes. This combination of effects makes ApoC-III a valuable target for reducing the residual cardiovascular risk in patients already on statin therapy, or for whom triglycerides are poorly controlled. We believe that the enhancements offered by our LICA technology will provide greater patient convenience by allowing for much lower and less frequent dose administration, compared to volanesorsen.

 We and Akcea are conducting a Phase 1/2 study of AKCEA-APOCIII-L_Rx in people with elevated triglycerides and plan to report results from this study in 2017.

Satellite Company Drugs in Development

We have successfully developed novel drugs we designed to treat many different diseases. In therapeutic areas that are outside of our core areas of development, we have licensed our drugs to highly focused satellite companies that have the specific expertise and resources to continue developing the drugs. For our satellite company drugs, we refer to the drug by the partner’s own compound number, such as ATL1103 or RG-101. We have listed these drugs below in the Satellite Company pipeline.

IONIS’ Satellite Company Pipeline

* Named Patient Supply (see below).

Alicaforsen – Alicaforsen is an antisense drug we designed to reduce the production of intercellular adhesion molecule 1, or ICAM-1. Ulcerative colitis, or UC, is an inflammatory bowel disease of the colon, a part of the large intestine, and pouchitis is an inflammation of the surgically constructed internal pouch created in UC patients who have had their diseased colons removed. In 2007, we licensed alicaforsen to Atlantic Pharmaceuticals for pouchitis, UC and other inflammatory diseases. Atlantic Pharmaceuticals is developing alicaforsen for the treatment of UC and currently supplies alicaforsen in response to physicians' requests under international Named Patient Supply regulations for patients with inflammatory bowel disease. In January 2017, Atlantic announced that it received agreement from the FDA to initiate a rolling submission of its NDA for alicaforsen to treat pouchitis ahead of its Phase 3 data expected in the second half of 2017.

ATL1103 – ATL1103 is an antisense drug we designed to reduce the production of the growth hormone receptor, or GHr, to treat patients with acromegaly. Acromegaly is a serious chronic life threatening disease triggered by excess secretion of GHr by benign pituitary tumors. In 2001, we licensed ATL1103 to Antisense Therapeutics Limited, or ATL.

RG-012 – RG-012 is an anti-miR, or an antisense oligonucleotide inhibitor of microRNA, targeting microRNA-21, or miR-21, to treat patients with Alport syndrome. Alport syndrome is a life-threatening genetic kidney disease with no approved therapy. While there is little known information on the progression of this disease, scientists believe that miR-21 plays a critical role because they have observed increased miR-21 levels in animal models of Alport syndrome and in patients with chronic kidney disease. Regulus is developing RG-012 in a strategic alliance with Genzyme, a Sanofi company, to treat Alport syndrome. In December 2015, Regulus completed a Phase 1 randomized, double-blind, placebo-controlled, single ascending dose study showing the drug was well-tolerated.

Apatorsen – Apatorsen is an antisense drug we designed to reduce the production of heat shock protein 27, or Hsp27, to treat patients with cancer. In January 2005, we entered into an agreement with OncoGenex to develop apatorsen. Under the terms of the agreement, OncoGenex is responsible for all development costs and activities. OncoGenex and collaborators are evaluating apatorsen in multiple Phase 2 studies in patients with cancer.

Plazomicin – Plazomicin is an aminoglycoside drug that Achaogen, Inc. is developing for the treatment of multi-drug resistant gram-negative bacterial infections. Aminoglycosides are a group of antibiotics that inhibit bacterial protein synthesis that physicians can use to treat serious bacterial infections. In 2006, we licensed our proprietary aminoglycoside program to Achaogen. Achaogen discovered plazomicin based on technology licensed from us. Achaogen conducted two Phase 3 studies for plazomicin, CARE and EPIC. The CARE Phase 3 study was designed to evaluate the efficacy of plazomicin in patients with infections caused by carbapenem-resistant Enterobacteriaceae, or CRE. In December 2016, Achaogen announced that a lower rate of mortality or serious disease-related complications were observed in its CARE Phase 3 study in patients receiving plazomicin compared with colistin therapy, one of the few remaining antibiotics for treatment of infections due to CRE. Also in December 2016, Achaogen announced that the EPIC Phase 3 study to evaluate the efficacy of plazomicin in patients with complicated urinary tract infections, met its primary endpoints.

Achaogen plans to submit an NDA, which will include EPIC and CARE data, to the FDA in the second half of 2017 and also plans to submit an MAA to the EMA in 2018.

The FDA has granted Fast Track Status for the development and regulatory review of plazomicin to treat serious and life-threatening CRE infections. In addition, plazomicin has received Qualified Infectious Disease Product, or QIDP, designation from the FDA. The QIDP designation was created by the Generating Antibiotic Incentives Now, or GAIN, Act, which was part of the FDA Safety and Innovation Act and provides certain incentives for the development of new antibiotics, including priority review and an additional five years of market exclusivity.

ATL1102 – ATL1102 is an antisense drug we designed to reduce the production of CD49d, a subunit of Very Late Antigen-4, or VLA-4, for the treatment of patients with multiple sclerosis, or MS. Results from preclinical studies demonstrated that inhibition of VLA-4 could positively affect a number of inflammatory diseases, including MS. In 2001, we licensed ATL1102 to ATL. ATL completed a chronic toxicology study in primates and a Phase 2a efficacy and safety trial. ATL1102 was shown by ATL to reduce MS lesions in the Phase 2a clinical trial. ATL plans to submit an IND application for its Phase 2b study in early 2017.

RG-101 – RG-101 is an anti-miR targeting microRNA-122, or miR-122, to treat patients with hepatitis C virus, or HCV. RG-101 is wholly owned by Regulus, but Regulus has entered into a clinical trial collaboration with GSK. Regulus is evaluating RG-101 as part of an HCV combination regimen with GSK’s investigational HCV compound. Regulus completed a Phase 1/2 study in patients with HCV and is evaluating RG-101 in a Phase 2 study in combination with direct acting antivirals in patients with HCV. Regulus is also evaluating RG-101 in a Phase 1 study in patients with severe renal insufficiency or end-stage renal disease. The FDA initiated a clinical hold after Regulus reported a second serious adverse event, or SAE, of jaundice in June 2016. Subsequently, the FDA requested the final safety and efficacy data from on-going RG-101 clinical and pre-clinical studies before reconsidering the clinical hold. Regulus anticipates that data will be available in the fourth quarter of 2017.

RG-125 – RG-125, also referred to as AZD4076, is a GalNAc-conjugated anti-miR targeting microRNA-103/107, or miR-103/107, for the treatment of NASH in patients with type 2 diabetes/pre-diabetes. Regulus reported that inhibition of miR-103/107 with anti-miRs led to a sustained reduction in fasting glucose and fasting insulin levels in mouse models. RG-125 is part of the strategic alliance between Regulus and AstraZeneca to discover and develop microRNA therapeutics for cardiovascular diseases, metabolic diseases and oncology. In December 2015, Regulus transferred all future development of RG-125 to AstraZeneca. In December 2015, AstraZeneca initiated a Phase 1 study evaluating RG-125 in healthy volunteers and in the third quarter of 2016, AstraZeneca initiated a Phase 1/2a study in patients with type 2 diabetes and NAFLD.

Antisense Technology

Our antisense technology is an innovative platform for discovering first-in-class or best-in-class drugs for treating disease. We believe this technology represents an important advance in the way we treat disease because, unlike most other drug technologies that target existing proteins in the body, antisense technology is an RNA-targeted drug technology. The unique properties of antisense drugs provide several advantages over traditional drug discovery technologies. These advantages include:

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Direct application to diseases at the genetic level by targeting RNA: antisense technology represents a direct route from gene to drug. The explosion in genomic information has led to the discovery of many new disease-causing proteins and RNAs, and has created new opportunities accessible to antisense technology.

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Precise specificity: we design antisense drugs to target a single RNA, which minimizes or eliminates the possibility our drugs will bind to unintended targets which can cause unwanted side effects.

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Good drug properties: antisense drugs distribute well throughout the body without the need for special formulations or vehicles. They also have a relatively long half-life of approximately two to four weeks, which means patients and/or healthcare providers can dose our drugs once a week. Antisense drugs using our more advanced technology also have the potential for patients and/or their healthcare providers to dose our drugs once a month, once a quarter or even less frequently.

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Ability to combine with other drugs: because antisense drugs do not interact with the enzymes that metabolize or break down other drugs, physicians can use our drugs in combination with other drugs.

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Broad applications to multiple disease targets, multiple tissues and multiple mechanisms: there are virtually no “undruggable” targets with antisense technology.

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Efficient discovery and early development: because of the efficiency of our antisense technology, our drug discovery and early development costs and success rates compare favorably to small molecule or antibody drug discovery and development.

We identify antisense drugs to treat diseases for which there is a large unmet medical need, including severe and rare diseases for which there are limited or no current treatments or in diseases for which we believe our drugs have a competitive advantage over existing therapies.

Technology Overview

We use our core technology platform to discover and develop drugs that affect targets in the body at the genetic level. Genes contain the information necessary to produce proteins. A gene is made up of nucleotides containing the nucleoside bases: adenine, thymine, guanine, and cytosine, commonly known as A, T, G and C, which are linked together to form a two-stranded structure that resembles a twisted ladder, known as deoxyribonucleic acid, or DNA. The nucleotides on one side of the ladder bind weakly to complementary nucleotides on the other strand according to specific rules; for example, A pairs with T and G pairs with C, creating the ladder’s rungs (figure 1). Scientists call this highly specific nucleotide pairing hybridization. The sequence or order of these nucleotides establishes the cell’s recipes for making proteins. Each protein’s instructions reside in a corresponding segment of DNA known as a gene.

Figure 1: Illustration of DNA.

Figure 2: Transcription of information contained in a gene, or DNA, to mRNA.

The instructions for making a protein are transcribed from a gene, or DNA, into a different genetic molecule called messenger RNA. This process starts with the partial uncoiling of the two complementary strands of the DNA. One strand acts as a template and information stored in the DNA template strand is copied into a complementary RNA (figure 2). Messenger RNA, or mRNA, are mature, fully processed RNA that code for proteins. Ribosomes, the cell’s factories for manufacturing proteins, translate mRNA into proteins. The ribosome reads the encoded information, the mRNA’s nucleotide sequence, and in doing so, strings together amino acids to form a specific protein (figure 3).

Figure 3: Translation of the protein-coding information contained in mRNA to protein.

We primarily use our antisense technology to interrupt the cell’s protein production process by preventing the mRNA instructions from reaching the ribosome, thus inhibiting the production of the protein. The mRNA sequence of nucleotides that carries the information for protein production is called the ‘sense’ strand. Scientists call the complementary nucleotide chain that binds specifically to the sense strand the “antisense” strand. We use the information contained in mRNA to design chemical structures, that we call antisense oligonucleotides or antisense drugs, which resemble DNA and RNA and are the complement of RNA. Our antisense drugs can selectively bind to an mRNA that codes for a specific protein and will not bind to closely related RNAs, providing a level of specificity that is better than traditional drugs. As a result, we can design antisense drugs that selectively inhibit the disease-causing member of the protein group without interfering with those members of the protein group necessary for normal bodily functions. This unique specificity means that antisense drugs may be less toxic than traditional drugs because we can design them to minimize the impact on unintended targets. We can also design antisense drugs to increase the production of beneficial proteins.

We have developed the majority of the drugs in our pipeline using our advanced screens to produce drugs with what we believe are the best possible safety and tolerability profiles. We refer to our drugs that have passed these advanced screens as Generation 2.0+ drugs. We continue to advance our antisense technology to create even more potent drugs that we can use in more tissues and against more targets. These advances allow us to expand the mechanisms through which we can use our drugs. These advancements provide us with greater opportunities to use our antisense drugs to treat a greater number of diseases and reach more patient populations. Today several of our early stage drugs and those entering our pipeline use our most advanced antisense technology, including our next generation chemistry, Generation 2.5, and our LICA technology.

Generation 2.5 chemistry is an advancement that we believe increases the potency of our drugs by up to 10-fold over our Generation 2.0+ drugs. This increase in potency enables our drugs to engage targets in a broader array of tissues. We have published data demonstrating that our Generation 2.5 drugs generally have enhanced potency over our Generation 2.0+ drugs and are broadly distributed throughout the body to multiple tissues including liver, kidney, lung, muscle, adipose, adrenal gland, peripheral nerves and tumor tissues. Our Generation 2.5 drugs constitute some of our recently added new drugs.

In addition to improving the chemical foundation of our drugs, we design our LICA technology to enhance the delivery of our drugs to particular tissues. This technology adds specific chemical structures or molecules, such as conjugates, onto antisense drugs to increase the efficiency of drug uptake in a particular tissue. We have demonstrated that our LICA technology can further enhance the potency of our drugs. For example, our LICA technology directed toward liver targets has produced a greater than thirty fold increase in potency in a Phase 1 study of AKCEA-APO(a)-L_Rx. We can combine our LICA technology with both our Generation 2.0+ and our Generation 2.5 drugs to increase the potency of these drugs. We designed these first LICA drugs to inhibit targets in the liver. We are also developing LICA conjugation technology that we can use to target other tissues. We expect that we can enhance some of our future drugs, including our Generation 2.5 drugs with our LICA technology.

Antisense Targets and Mechanisms

There are more than a dozen different antisense mechanisms that we can exploit with our antisense technology. The majority of the drugs in our pipeline bind to mRNAs and inhibit the production of disease-causing proteins. Our antisense technology is broadly applicable to many different antisense mechanisms, including RNA splicing, exon skipping, RNA interference, or RNAi, and enhancing protein translation to increase protein production. We have also recently published research showing that we can use our proprietary oligonucleotide technology with CRISPR/Cas9, a gene editing system. Our work in this area provides an important step toward development of a potential therapeutic application for CRISPR technology.

The antisense drugs we design to inhibit the production of disease-causing proteins or reduce harmful RNAs bind to the target RNA via highly specific nucleotide pairing, or hybridizing, and recruiting a cellular enzyme called ribonuclease H1, or RNase H1, to degrade the target RNA. The drug itself remains intact during this process, so it can remain active against additional target RNA molecules and repeatedly trigger their degradation (figure 4). Examples of our clinical development stage antisense drugs that use the RNase H1 mechanism to reduce disease protein production include, volanesorsen, IONIS-TTR_Rx, IONIS-FXI_Rx, AKCEA-APO(a)-L_Rx and others.

Figure 4: Antisense drug using the RNase H mechanism of action.

SPINRAZA is an example of an antisense drug that modulates RNA splicing to increase protein production of the SMN protein (figure 5), which is critical to the health and survival of nerve cells in the spinal cord that are responsible for neuro-muscular function. The SMN protein is deficient in patients with SMA. There are a number of other diseases, including cystic fibrosis and Duchenne muscular dystrophy, which are the result of splicing disorders. These are diseases we could potentially treat using antisense modulation of splicing.

Figure 5: Antisense drug altering splicing of the SMN2 mRNA.

Another RNA target for our antisense technology is microRNAs. To date, scientists have identified more than 700 microRNAs in the human genome, and have shown that the absence or presence of specific microRNAs in various cells is associated with specific human diseases, including cancer, viral infection, metabolic disorders and inflammatory disease. To fully exploit the therapeutic opportunities of targeting microRNAs, we co-founded Regulus Therapeutics as a company focused on the discovery, development and commercialization of microRNA-based therapeutics. Regulus has reported human proof-of-concept data for RG-101 in HCV patients. These data demonstrated that treatment with a single subcutaneous dose of RG-101 as a single agent resulted in significant and sustained reductions in HCV RNA in a varied group of patients.

We are also making progress in designing antisense drugs to target long, non-coding RNAs, or lncRNAs. These lncRNAs do not make proteins but may regulate other genes. In 2014, we published a paper in Nature in which we were the first to show that targeted reduction of an lncRNA with an antisense compound can ameliorate certain cognitive deficits in a mouse model of Angelman syndrome, or AS. Moreover, these studies demonstrate the potential therapeutic benefits of an antisense drugs for the treatment of AS.

Because the efficiency of our core technology platform can support multiple target-based antisense research programs without significantly increasing costs, we can develop antisense drugs to target a broad range of diseases, efficiently producing a large and broad proprietary portfolio of drugs. We are currently pursuing antisense drug discovery programs focused on various severe and rare, cardiovascular, neurologic and metabolic diseases, and cancer.

Collaborative Arrangements and Licensing Agreements

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We have strategic partnerships through which we can broadly expand our drug discovery efforts to new disease targets in specific therapeutic areas. Our partners provide expertise, tools and resources to complement our drug discovery efforts. For instance, we established a broad strategic alliance with Biogen that pairs Biogen’s extensive resources and expertise in neurodegenerative diseases with our antisense technology. Together we are creating a franchise of novel potential drugs for neurodegenerative diseases that we believe will expand both our pipeline and Biogen’s pipeline with promising new drugs. Most recently, we licensed SPINRAZA to Biogen and began receiving commercial revenue from SPINRAZA royalties in December 2016 after SPINRAZA’s approval by the FDA.

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We also work with a consortium of companies that can exploit our drugs and technologies outside our primary areas of focus. We refer to these companies as satellite companies. Through our satellite company collaborations, we expand the reach and potential of RNA-targeting therapeutics into disease areas that are outside of our core focus.

Financial Impact of Our Partnerships

Through our partnerships, we have created a broad and sustaining base of potential R&D revenue in the form of license fees, upfront payments and milestone payments while spending prudently to advance our pipeline and technology. Since 2007, we have received more than $1.9 billion in cash from upfront and licensing fees, equity purchase payments, milestone payments and research and development funding from our partnerships. We have the potential to earn nearly $13 billion in future milestone payments and licensing fees from our current partnerships. We also have the potential to share in the future commercial success of our inventions and drugs resulting from our partnerships through earn out or royalty arrangements. For example, with the approval of SPINRAZA in the U.S., we are adding commercial revenue from SPINRAZA royalties to our broad base of R&D revenue.

Strategic Partnerships

AstraZeneca

Cardiometabolic and Renal Diseases Collaboration

In December 2012, we entered into a collaboration agreement with AstraZeneca to discover and develop antisense drugs for cancer. As part of the agreement, we granted AstraZeneca an exclusive license to develop and commercialize IONIS-STAT3-2.5_Rx for the treatment of cancer and an option to license up to three anti-cancer drugs under a separate research program. AstraZeneca is responsible for all global development, regulatory and commercialization activities for IONIS-STAT3-2.5_Rx. We and AstraZeneca have evaluated IONIS-STAT3-2.5_Rx in patients with advanced metastatic hepatocellular carcinoma and advanced lymphoma. AstraZeneca is evaluating IONIS-STAT3-2.5_Rx in combination with MEDI4736, AstraZeneca's investigational anti-PD-L1 drug, in patients with head and neck cancer and in patients with diffuse large B cell lymphoma. For the research program, we are responsible for identifying a development candidate for each of the three anti-cancer research programs. AstraZeneca has the option to license drugs resulting from each of the three anti-cancer research programs, and if AstraZeneca exercises its option for a drug, it will be responsible for all further global development, regulatory and commercialization activities for such drug. The first development candidate identified under the anti-cancer research program was IONIS-KRAS-2.5_Rx, which AstraZeneca licensed from us in December 2016. IONIS-KRAS-2.5_Rx is a Generation 2.5 antisense drug we designed to directly target KRAS, one of the most frequently mutated genes in cancer.  

Under the terms of the agreement, we received $31 million in upfront payments. We are eligible to receive milestone payments and license fees from AstraZeneca as programs advance in development. In addition, we are eligible to receive tiered royalties up to the low to mid-teens on sales from any drugs resulting from these programs. If AstraZeneca successfully develops IONIS-STAT3-2.5_Rx, IONIS-KRAS-2.5_Rx and two other drugs under the research program, we could receive license fees and milestone payments of up to more than $750 million. From inception through February 2017, we have generated more than $95 million in payments under this collaboration, including $28 million we earned in December 2016 following the completion of IND-supporting studies and AstraZeneca’s license of IONIS-KRAS-2.5_Rx.

For additional details about our collaboration agreements with AstraZeneca, including other financial information and termination provisions, see Note 6, Collaborative Arrangements and Licensing Agreements, in the Notes to the Consolidated Financial Statements.

Biogen

We have four strategic collaborations with Biogen focused on using antisense technology to advance the treatment of neurological disorders. These collaborations combine our expertise in creating antisense drugs with Biogen's expertise in developing therapies for neurological disorders. We developed and licensed to Biogen SPINRAZA, our recently approved drug to treat pediatric and adult patients with SMA. Additionally, we and Biogen are currently developing four other drugs to treat neurodegenerative diseases under these collaborations, including IONIS-SOD1_Rx, and three drugs to treat undisclosed neurodegenerative diseases, IONIS-BIIB4_Rx, IONIS-BIIB5_Rx and IONIS-BIIB6_Rx. In addition to these drugs, we and Biogen are evaluating numerous additional targets to develop drugs to treat neurological diseases. From inception through February 2017, we have generated over $550 million from our Biogen collaborations.

In January 2012, we entered into a collaboration agreement with Biogen to develop and commercialize SPINRAZA, an RNA-targeted therapy for the treatment of SMA. In December 2016, the FDA approved SPINRAZA for the treatment of SMA in pediatric and adult patients. SPINRAZA is currently under Accelerated Assessment with the EMA for marketing authorization.  Biogen has also submitted regulatory filings in Japan, Canada and Australia and will be initiating regulatory filings in additional countries in 2017. Under our collaboration agreement, we received an upfront payment of $29 million in January 2012 and we are eligible to receive up to an additional $346 million in a license fee and payments. We are also eligible to receive tiered royalties up to the mid-teens on any sales of SPINRAZA. We have exclusively in-licensed patents related to SPINRAZA from Cold Spring Harbor Laboratory and the University of Massachusetts. We are obligated to pay Cold Spring Harbor Laboratory and the University of Massachusetts nominal amounts for license fees and milestone payments we receive and a low single digit royalty on sales of SPINRAZA. From inception through February 2017, we have generated nearly $320 million in payments for advancing SPINRAZA, including a $75 million license fee we received from Biogen when Biogen licensed SPINRAZA and a $60 million milestone payment we earned from Biogen upon receiving FDA approval, both in 2016. Biogen is responsible for all further global development, regulatory and commercialization activities and costs for SPINRAZA.

IONIS-DMPK-2.5_Rx

In June 2012, we and Biogen entered into a second and separate collaboration agreement to develop and commercialize a novel antisense drug, IONIS-DMPK-2.5_Rx, targeting DMPK for the treatment of myotonic dystrophy type 1, or DM1. We are responsible for global development of the drug through the completion of the first Phase 2 clinical trial. We completed a Phase 1/2 clinical study in patients with DM1. Based on the data reported in December 2016, we plan to pursue a more potent drug using our LICA technology. From inception through February 2017, we have generated nearly $39 million in payments for advancing IONIS-DMPK-2.5_Rx.

Neurology

In December 2012, we and Biogen entered into a separate collaboration agreement to develop and commercialize novel antisense drugs to up to three targets to treat neurodegenerative diseases. We are responsible for the development of each of the drugs through the completion of the initial Phase 2 clinical study for such drug. Biogen has the option to license a drug from each of the three programs through the completion of the first Phase 2 study for each program. We are currently advancing IONIS-BIIB4_Rx under this collaboration. If Biogen exercises its option for a drug, it will assume all further global development, regulatory and commercialization responsibilities for that drug. Under the terms of the agreement, we received an upfront payment of $30 million. Over the term of the collaboration, we are eligible to receive up to an additional $259 million in a license fee and milestone payments per program. In addition, we are eligible to receive tiered royalties up to the mid-teens on sales from any drugs resulting from each of the three programs. From inception through February 2017, we have generated $43 million in payments under this collaboration.

Strategic Neurology

In September 2013, we and Biogen entered into a long-term strategic relationship focused on applying antisense technology to advance the treatment of neurodegenerative diseases. As part of the collaboration, Biogen gained exclusive rights to the use of our antisense technology to develop therapies for neurological diseases and has the option to license drugs resulting from this collaboration. The exclusivity for neurological diseases will last through September 2019, and may be extended for any drug development programs Biogen is pursuing under the collaboration. We will usually be responsible for drug discovery and early development of antisense drugs and Biogen will have the option to license antisense drugs after Phase 2 proof of concept. In October 2016, we expanded our collaboration to include the additional research activities we will perform. If Biogen exercises its option for a drug, it will assume all further global development, regulatory and commercialization responsibilities for that drug. We are currently advancing three drugs, IONIS-SOD1_Rx, IONIS-BIIB5_Rx, and IONIS-BIIB6_Rx under this collaboration. Biogen will be responsible for all of the drug discovery and development activities for drugs using other modalities.

Under the terms of the agreement, we received an upfront payment of $100 million and are eligible to receive milestone payments, license fees and royalty payments for all drugs developed through this collaboration, with the specific amounts dependent upon the modality of the molecule advanced by Biogen. For each antisense molecule that is chosen for drug discovery and development under this collaboration, we are eligible to receive up to approximately $260 million in a license fee and milestone payments. In addition, we are eligible to receive tiered royalties up to the mid-teens on sales from any antisense drugs developed under this collaboration. If other modalities are chosen, such as small molecules or monoclonal antibodies, we are eligible to receive up to $90 million in milestone payments. In addition, we are eligible to receive tiered single-digit royalties on sales from any drugs using non-antisense modalities developed under this collaboration. From inception through February 2017, we have generated nearly $150 million in payments under this collaboration.

For additional details about our collaboration agreements with Biogen, including other financial information and termination provisions, see Note 6, Collaborative Arrangements and Licensing Agreements, in the Notes to the Consolidated Financial Statements.

Research, Development and Commercialization Partners

Bayer

In May 2015, we entered into an exclusive license agreement with Bayer to develop and commercialize IONIS-FXI_Rx for the prevention of thrombosis. We were responsible for completing a Phase 2 study of IONIS-FXI_Rx in patients with end-stage renal disease on hemodialysis. Under the terms of the agreement, we received a $100 million upfront payment in the second quarter of 2015. In February 2017, we amended our agreement with Bayer to advance IONIS-FXI_Rx and to initiate the development of IONIS-FXI-L_Rx, which Bayer licensed. In conjunction with the decision to advance these programs, we will receive a $75 million payment from Bayer. We plan to conduct a Phase 2b study evaluating IONIS-FXI_Rx in patients with end-stage renal disease on hemodialysis to finalize dose selection.  Additionally, we plan to rapidly develop IONIS-FXI-L_Rx through Phase 1.  Following these studies and Bayer's decision to further advance these programs, Bayer will be responsible for all global development, regulatory and commercialization activities for both drugs.  We are eligible to receive additional milestone payments as each drug advances toward the market. In total over the term of our collaboration, we are eligible to receive up to $385 million in license fees, milestone payments and other payments. In addition, we are eligible to receive tiered royalties in the low to high twenty percent range on gross margins of both drugs combined. From inception through February 2017, we have generated over $175 million in payments under this collaboration.

For additional details about our collaboration agreement with Bayer, including other financial information and termination provisions, see Note 6, Collaborative Arrangements and Licensing Agreements, in the Notes to the Consolidated Financial Statements.

 In addition to IONIS-TTR_Rx, we have three drugs in development with GSK, including two antisense drugs we designed to reduce the production of viral proteins associated with hepatitis B virus, or HBV, infection; IONIS-HBV_Rx and IONIS-HBV-L_Rx, a follow-on drug using our LICA technology. GSK is currently developing IONIS-HBV_Rx and IONIS-HBV-L_Rx, and if GSK exercises its exclusive option for either of these drugs, it will be responsible for all further global development, regulatory and commercialization activities.  We are also developing IONIS-GSK4-L_Rx which is an antisense drug we designed to treat an ocular disease.

Under our agreement, if GSK successfully develops all four drugs for one or more indications and achieves pre-agreed sales targets, we could receive license fees and milestone payments of up to nearly $900 million. From inception through February 2017, we have generated more than $155 million in payments under this alliance with GSK. In addition, we are eligible to receive tiered royalties up to the mid-teens on sales from any product that GSK successfully commercializes under this alliance.

For additional details about our collaboration agreement with GSK, including other financial information and termination provisions, see Note 6, Collaborative Arrangements and Licensing Agreements, in the Notes to the Consolidated Financial Statements.

In December 2014, we entered into a collaboration agreement with Janssen Biotech, Inc. to discover and develop antisense drugs that can be locally administered, including oral delivery, to treat autoimmune disorders of the gastrointestinal tract. Janssen has the option to license drugs from us through the designation of a development candidate for up to three programs. Prior to option exercise we are responsible for the discovery activities to identify a development candidate. If Janssen exercises an option for one of the programs, it will be responsible for the global development, regulatory and commercial activities under that program. Under the terms of the agreement, we received $35 million in upfront payments. We are eligible to receive up to nearly $800 million in milestone payments and license fees for these programs. From inception through February 2017, we generated more than $50 million in payments under this collaboration, including the $10 million license fee we earned in July 2016 when Janssen licensed IONIS-JBI1-2.5_Rx from us and a $5 million milestone payment when Janssen selected a development candidate for a second program in December 2016. In addition, we are eligible to receive tiered royalties up to the near teenson sales from any drugs resulting from this collaboration.

For additional details about our collaboration agreement with Janssen, including other financial information and termination provisions, see Note 6, Collaborative Arrangements and Licensing Agreements, in the Notes to the Consolidated Financial Statements.

In January 2017, we and Akcea initiated a collaboration with Novartis to develop and commercialize AKCEA-APO(a)-L_Rx and AKCEA-APOCIII-L_Rx. Under the collaboration, option and license agreement, Novartis has an exclusive option to develop and commercialize these drugs. Akcea is responsible for completing a Phase 2 dose ranging study and conducting an end-of-Phase 2 meeting with the FDA for each drug. If Novartis exercises an option for one of these drugs, Novartis will be responsible for all further global development, regulatory and commercialization activities for each drug.

Akcea will receive a $75 million upfront payment, of which Akcea will retain $60 million and will pay us $15 million as a sublicense fee under our license agreement with Akcea. Beginning in 2017, we and Akcea will recognize revenue from this collaboration with Novartis. If Novartis exercises its option for a drug, Novartis will pay Akcea a license fee equal to $150 million for each drug it licenses. In addition, Akcea is eligible to receive up to $600 million and $530 million in milestone payments related to AKCEA-APO(a)-L_Rx and AKCEA-APOCIII-L_Rx, respectively. Akcea retains the right to co-commercialize any such drug through its specialized sales force focused on lipid specialists in selected markets. Akcea is also eligible to receive tiered royalties in the mid-teens to low twenty percent range on net sales of AKCEA-APO(a)-L_Rx and AKCEA-APOCIII-L_Rx. Akcea will pay 50 percent of these license fees, milestone payments and royalties to us as a sublicense fee.

Additionally, in January 2017, we and Akcea entered into a stock purchase agreement, or SPA, with Novartis. Under the SPA, Novartis purchased 1,631,435 shares of our common stock for $100 million. Additionally, Novartis has an obligation to make a further equity investment of $50 million on or before July 2018 in either our stock at the same premium as its initial investment or in Akcea’s stock.

For additional details about our and Akcea’s collaboration agreement with Novartis, including other financial information and termination provisions, see Note 6, Collaborative Arrangements and Licensing Agreements, in the Notes to the Consolidated Financial Statements.

In April 2013, we formed an alliance with Hoffman-La Roche Inc. and F. Hoffmann-La Roche Ltd., collectively Roche, to develop treatments for HD based on our antisense technology. Roche has the option to license the drugs from us through the completion of the first Phase 1 trial. Under the agreement, we are responsible for the discovery and development of an antisense drug targeting HTT protein. We are currently evaluating a drug targeting HTT, IONIS-HTT_Rx, in a Phase 1/2 clinical study in patients with early stage HD. If Roche exercises its option, it will be responsible for global development, regulatory and commercialization activities for any drug arising out of the collaboration. Under the terms of the agreement, we received an upfront payment of $30 million in April 2013. We are eligible to receive up to $365 million in a license fee and milestone payments. In addition, we are eligible to receive up to $136.5 million in milestone payments for each additional drug successfully developed. We are also eligible to receive tiered royalties up to the mid-teens on sales from any product resulting from this alliance. From inception through February 2017, we have generated nearly $55 million in payments under this alliance with Roche.

For additional details about our collaboration agreement with Roche, including other financial information and termination provisions, see Note 6, Collaborative Arrangements and Licensing Agreements, in the Notes to the Consolidated Financial Statements.

Satellite Company Partnerships

In 2006, we exclusively licensed to Achaogen, Inc. specific know-how, patents and patent applications relating to aminoglycosides. In connection with the license, Achaogen issued to us $1.5 million of Achaogen stock. Achaogen is developing plazomicin, an aminoglycoside Achaogen discovered based on the technology we licensed to Achaogen. If Achaogen successfully develops and commercializes two drugs under our agreement, we will receive payments totaling up to $49.3 million for the achievement of key clinical, regulatory and sales events. In December 2016, Achaogen announced positive data for its CARE Phase 3 study for plazomicin and that its EPIC Phase 3 study met its primary endpoints. Achaogen plans to submit an NDA, which will include EPIC and CARE data, to the FDA in the second half of 2017 and also plans to submit an MAA to the EMA in 2018. Through February 2017, we have earned $7 million in milestone payments from Achaogen, including a $4 million milestone payment we earned in September 2014 when Achaogen initiated a Phase 3 study of plazomicin We are also eligible to receive low single digit royalties on sales of drugs resulting from the program.  Achaogen is solely responsible for the continued development and commercialization of plazomicin.

In March 2004, we entered into an alliance with Alnylam to develop and commercialize RNAi therapeutics. Under the terms of the agreement, we exclusively licensed to Alnylam our patent estate relating to antisense motifs and mechanisms and oligonucleotide chemistry for double-stranded RNAi therapeutics in exchange for a $5 million technology access fee, participation in fees from Alnylam’s partnering programs, as well as future milestone and royalty payments from Alnylam. For each drug Alnylam develops under this alliance, we may receive up to $3.4 million in milestone payments. We also have the potential to earn a portion of payments that Alnylam receives from licenses of our technology it grants to its partners, plus royalties. We retained rights to a limited number of double-stranded RNAi therapeutic targets and all rights to single-stranded RNAi, or ssRNAi, therapeutics.

In 2015, we and Alnylam entered into an alliance in which we formed an intellectual property cross-license under which we and Alnylam each obtained exclusive license rights to four therapeutic programs. Alnylam granted us an exclusive, royalty-bearing license to its chemistry, RNA targeting mechanism and target-specific intellectual property for oligonucleotides against four targets, including FXI and Apo(a) and two other targets. In exchange, we granted Alnylam an exclusive, royalty-bearing license to our chemistry, RNA targeting mechanism and target-specific intellectual property for oligonucleotides against four other targets. Alnylam also granted us a royalty-bearing, non-exclusive license to new platform technology arising from May 2014 through April 2019 for single-stranded antisense therapeutics. In turn, we granted Alnylam a royalty-bearing, non-exclusive license to new platform technology arising from May 2014 through April 2019 for double-stranded RNAi therapeutics. Through February 2017, we have generated over $70 million from Alnylam.

In October 2016, we entered into a collaboration with Dynacure to discover, develop and commercialize an antisense drug for the treatment of neuromuscular diseases. We and Dynacure will share research responsibilities to identify a drug development candidate. Upon exercising its option to license the drug, Dynacure will assume all responsibility for development and commercialization. Under the terms of the agreement, we obtained a 15 percent equity ownership in Dynacure. If Dynacure advances a target under this collaboration, we could receive cash or equity up to more than $210 million in a license fee and milestone payments for specified development, regulatory and sales events. In addition, we are eligible to receive royalties on future product sales of the drug under this collaboration.

In September 2007, we and Alnylam established Regulus as a company focused on the discovery, development and commercialization of microRNA-targeting therapeutics. We and Alnylam retain rights to develop and commercialize, on pre-negotiated terms, microRNA therapeutic products that Regulus decides not to develop either by itself or with a partner. Regulus is addressing therapeutic opportunities that arise from alterations in microRNA expression. Since microRNAs may act as master regulators of the genome, affecting the expression of multiple genes in a disease pathway, microRNA therapeutics define a new platform for drug discovery and development. MicroRNAs may also prove to be an attractive new tool for characterizing diseases. Regulus focuses its drug discovery and development efforts in numerous therapeutic areas, including cancer, fibrosis, and viral infections. Regulus currently has three drugs in clinical development. Regulus is evaluating RG-101 in a Phase 2 study in patients with HCV and in a Phase 1 study in patients with severe renal insufficiency or end-stage renal disease. Regulus completed a Phase 1 study of RG-012, a drug to treat patients with Alport syndrome. Regulus and AstraZeneca are also evaluating RG-125 in a Phase 1 study for the treatment of NASH in patients with type 2 diabetes or pre-diabetes. We are eligible to receive royalties on any future product sales of these drugs.

External Project Funding

Starting in November 2007, CHDI provided financial and scientific support to our Huntington’s disease drug discovery program through our development collaboration. In April 2013, we formed an alliance with Roche to develop treatments for Huntington’s disease. Under the terms of our agreement with CHDI, we will reimburse CHDI for a portion of its support of our Huntington’s disease program out of the payments we receive from Roche. We made payments of $5 million and $3 million to CHDI in 2015 and 2013, respectively, associated with the progression of our Huntington’s disease program. If we achieve pre-specified milestones under our collaboration with Roche, we will make additional research related payments to CHDI up to $4 million, upon completion of our Phase 1/2 study of IONIS-HTT_Rx. If Roche licenses IONIS-HTT_Rx, we will make an additional payment to CHDI.

In August 2016, we entered into a collaboration agreement with the Cystic Fibrosis Foundation to discover and advance a drug for the treatment of Cystic Fibrosis. Under this agreement, we received upfront payments of $1 million and we are eligible to receive additional milestone payments up to $2 million. Under the agreement, we and the Cystic Fibrosis Foundation will evenly share the first $3 million of costs specific to our collaboration.  We are obligated to pay the Cystic Fibrosis Foundation up to $18 million upon achieving specific regulatory and sales events if we advance a drug under our collaboration.

Intellectual Property Sale and Licensing Agreements

In January 2009, we sold our former subsidiary, Ibis Biosciences, to Abbott Molecular Inc., or AMI, pursuant to a stock purchase agreement for a total acquisition price of $215 million plus the earn out payments described below. Under the stock purchase agreement, we are eligible to receive earn out payments from AMI equal to a percentage of Ibis’ revenue related to sales of Ibis systems, which AMI launched in 2014 as IRIDICA, including instruments, assay kits and successor products. Once cumulative net sales reach $140 million, and through December 31, 2025, we are eligible to earn out payments in any year that net sales exceed $50 million for the applicable year. The earn out payments will equal five percent of Ibis’ cumulative net sales over $140 million and up to $2.1 billion, and three percent of Ibis’ cumulative net sales over $2.1 billion. AMI may reduce these earn out payments from five percent to as low as 2.5 percent and from three percent to as low as 1.5 percent, respectively, upon the occurrence of certain events.

Kastle Therapeutics

In May 2016, we entered into an agreement with Kastle under which Kastle acquired the global rights to develop and commercialize Kynamro. Kynamro is approved in the U.S. for use in patients with homozygous familial hypercholesterolemia to reduce low density lipoprotein-cholesterol, apolipoprotein B, total cholesterol and non-high density lipoprotein-cholesterol as an adjunct to lipid lowering medications and diet. We previously licensed Kynamro to Sanofi Genzyme. As a result, Sanofi Genzyme earns a three percent royalty on sales of Kynamro and three percent of non-royalty cash payments we receive from Kastle. Under the terms of our agreement with Kastle, we are eligible to receive up to $95 million, which includes a $15 million up-front payment we received in May 2016, a $10 million payment we are entitled to receive in May 2019 and up to $70 million in sales milestones. In December 2016, we amended our agreement with Kastle. As a result of the amendment, through 2017, Kastle will only pay us the three percent royalty we owe Sanofi Genzyme on sales of Kynamro. Beginning in 2018, we will be eligible to earn tiered royalties on global sales of Kynamro that average in the mid to low teens, increasing slightly in years 2020 and 2021. In addition in May 2016, we received a 10 percent common equity position in Kastle. Because realization of our equity position is uncertain, we recorded a full valuation allowance. Through February 2017, we have generated over $15 million from Kastle.

For additional details about our Intellectual Property Sale and Licensing arrangements, see Note 6, Collaborative Arrangements and Licensing Agreements, in the Notes to the Consolidated Financial Statements.

Manufacturing

 

In the past, except for small quantities, it was generally expensive and difficult to produce chemically modified oligonucleotides like the antisense drugs we use in our research and development programs. As a result, we have dedicated significant resources to develop ways to improve manufacturing efficiency and capacity. Since we can use variants of the same nucleotide building blocks and the same type of equipment to produce our oligonucleotide drugs, we found that the same techniques we used to efficiently manufacture one oligonucleotide drug could help improve the manufacturing processes for many other oligonucleotide drugs. By developing several proprietary chemical processes to scale up our manufacturing capabilities, we have greatly reduced the cost of producing oligonucleotide drugs. For example, we have significantly reduced the cost of raw materials through improved yield efficiency, while at the same time increasing our capacity to make the drugs. Through both our internal research and development programs and collaborations with outside vendors we may achieve even greater efficiency and further cost reductions.

 

Our drug substance manufacturing facility is located in a 28,700 square foot building in Carlsbad, California. We lease this building under a lease that has an initial term ending on December 31, 2031 with an option to extend the lease for up to four additional five-year periods. In addition, we have a 25,800 square foot building that houses support functions for our manufacturing activities. We lease this facility under a lease that has an initial term ending in June 2021 with an option to extend the lease for up to two additional five-year periods. Our manufacturing facility is subject to periodic inspections by the FDA to ensure that it is operating in compliance with current Good Manufacturing Practices, or cGMP, requirements.

As part of our collaborations we may agree to manufacture clinical trial materials and/or commercial supply for our partners. For example, in the past we have manufactured clinical supply materials for AstraZeneca, Bayer, Biogen, and GSK.

 

We believe we have sufficient manufacturing capacity to meet our current internal research and development needs, including the Phase 3 clinical trials we have for volanesorsen and IONIS-TTR_Rx, as well as our current and future obligations under existing agreements with our partners for commercial, research and development needs. We produced the launch supply for SPINRAZA and Biogen is responsible for additional supply. Additionally, we believe we have sufficient manufacturing capacity to supply Akcea with the API and finished drug product for at least the first two years of volanesorsen’s commercial launch. GSK intends to provide the initial launch supplies for IONIS-TTR_Rx. We also believe that with reasonably anticipated benefits from increases in scale and improvements in chemistry, we can manufacture antisense drugs at commercially competitive prices.

For LICA conjugated drugs, to date, we have manufactured ourselves or through a contract manufacturing organization only limited supplies of LICA for our own preclinical and clinical studies. LICA enables lower doses than unconjugated oligonucleotides. With our expertise in optimizing manufacturing of oligonucleotides, we believe we will develop new processes to scale up manufacturing of these LICA conjugated drugs at commercially competitive prices.

Patents and Proprietary Rights

 

Our success depends, in part, on our ability to obtain patent protection for our products in the United States and other countries. We own or have exclusively licensed a substantial patent estate with numerous issued patents worldwide protecting our products and, more generally, our platform for development and commercialization of oligonucleotide therapeutics. We focus our resources on patents and new patent applications that drive value for our company.

 

We own or control patents that provide exclusivity for products in our pipeline and patents that provide exclusivity for our core technology in the field of antisense more generally. Our core technology patents include claims to chemically modified nucleosides and oligonucleotides as well as antisense drug designs utilizing these chemically modified nucleosides. These core claims are each independent of specific therapeutic target, nucleic acid sequence, or clinical indication. We also own a large number of patents claiming specific antisense compounds having nucleic acid sequences complementary to therapeutic target nucleic acids, independent of the particular chemical modifications incorporated into the antisense compound. Most importantly, we seek and obtain issued patent claims to specifically protect each of our drugs. For example, we file and seek to obtain claims covering each drug’s nucleic acid sequence and precise drug design. In sum, we maintain our competitive advantage in the field of antisense technology by protecting our core platform technology, which applies to most of our drugs, and by creating multiple layers of patent protection for each of our specific drugs in development.

Chemically Modified Nucleosides and Oligonucleotides

 

The most broadly applicable of our patents are those that claim modified nucleosides and oligonucleotides comprising the modified nucleosides that we incorporate into our antisense drugs to increase their therapeutic efficacy. Nucleosides and chemically modified nucleosides are the basic building blocks of our antisense drugs, therefore claims that cover any oligonucleotide incorporating one of our proprietary modified nucleosides can apply to a wide array of antisense mechanisms of action as well as several therapeutic targets. Of particular note are our patents covering our proprietary 2’-O-(2-methoxy) ethyl, or MOE, modified nucleosides, incorporated into many of our second generation development compounds, as well as our constrained-ethyl nucleosides, or cEt nucleosides incorporated into our Generation 2.5 compounds. 

The following are some of our patents in this category in key jurisdictions (US, Europe and Japan):

 

Antisense Drug Design Motifs

 

Other Ionis patents claim oligonucleotides comprising specific antisense drug design motifs, or patterns of nucleoside modifications at specified positions in the oligonucleotide. Patent claims covering our antisense drug design motifs are independent of nucleic acid sequence, so they cover oligonucleotides having the recited motif, regardless of cellular target or clinical indication. The claimed motifs generally confer properties that optimize oligonucleotides for a particular antisense mechanism of action, such as ribonuclease H, or RNase H, RNAi, or splicing. We have designed oligonucleotides incorporating motifs, which we refer to as chimeric compounds or gapmers to exploit the RNase H mechanism to achieve target RNA reduction. Almost all of our drugs, including volanesorsen and IONIS-TTR_Rx, but excluding SPINRAZA, contain this gapmer antisense drug design motif. We own a U.S. patent that covers each of our second generation MOE gapmer antisense drugs until March of 2023.

In addition, we have pursued patent claims to antisense drug design motifs incorporating bicyclic nucleoside analogs, which include locked nucleic acids, or LNAs. In Europe, we have granted claims drawn to short gapmer oligonucleotides with bicyclic nucleosides, which include locked nucleic acids, in the wings for the treatment of cardiovascular or metabolic disorders. We have also successfully obtained issued patent claims covering our Generation 2.5 gapmer antisense drug design motifs that incorporate our cEt modified nucleosides. Santaris opposed granted patent EP2092065 and EP2410053 and in April 2015, the claims of EP2092065 were successfully upheld in amended form. We vigorously defended EP2410053 and in January 2017, it was upheld with only minor an amendment. The following patents are some examples of our issued patents in this category in key jurisdictions:

Ligand-Conjugated Antisense (LICA) Technology

We have also pursued patent claims to new chemistries created to enhance targeting of antisense drugs to specific tissues and cells in order to improve a drug’s potency. Our N-acetyl-galactosamine (GalNAc) LICA drugs are designed to provide an increase in potency for targets in the liver. We have successfully obtained issued patent claims covering our primary GalNAc LICA (THA) conjugated to any modified oligonucleotide, including gapmers, double-stranded siRNA compounds, and fully modified oligonucleotides. The following patents are some examples of our issued patents in this category:

Therapeutic Methods of Treatment and Antisense Drug Sequences

 

In addition to our broad core patents, we also own hundreds of patents, worldwide, with claims to antisense sequences and compounds directed to particular therapeutically important targets or methods of achieving clinical endpoints using these antisense compounds. Target patents may also include claims reciting the specific nucleic acid sequences utilized by our products, independent of chemical modifications and motifs. In addition, our product specific patents typically include claims combining specific nucleic acid sequences with nucleoside modifications and motifs. In this way, we seek patent claims narrowly tailored to protect our products specifically, in addition to the broader core antisense patents described above.

 Survival Motor Neuron and SPINRAZA

 

SPINRAZA is protected by a suite of patents in the United States and in Europe from generic competition in the United States until at least 2030 and in Europe until 2026. These issued patents include: (i) the Bennett patent related to methods of altering mRNA processing (i.e., splicing) with a fully modified 2’MOE oligonucleotide, (ii) a patent licensed from the University of Massachusetts drawn to antisense compounds having the sequence of SPINRAZA, independent of chemical modification and uses of such compounds for treating SMA, and (iii) a joint patent with Cold Spring Harbor Laboratory claiming fully modified 2’MOE compositions targeting SMN2, including the precise composition of matter of SPINRAZA. Those patents should protect SPINRAZA from generic and antisense innovator competition in the United States until at least 2030 without patent term extension. With Biogen’s license of SPINRAZA, we assigned our interest in these patents to Biogen. The table below lists the key U.S. and European issued patents protecting SPINRAZA:

 

Apolipoprotein C-III and volanesorsen

 

We have obtained patent claims in the United States drawn to the use of antisense compounds complementary to a broad active region of human Apo C-III including the site targeted by volanesorsen. Similar claims complementary to any site on human Apo C-III have granted in Australia. We obtained issued patent claims to the specific antisense sequence and chemical composition of volanesorsen in the United States, Australia, and Europe. The issued U.S. claims should protect volanesorsen from generic competition in the United States until at least 2023. In addition, if volanesorsen is approved by the FDA, we plan to seek additional patent term extension to recapture a portion of the term lost during FDA regulatory review, extending the term of this patent beyond 2023. We have allowed claims to the volanesorsen composition in Canada and are pursuing additional patent applications designed to protect volanesorsen worldwide. The table below lists the issued patents in key jurisdictions:

 

Transthyretin and IONIS-TTR_Rx

 

We obtained issued claims covering IONIS-TTR_Rx in the United States. The issued U.S. claims should protect IONIS-TTR_Rx from generic competition in the United States until at least 2031. We are also pursuing additional patent applications designed to protect IONIS-TTR_Rx in foreign jurisdictions. The table below lists the current issued patents protecting IONIS-TTR_Rx in key jurisdictions:

 

 

ApoB 100 and Kynamro

 

In 2008, we obtained patent claims in the United States drawn to the use of both single-stranded and double-stranded antisense drugs complementary to any site of the mRNA of human apoB, regardless of chemistry or antisense mechanism of action. The patent provides broad protection of the apoB franchise, including Kynamro and potential future follow-on compounds.  Additional claims have granted in Europe covering the use of 5-10-5 MOE gapmers targeting ApoB. We obtained issued claims to the specific antisense sequence and chemical composition of Kynamro in key jurisdictions. The issued U.S. claims covering the composition should protect Kynamro from generic competition in the United States until at least 2025. We are also pursuing additional patent applications designed to protect Kynamro worldwide. With Kastle’s acquisition of the global rights to develop and commercialize of Kynamro, we assigned our interest in these patents to Kastle. The table below lists the issued patent claims designed to protect Kynamro in key jurisdictions:

 

We seek patent protection in significant markets and/or countries for each drug in development. We also seek to maximize patent term.  In some cases, the patent term can be extended to recapture a portion of the term lost during FDA regulatory review. The patent exclusivity period for a drug will prevent generic drugs from entering the market. Patent exclusivity depends on a number of factors including initial patent term and available patent term extensions based upon delays caused by the regulatory approval process.

Manufacturing Patents

 

We also own patents claiming methods of manufacturing and purifying oligonucleotides. These patents claim methods for improving oligonucleotide drug manufacturing, including processes for large-scale oligonucleotide synthesis and purification. These methods allow us to manufacture oligonucleotides at lower cost by, for example, eliminating expensive manufacturing steps.

 

We also rely on trade secrets, proprietary know-how and continuing technological innovation to develop and maintain a competitive position in antisense therapeutics.

Government Regulation

 

Regulation by government authorities in the United States and other countries is a significant component in the development, manufacture and commercialization of pharmaceutical products and services. In addition to regulations enforced by the FDA and relevant foreign regulatory authorities, we are also subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other present and potential future federal, state and local regulations.

 

Extensive regulation by United States and foreign governmental authorities governs the manufacture, development and sale of our drugs. In particular, pharmaceutical products are subject to nonclinical and clinical testing, as well as other approval requirements, by the FDA in the United States under the Federal Food, Drug and Cosmetic Act and other laws and by comparable agencies in those foreign countries in which we conduct business. Various federal, state and foreign statutes also govern or influence the manufacture, safety, labeling, storage, record keeping, marketing and quality of our drugs. State, local, and other authorities also regulate pharmaceutical manufacturing facilities and procedures.

 

 Our manufacturing facility is subject to periodic inspection by the FDA and other foreign equivalents to ensure that it is operating in compliance with cGMP requirements. Marketing authorization for each new drug will require a rigorous manufacturing pre-approval inspection by regulatory authorities.

 

For any approved drug, domestic and foreign sales of the drug will depend, in part, on the availability and amount of reimbursement by third party payors, including governments and private health plans. Governments may regulate coverage, reimbursement and pricing of drugs to control cost or affect use of our drugs. Private health plans may also seek to manage cost and use by implementing coverage and reimbursement limitations. Within the EU a variety of payors pay for drugs, with governments being the primary source of payment. Governments may determine or influence reimbursement of drugs. Governments may also set prices or otherwise regulate pricing. Negotiating prices with governmental authorities can delay commercialization of a drug. These pricing and reimbursement procedures could impact our commercial partners’, including our wholly owned subsidiary, Akcea’s, ability to successfully commercialize our approved drugs.

Our operations may be directly, or indirectly through our customers, distributors, or other business partners, subject to various federal and state fraud and abuse laws, including, without limitation, anti-kickback statutes and false claims statutes. These laws may impact, among other things, our commercialization partners’ proposed sales, marketing and education programs.

 

The U.S. Foreign Corrupt Practices Act, or FCPA, prohibits certain individuals and entities, including us, from promising, paying, offering to pay, or authorizing the payment of anything of value to any foreign government official, directly or indirectly, to obtain or retain business or an improper advantage. If we violate the FCPA, it could result in large civil and criminal penalties and could result in an adverse effect on our reputation, operations, and financial condition. We could also face collateral consequences such as debarment and the loss of export privileges.

Competition 

Our Business in General

 

Some of our drugs may compete with existing therapies for market share. In addition, there are a number of companies pursuing the development of oligonucleotide-based technologies and the development of pharmaceuticals utilizing these technologies. These companies include specialized pharmaceutical firms and large pharmaceutical companies acting either independently or together with biopharmaceutical companies. Our drugs are differentiated from traditional small molecule drugs by their chemistry, how they move in the body, how they act in the body, delivery technology, and formulations.

Our approved products and products under development address numerous markets. The diseases our drugs target for which we have or may receive marketing authorization will determine our competition. For some of our products, an important factor in competition may be the timing of market introduction of competitive products. Accordingly, the relative speed with which we can develop products, complete the clinical trials and marketing authorization processes and supply commercial quantities of the products to the market are important competitive factors. We expect to compete among products approved for sale based on a variety of factors, including, among other things, product efficacy, safety, mechanism of action, dosing convenience, marketing and sales strategy and tactics, availability, price, and reimbursement.

The current key competition for our newly marketed drug SPINRAZA, our Phase 3 drugs, volanesorsen and IONIS-TTR_Rx, and our additional approved drug Kynamro is set forth below.

SPINRAZA

We believe that the following drugs could compete with SPINRAZA:

(1)	Taken from public documents including respective company press releases, company presentations, and scientific presentations.

We believe that SPINRAZA’s closest competitor is AVXS-101. AVXS-101 is currently in a Phase 1 study for infants with Type 1 SMA. AveXis announced that it will have a single-arm design for its pivotal study in SMA Type 1 patients and plans to use natural history as a comparator. The study is expected to initiate in the first half of 2017 and enroll 20 patients. AveXis has also announced that following a meeting with the CHMP it will have a single-arm design for its European pivotal study with natural history as a comparator. This study is expected to initiate in the second half of 2017 and enroll 30 patients. While the data released thus far on the AVXS-101 study is encouraging, it is still early in development. In addition, other gene therapies have had difficulty providing lasting therapeutic benefit. Also AveXis has stated it needs to scale its manufacturing capabilities to be able to manufacture larger quantities of AVXS-101 and that they will switch to commercial GMP drug for their study in Type 2 patients. Further, no company has yet to successfully commercialize a gene therapy, which may create significant barriers for AVXS-101.

Volanesorsen

We believe that the following drugs could compete with volanesorsen:

(1)	Taken from public documents including respective company press releases, company presentations, and scientific presentations.

Glybera is approved only in the EU for a subset of FCS patients whose disease has been confirmed by genetic testing and who have detectable levels of a specific protein in their blood. UniQure NV has announced it is not pursuing marketing authorization in the U.S. Metreleptin is being tested in FPL patients who also have NASH. In December 2016, Novelion submitted a marketing authorization application to the EMA seeking approval for Metreleptin as replacement therapy to treat complications of leptin deficiency in a small subset of FPL patients and in patients with generalized lipodystrophy, or GL. An investigator-sponsored study is currently ongoing with the support of Novelion to evaluate Metreleptin in FPL patients who also have NASH. Metreleptin does not affect ApoC-III levels. ApoC-III levels have been shown to be elevated in FPL patients, and directly correlate to triglyceride levels. Gemcabene is being studied in patients with severe hypertriglyceridemia, defined as triglycerides above 500 mg/dL and Gemphire expects to report top-line results from its Phase 2 study in the fourth quarter of 2017. Volanesorsen is currently in Phase 3 development to treat patients with FCS and patients with FPL. To date, volanesorsen has shown the highest percent of triglyceride reductions compared to existing treatments, such as fibrates, regardless of starting triglyceride levels prior to dosing with volanesorsen. Based on our broad Phase 2 data for the treatment of different patients including patients with FCS, we believe that volanesorsen will work equally well as a single agent or in combination with other triglyceride-lowering drugs on the market. If regulatory authorities require us to implement platelet monitoring procedures in the commercial setting, which have yet to be determined, it could impact the future competitive profile of volanesorsen.

IONIS-TTR_Rx

We believe that the following drugs could compete with IONIS-TTR_Rx:

(1)

Taken from public documents including respective company press releases, company presentations, and scientific presentations. Diflunisal efficacy and safety came from the published papers of two investigator sponsored studies, Berk JL, Suhr OB, Obici L, et al. Repurposing Diflunisal for Familial Amyloid Polyneuropathy: A Randomized Clinical Trial. JAMA. 2013;310(24):2658-2667 and Sekijima YS, Toja K, Morita H, et al. Safety and efficacy of long-term diflunisal administration in hereditary transthyretin (ATTR) amyloidosis. Amyloid. 2015;22(2):79-83.

We believe that of the drugs that are in development or on the market, IONIS-TTR_Rx’s closest competitor is patisiran. Alnylam is developing patisiran for the polyneuropathy form of TTR amyloidosis. Patisiran is an intravenously administered RNAi molecule that is formulated with lipid nanoparticles to enable delivery of the drug to the liver. It is administered via an infusion by a healthcare provider every three weeks. Patients receiving patisiran are pretreated with steroids to prevent infusion related reactions. In October 2016, Alnylam discontinued development of revusiran, its drug for the cardiomyopathy form of TTR amyloidosis, due to a safety finding in its Phase 3 study. Revusiran was a subcutaneously administered RNAi molecule that was Alnylam’s first generation GalNAc drug and was dosed at 500 mg per week as two subcutaneous injections. Alnylam completed Phase 1 studies of its second generation GalNAC, ALN-TTRsc02. In early clinical studies, IONIS-TTR_Rx, patisiran and revusiran produced similar TTR reductions in treated subjects. Because we have completed target enrollment in our fifteen month study, ahead of Alnylam's eighteen month study, we believe that IONIS-TTR_Rx could be the first RNA-targeted drug on the market. We also believe that the overall product profile of IONIS-TTR_Rx. as a once weekly, subcutaneous injection with no pretreatment is superior to the drugs detailed above, however potential platelet monitoring  requirements in the commercial setting, which have yet to be determined, could impact the future competitive profile of IONIS-TTR_Rx.

Kynamro

Kynamro is currently approved in the U.S. and certain other countries to reduce LDL-C, apolipoprotein B, total cholesterol, and non-high density lipoprotein-cholesterol in patients with HoFH. We believe that the following drugs compete with Kynamro:

(1)	Taken from public documents including respective company press releases, company presentations, and scientific presentations

The primary competitor for Kynamro is lomitapide, an oral small molecule that blocks the absorption of fat in the digestive system. In the lomitapide label, concurrent use of lomitapide and common medications for HoFH patients who have cardiovascular disease, including simvastatin and warfarin, need to be closely monitored due to drug-drug interactions with potentially harmful outcomes. Kynamro has no restrictions with these medications or diet restrictions, which may be advantageous for HoFH patients who are on a broad range of therapies due to the severity of their disease. Evolocumab will not work in the HoFH patients that do not have LDL-receptor function and should have variable effect in patients that have variable levels of LDL-receptor activity. Kynamro works in HoFH patients regardless of LDL-receptor function. Kynamro sales could be affected if Kynamro’s product profile is not advantageous when compared to these other drugs, as some patients may prefer these other drugs over Kynamro.

Employees

 

As of February 21, 2017, we employed 435 people, including 28 Akcea employees. A significant number of our management and professional employees have had prior experience with pharmaceutical, biotechnology or medical product companies. Collective bargaining agreements do not cover any of our employees, and management considers relations with our employees to be good.

Executive Officers of Ionis

 

The following sets forth certain information regarding our executive officers as of February 21, 2017:

 

 

STANLEY T. CROOKE, M.D., Ph.D.

 

Chairman, Chief Executive Officer and President

 

Dr. Crooke is a founder of Ionis and has been Chief Executive Officer and a Director since January 1989. He was elected Chairman of the Board in February 1991. Prior to founding Ionis, from 1980 until January 1989, Dr. Crooke was employed by SmithKline Beckman Corporation, a pharmaceutical company, where his titles included President of Research and Development of SmithKline and French Laboratories.

B. LYNNE PARSHALL, J.D.

 

Director, Chief Operating Officer

 

Ms. Parshall has served as a Director of Ionis since September 2000. She has been our Chief Operating Officer since December 2007 and previously served as our Chief Financial Officer from June 1994 to December 2012. She also served as our Corporate Secretary through 2014 and has served in various executive roles since November 1991. Prior to joining Ionis, Ms. Parshall practiced law at Cooley LLP, outside counsel to Ionis, where she was a partner from 1986 to 1991. Ms. Parshall is a member of the American, California and San Diego bar associations.

 

C. FRANK BENNETT, Ph.D.

 

Senior Vice President, Antisense Research

 

Dr. Bennett was promoted to Senior Vice President, Antisense Research in January 2006. From June 1995 to January 2006, Dr. Bennett served as our Vice President, Research. From March 1993 to June 1995, he was Director, Molecular Pharmacology, and from May 1992 to March 1993, he was an Associate Director in our Molecular and Cellular Biology department. Prior to joining Ionis in 1989, Dr. Bennett was employed by SmithKline and French Laboratories in various research positions. He is an external member of the Scientific Advisory Board of Experimental Therapeutics Center in Singapore.

 

SARAH BOYCE

 

Chief Business Officer

 

Ms. Boyce joined Ionis in January 2015 as our Chief Business Officer. Prior to joining Ionis, Ms. Boyce was Vice President, Head of International Business Strategy and Operations at Forest Laboratories, Inc. from 2012 to 2014. She was Vice President, Global Head Nephrology Therapeutics Area of Alexion Pharmaceuticals from 2010 to 2011. She held various positions at Novartis Group AG, including Vice President, Global Program Head, Pediatric and Specialty from 2000 to 2010. Prior to that, Ms. Boyce held positions at Bayer Pharmaceuticals and Roche.

RICHARD S. GEARY, Ph.D.

 

Senior Vice President, Development

 

Dr. Geary was promoted to Senior Vice President, Development in August 2008. From August 2003 to August 2008, Dr. Geary served as our Vice President, Preclinical Development. From November 1995 to August 2003, he held various positions within the Preclinical Development department. Prior to joining Ionis in 1995, Dr. Geary was Senior Research Scientist and Group Leader for the bioanalytical and preclinical pharmacokinetics group in the Applied Chemistry Department at Southwest Research Institute.

ELIZABETH L. HOUGEN

 

Senior Vice President, Finance and Chief Financial Officer

 

Ms. Hougen was promoted to Senior Vice President, Finance and Chief Financial Officer in January 2013. From January 2007 to December 2012, Ms. Hougen served as our Vice President, Finance and Chief Accounting Officer and from May 2000 to January 2007, she served as our Vice President, Finance. Prior to joining Ionis in 2000, Ms. Hougen was Executive Director, Finance and Chief Financial Officer for Molecular Biosystems, Inc., a public biotechnology company.

 

BRETT P. MONIA, Ph.D.

 

Senior Vice President, Drug Discovery and Corporate Development

 

Dr. Monia was promoted to Senior Vice President, Drug Discovery and Corporate Development in January 2012. From February 2009 to January 2012, Dr. Monia served as our Vice President, Drug Discovery and Corporate Development and from October 2000 to February 2009, he served as our Vice President, Preclinical Drug Discovery. From October 1989 to October 2000 he held various positions within our Molecular Pharmacology department.

 

PATRICK R. O’NEIL, Esq.

 

Senior Vice President, Legal, General Counsel, Chief Compliance Officer and Corporate Secretary

 

Mr. O’Neil was promoted to Senior Vice President, Legal and General Counsel in January 2013. Mr. O'Neil also serves as our Chief Compliance Officer and Corporate Secretary. From September 2010 to January 2013, Mr. O’Neil served as our Vice President, Legal and General Counsel and from January 2009 to September 2010, he served as our Vice President, Legal and Senior Transactions Counsel. From October 2001 to January 2009 he held various positions within our Legal department. Prior to joining Ionis, Mr. O’Neil was an associate at Cooley LLP.

Item 1A. RISK FACTORS

Investing in our securities involves a high degree of risk. You should consider carefully the following information about the risks described below, together with the other information contained in this report and in our other public filings in evaluating our business. If any of the following risks actually occur, our business could be materially harmed, and our financial condition and results of operations could be materially and adversely affected. As a result, the trading price of our securities could decline, and you might lose all or part of your investment.

Risks Associated with our Ionis Core and Akcea Therapeutics Businesses

If the market does not accept our drugs, including SPINRAZA, volanesorsen, IONIS-TTR_Rx and Kynamro, we are not likely to generate revenues or become consistently profitable.

Even if our drugs are authorized for marketing, including SPINRAZA, volanesorsen, IONIS-TTR_Rx,  and Kynamro, our success will depend upon the medical community, patients and third party payors accepting our drugs as medically useful, cost-effective and safe. Even when the FDA or foreign regulatory authorities authorize our or our partners' drugs for commercialization, doctors may not prescribe our drugs to treat patients. We and our partners may not successfully commercialize additional drugs.

Additionally, in many of the markets where we may sell our drugs in the future, if we cannot agree with the government regarding the price we can charge for our drugs, then we may not be able to sell our drugs in that market.

The degree of market acceptance for our drugs, including SPINRAZA, volanesorsen, IONIS-TTR_Rx and Kynamro, depends upon a number of factors, including the:



receipt and scope of marketing authorizations;



establishment and demonstration in the medical and patient community of the efficacy and safety of our drugs and their potential advantages over competing products;



cost and effectiveness of our drugs compared to other available therapies;



patient convenience of the dosing regimen for our drugs; and



reimbursement policies of government and third-party payors.

Based on the profile of our drugs, physicians, patients, patient advocates, payors or the medical community in general may not accept and/or use any drugs that we may develop.  For example, we expect the product label for volanesorsen and IONIS-TTR_Rx will require periodic platelet monitoring, which could negatively affect our ability to attract and retain patients for these drugs.  In addition, cost control initiatives by governments or third party payors could decrease the price received for our drugs or increase patient coinsurance to a level that makes our drugs, including SPINRAZA, volanesorsen, IONIS-TTR_Rx and Kynamro, unaffordable.

If we or our partners fail to compete effectively, our drugs, including SPINRAZA, volanesorsen, IONIS-TTR_Rx and Kynamro, will not contribute significant revenues.

Our competitors engage in drug discovery throughout the world, are numerous, and include, among others, major pharmaceutical companies and specialized biopharmaceutical firms. Other companies engage in developing antisense technology. Our competitors may succeed in developing drugs that are:



priced lower than our drugs;



reimbursed more favorably by government and other third-party payors than our drugs;



safer than our drugs;



more effective than our drugs; or



more convenient to use than our drugs.

These competitive developments could make our drugs, including SPINRAZA, volanesorsen, IONIS-TTR_Rx and Kynamro, obsolete or non-competitive.

Certain of our partners are pursuing other technologies or developing other drugs either on their own or in collaboration with others, including our competitors, to treat the same diseases our own collaborative programs target. Competition may negatively impact a partner's focus on and commitment to our drugs and, as a result, could delay or otherwise negatively affect the commercialization of our drugs, including SPINRAZA, volanesorsen, IONIS-TTR_Rx and Kynamro.

Many of our competitors have substantially greater financial, technical and human resources than we do. In addition, many of these competitors have significantly greater experience than we do in conducting preclinical testing and human clinical studies of new pharmaceutical products and in obtaining FDA and other regulatory authorizations of such products. Accordingly, our competitors may succeed in obtaining regulatory authorization for products earlier than we do. Marketing and sales capability is another factor relevant to the competitive position of our drugs, and we will rely on our partners and Akcea to provide this capability.

There are several pharmaceutical and biotechnology companies engaged in the development or commercialization of products against targets that are also targets of products in our development pipeline. For example, AVXS-101, RG7800, RG7916, and LMI070 could compete with SPINRAZA, Glybera and metreleptin could compete with volanesorsen, patisiran, tafamadis, diflunisal, tolcapone and ALN-TTRsc02 could compete with IONIS-TTR_Rx and Glybera, lomitapide and evolocumab could compete with Kynamro.

Following approval, our drugs, including SPINRAZA, volanesorsen and IONIS-TTR_Rx could be subject to regulatory limitations. Kynamro is subject to regulatory limitations.

Following approval of a drug, we and our partners must comply with comprehensive government regulations regarding the manufacture, marketing and distribution of drug products. We or our partners may not obtain the labeling claims necessary or desirable to successfully commercialize our drug products, including SPINRAZA, volanesorsen, IONIS-TTR_Rx and Kynamro.

The FDA and foreign regulatory authorities have the authority to impose significant restrictions on an approved drug product through the product label and on advertising, promotional and distribution activities. For example Kynamro is subject to a Boxed Warning and is only available through a Risk Evaluation and Mitigation Strategy.

In addition, when approved, the FDA or a foreign regulatory authority may condition approval on the performance of post-approval clinical studies or patient monitoring, which could be time consuming and expensive. If the results of such post-marketing studies are not satisfactory, the FDA or a foreign regulatory authority may withdraw marketing authorization or may condition continued marketing on commitments from us or our partners that may be expensive and/or time consuming to fulfill.

If we or others identify side effects after any of our drug products are on the market, or if manufacturing problems occur subsequent to regulatory approval, we or our partners may lose regulatory approval, or we or our partners may need to conduct additional clinical studies and/or change the labeling of our drug products including SPINRAZA, volanesorsen, IONIS-TTR_Rx, and Kynamro.

We depend on our collaboration with Biogen for the development and commercialization of SPINRAZA.

We have entered into a collaborative arrangement with Biogen to develop and commercialize SPINRAZA. We entered into this collaboration primarily to:



fund our development activities for SPINRAZA;



seek and obtain regulatory approvals for SPINRAZA; and



successfully commercialize SPINRAZA.

We are relying on Biogen to obtain additional regulatory approvals for SPINRAZA, and successfully commercialize SPINRAZA. In general, we cannot control the amount and timing of resources that Biogen devotes to our collaboration. If Biogen fails to further develop SPINRAZA, obtain additional regulatory approvals for SPINRAZA, or commercialize SPINRAZA, or if Biogen’s efforts are not effective, our business may be negatively affected.

Our collaboration with Biogen may not continue for various reasons. Biogen can terminate our collaboration at any time. If Biogen stops developing or commercializing SPINRAZA, we would have to seek additional funding and SPINRAZA's development and commercialization may be harmed or delayed.

Our collaboration with Biogen may not result in the successful commercialization of SPINRAZA. If Biogen does not successfully commercialize SPINRAZA, we will receive limited revenues for SPINRAZA.

If government or other third-party payors fail to provide adequate coverage and payment rates for our drugs, including SPINRAZA, IONIS-TTR_Rx, volanesorsen and Kynamro, our revenue will be limited.

In both domestic and foreign markets, sales of our current and future products will depend in part upon the availability of coverage and reimbursement from third-party payors. The majority of patients in the United States who would fit within our target patient populations for our drugs have their healthcare supported by a combination of Medicare coverage, other government health programs such as Medicaid, managed care providers, private health insurers and other organizations. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic alternatives are already available or subsequently become available. Assuming coverage is approved, the resulting reimbursement payment rates might not be enough to make our drugs affordable.

Third-party payors, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In addition, in the United States, no uniform policy of coverage and reimbursement for drug products exists among third-party payors. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. Further, we believe that future coverage and reimbursement will likely be subject to increased restrictions both in the United States and in international markets. For example, in the United States, recent health reform measures have resulted in reductions in Medicare and other healthcare funding, and there have been several recent U.S. Congressional inquiries and proposed federal legislation designed to, among other things, reform government program reimbursement methodologies for drug products and bring more transparency to drug pricing. Third-party coverage and reimbursement for our products or drugs may not be available or adequate in either the United States or international markets, which would negatively affect the potential commercial success of our products, our revenue and our profits.

If Biogen cannot manufacture finished drug product for SPINRAZA or the post-launch supply of the active drug substance for SPINRAZA, SPINRAZA may not achieve or maintain commercial success.

Biogen is responsible for the long term supply of both SPINRAZA drug substance and finished drug product. Biogen may not be able to reliably manufacture SPINRAZA drug substance and drug product to support the long term commercialization of SPINRAZA. If Biogen cannot reliably manufacture SPINRAZA drug substance and drug product, SPINRAZA may not achieve or maintain commercial success, which will harm our ability to generate revenue.

If we or our partners fail to obtain regulatory approval for our drugs, including volanesorsen_, IONIS-TTR_Rx, and additional approvals for SPINRAZA and Kynamro, we or our partners cannot sell them in the applicable markets.

We cannot guarantee that any of our drugs, including volanesorsen  and IONIS-TTR_Rx, will be safe and effective, or will be approved for commercialization. In addition, we cannot guarantee that SPINRAZA or Kynamro will be approved in additional markets outside the United States or for additional indications. We and our partners must conduct time-consuming, extensive and costly clinical studies to show the safety and efficacy of each of our drugs before they can be approved for sale. We must conduct these studies in compliance with FDA regulations and with comparable regulations in other countries.

We and our partners may not obtain necessary regulatory approvals on a timely basis, if at all, for our drugs. It is possible that regulatory agencies will not approve our drugs including, volanesorsen  and IONIS-TTR_Rx for marketing or additional marketing authorizations for SPINRAZA or Kynamro. If the FDA or another regulatory agency believes that we or our partners have not sufficiently demonstrated the safety or efficacy of any of our drugs, including SPINRAZA, volanesorsen  and IONIS-TTR_Rx, the agency will not approve the specific drug or will require additional studies, which can be time consuming and expensive and which will delay or harm commercialization of the drug.  For example, the FDA or foreign regulatory authorities could claim that we have not tested volanesorsen in a sufficient number of patients to demonstrate volanesorsen is safe and effective in patients with FCS or FPL to support an application for marketing authorization, especially since a small number of patients in the APPROACH FCS study experienced severe thrombocytopenia, a condition where the patient has severely low platelet levels. In such a case, we may need to conduct additional clinical studies before obtaining marketing authorization, which would be expensive and cause delays.

Failure to receive marketing authorization for our drugs, volanesorsen and IONIS-TTR_Rx, or additional authorizations for SPINRAZA or Kynamro, or delays in these authorizations could prevent or delay commercial introduction of the drug, and, as a result, could negatively impact our ability to generate revenue from product sales.

If the results of clinical testing indicate that any of our drugs are not suitable for commercial use we may need to abandon one or more of our drug development programs.

Drug discovery and development has inherent risks and the historical failure rate for drugs is high. Antisense drugs are a relatively new approach to therapeutics. If we cannot demonstrate that our drugs are safe and effective for human use, we may need to abandon one or more of our drug development programs.

In the past, we have invested in clinical studies of drugs that have not met the primary clinical end points in their Phase 3 studies. Similar results could occur in clinical studies for our drugs, including volanesorsen and IONIS-TTR_Rx. If any of our drugs in clinical studies, including volanesorsen and IONIS-TTR_Rx, do not show sufficient efficacy in patients with the targeted indication, it could negatively impact our development and commercialization goals for the drug and our stock price could decline.

Even if our drugs are successful in preclinical and human clinical studies, the drugs may not be successful in late-stage clinical studies.

Successful results in preclinical or initial human clinical studies, including the Phase 2 results for some of our drugs in development, may not predict the results of subsequent clinical studies, including the Phase 3 studies for volanesorsen and IONIS-TTR_Rx. There are a number of factors that could cause a clinical study to fail or be delayed, including:



the clinical study may produce negative or inconclusive results;



regulators may require that we hold, suspend or terminate clinical research for noncompliance with regulatory requirements;



we, our partners, the FDA or foreign regulatory authorities could suspend or terminate a clinical study due to adverse side effects of a drug on subjects in the trial;



we may decide, or regulators may require us, to conduct additional preclinical testing or clinical studies;



enrollment in our clinical studies may be slower than we anticipate;



patients who enroll in the clinical study may later drop out due to adverse events, a perception they are not benefiting from participating in the study, fatigue with the clinical study process or personal issues;



the cost of our clinical studies may be greater than we anticipate; and



the supply or quality of our drugs or other materials necessary to conduct our clinical studies may be insufficient, inadequate or delayed.

In addition, our current drugs, including SPINRAZA, volanesorsen, IONIS-TTR_Rx, and Kynamro, are chemically similar to each other.  As a result, a safety observation we encounter with one of our drugs could have, or be perceived by a regulatory authority to have, an impact on a different drug we are developing.  This could cause the FDA and other regulators to ask questions or take actions that could harm or delay our ability to develop and commercialize our drugs or increase our costs. For example, the FDA or other regulatory agencies could request, among other things, any of the following regarding one of our drugs: additional information or commitments before we can start or continue a clinical study, protocol amendments, increased safety monitoring, additional product labeling information, and post-approval commitments.

Any failure or delay in the clinical studies, including the Phase 3 studies for volanesorsen and IONIS-TTR_Rx, could reduce the commercial potential or viability of our drugs.

If we cannot manufacture our drugs or contract with a third party to manufacture our drugs at costs that allow us to charge competitive prices to buyers, we cannot market our products profitably.

To successfully commercialize any of our drugs, we or our partner would need to establish large-scale commercial manufacturing capabilities either on our own or through a third party manufacturer. In addition, as our drug development pipeline increases and matures, we will have a greater need for clinical trial and commercial manufacturing capacity. We have limited experience manufacturing pharmaceutical products of the chemical class represented by our drugs, called oligonucleotides, on a commercial scale for the systemic administration of a drug. There are a small number of suppliers for certain capital equipment and raw materials that we use to manufacture our drugs, and some of these suppliers will need to increase their scale of production to meet our projected needs for commercial manufacturing. Further, we must continue to improve our manufacturing processes to allow us to reduce our drug costs. We may not be able to manufacture our drugs at a cost or in quantities necessary to make commercially successful products.

Also, manufacturers, including us, must adhere to the FDA's current Good Manufacturing Practices regulations and similar regulations in foreign countries, which the applicable regulatory authorities enforce through facilities inspection programs. We and our contract manufacturers may not comply or maintain compliance with Good Manufacturing Practices, or similar foreign regulations. Non-compliance could significantly delay or prevent receipt of marketing authorization for our drugs, including authorizations for SPINRAZA, volanesorsen and IONIS-TTR_Rx, or result in enforcement action after authorization that could limit the commercial success of our drugs, including SPINRAZA, volanesorsen, IONIS-TTR_Rx and Kynamro.

We depend on third parties to conduct our clinical studies for our drugs and any failure of those parties to fulfill their obligations could adversely affect our development and commercialization plans.

We depend on independent clinical investigators, contract research organizations and other third-party service providers to conduct our clinical studies for our drugs and expect to continue to do so in the future. For example, we use clinical research organizations, such as Icon Clinical Research Limited, INC Research Toronto, Inc. and Medpace for the clinical studies for our drugs, including volanesorsen and IONIS-TTR_Rx. We rely heavily on these parties for successful execution of our clinical studies, but do not control many aspects of their activities. For example, the investigators are not our employees. However, we are responsible for ensuring that these third parties conduct each of our clinical studies in accordance with the general investigational plan and approved protocols for the study. Third parties may not complete activities on schedule, or may not conduct our clinical studies in accordance with regulatory requirements or our stated protocols. The failure of these third parties to carry out their obligations or a termination of our relationship with these third parties could delay or prevent the development, marketing authorization and commercialization of our drugs, including authorizations for volanesorsen and IONIS-TTR_Rx or additional authorizations for SPINRAZA and Kynamro.

Risks Associated with our Businesses as a Whole

We have incurred losses, and our business will suffer if we fail to consistently achieve profitability in the future.

Because drug discovery and development requires substantial lead-time and money prior to commercialization, our expenses have generally exceeded our revenue since we were founded in January 1989. As of December 31, 2016, we had an accumulated deficit of approximately $1.2 billion and stockholders’ equity of approximately $99.6 million. Most of the losses resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. Most of our revenue has come from collaborative arrangements, with additional revenue from research grants and the sale or licensing of our patents, as well as interest income. We may incur additional operating losses over the next several years, and these losses may increase if we cannot increase or sustain revenue. We may not successfully develop any additional products or achieve or sustain future profitability.

Since corporate partnering is a significant part of our strategy to fund the development and commercialization of our development programs, if any of our collaborative partners fail to fund our collaborative programs, or if we cannot obtain additional partners, we may have to delay or stop progress on our drug development programs.

To date, corporate partnering has played a significant role in our strategy to fund our development programs and to add key development resources. We plan to continue to rely on additional collaborative arrangements to develop and commercialize our unpartnered drugs. However, we may not be able to negotiate favorable collaborative arrangements for these drug programs. If we cannot continue to secure additional collaborative partners, our revenues could decrease and the development of our drugs could suffer.

Our corporate partners are developing and/or funding many of the drugs in our development pipeline. If any of these pharmaceutical companies stops developing and/or funding these drugs, our business could suffer and we may not have, or be willing to dedicate, the resources available to develop these drugs on our own.

Our collaborators can terminate their relationships with us under certain circumstances, many of which are outside of our control. In the past, based on the disappointing results of Phase 3 clinical studies, we had a partner discontinue its investment in one of our drugs.

Even with funding from corporate partners, if our partners do not effectively perform their obligations under our agreements with them, it would delay or stop the progress of our drug development programs.

In addition to receiving funding, we enter into collaborative arrangements with third parties to:



conduct clinical studies;



seek and obtain marketing authorization; and



manufacture, market and sell our drugs.

Once we have secured a collaborative arrangement to further develop and commercialize one of our drug development programs, such as our collaborations with AstraZeneca, Bayer, Biogen, GSK, Novartis and Roche these collaborations may not continue or result in commercialized drugs, or may not progress as quickly as we first anticipated.

For example, a collaborator such as AstraZeneca, Bayer, Biogen, GSK, Novartis or Roche, could determine that it is in its financial interest to:



pursue alternative technologies or develop alternative products that may be competitive with the drug that is part of the collaboration with us;



pursue higher-priority programs or change the focus of its own development programs; or



choose to devote fewer resources to our drugs than it does for its own drugs.

If any of these occur, it could affect our partner's commitment to the collaboration with us and could delay or otherwise negatively affect the commercialization of our drugs, including SPINRAZA, volanesorsen, IONIS-TTR_Rx and Kynamro.

If we do not progress in our programs as anticipated, the price of our securities could decrease.

For planning purposes, we estimate and may disclose the timing of a variety of clinical, regulatory and other milestones, such as when we anticipate a certain drug will enter the clinic, when we anticipate completing a clinical study, or when we anticipate filing an application for marketing authorization. We base our estimates on present facts and a variety of assumptions. Many underlying assumptions are outside of our control. If we do not achieve milestones in accordance with our or our investors' expectations, including milestones related to SPINRAZA, volanesorsen and IONIS-TTR_Rx the price of our securities could decrease.

If we cannot protect our patents or our other proprietary rights, others may compete more effectively against us.

Our success depends to a significant degree upon whether we can continue to develop and secure intellectual property rights to proprietary products and services. However, we may not receive issued patents on any of our pending patent applications in the United States or in other countries. In addition, the scope of any of our issued patents may not be sufficiently broad to provide us with a competitive advantage. Furthermore, other partners may successfully challenge, invalidate or circumvent our issued patents or patents licensed to us so that our patent rights do not create an effective competitive barrier or revenue source.

Intellectual property litigation could be expensive and prevent us from pursuing our programs.

From time to time we have to defend our intellectual property rights. If we are involved in an intellectual property dispute, we sometimes need to litigate to defend our rights or assert them against others. Disputes can involve arbitration, litigation or proceedings declared by the United States Patent and Trademark Office or the International Trade Commission or foreign patent authorities. Intellectual property litigation can be extremely expensive, and this expense, as well as the consequences should we not prevail, could seriously harm our business. For example, in November 2013 we filed a patent infringement lawsuit against Gilead Sciences Inc. in the United States District Court of the Northern District of California. Intellectual property lawsuits may be costly and may not be resolved in our favor.

If a third party claims that our drugs or technology infringe its patents or other intellectual property rights, we may have to discontinue an important product or product line, alter our products and processes, pay license fees or cease certain activities. We may not be able to obtain a license to needed intellectual property on favorable terms, if at all. There are many patents issued or applied for in the biotechnology industry, and we may not be aware of patents or patent applications held by others that relate to our business. This is especially true since patent applications in the United States are filed confidentially for the first 18 months. Moreover, the validity and breadth of biotechnology patents involve complex legal and factual questions for which important legal issues remain.

If we fail to obtain timely funding, we may need to curtail or abandon some of our programs.

Many of our drugs are undergoing clinical studies or are in the early stages of research and development. All of our drug programs will require significant additional research, development, preclinical and/or clinical testing, marketing authorization and/or commitment of significant additional resources prior to their successful commercialization. As of December 31, 2016, we had cash, cash equivalents and short-term investments equal to $665.2 million. If we do not meet our goals to successfully commercialize our drugs, including SPINRAZA, volanesorsen, IONIS-TTR_Rx and Kynamro, or to license our drugs and proprietary technologies, we will need additional funding in the future. Our future capital requirements will depend on many factors, such as the following:



marketing approvals and successful commercial launch for SPINRAZA;



changes in existing collaborative relationships and our ability to establish and maintain additional collaborative arrangements;



continued scientific progress in our research, drug discovery and development programs;



the size of our programs and progress with preclinical and clinical studies;



the time and costs involved in obtaining marketing authorizations;



competing technological and market developments, including the introduction by others of new therapies that address our markets; and



the profile and launch timing of our drugs, including volanesorsen and IONIS-TTRRx.

If we need additional funds, we may need to raise them through public or private financing. Additional financing may not be available at all or on acceptable terms. If we raise additional funds by issuing equity securities, the shares of existing stockholders will be diluted and the price, as well as the price of our other securities, may decline. If adequate funds are not available or not available on acceptable terms, we may have to cut back on one or more of our research, drug discovery or development programs. Alternatively, we may obtain funds through arrangements with collaborative partners or others, which could require us to give up rights to certain of our technologies or drugs.

The loss of key personnel, or the inability to attract and retain highly skilled personnel, could make it more difficult to run our business and reduce our likelihood of success.

We are dependent on the principal members of our management and scientific staff. We do not have employment agreements with any of our executive officers that would prevent them from leaving us. The loss of our management and key scientific employees might slow the achievement of important research and development goals. It is also critical to our success that we recruit and retain qualified scientific personnel to perform research and development work. We may not be able to attract and retain skilled and experienced scientific personnel on acceptable terms because of intense competition for experienced scientists among many pharmaceutical and health care companies, universities and non-profit research institutions. In addition, failure to succeed in clinical studies may make it more challenging to recruit and retain qualified scientific personnel.

If the price of our securities continues to be highly volatile, this could make it harder for you to liquidate your investment and could increase your risk of suffering a loss.

The market price of our common stock, like that of the securities of many other biopharmaceutical companies, has been and is likely to continue to be highly volatile. These fluctuations in our common stock price may significantly affect the trading price of our securities. During the 12 months preceding December 31, 2016, the market price of our common stock ranged from $19.59 to $62.68 per share. Many factors can affect the market price of our securities, including, for example, fluctuations in our operating results, announcements of collaborations, clinical study results, technological innovations or new products being developed by us or our competitors, governmental regulation, marketing authorization, changes in payors' reimbursement policies, developments in patent or other proprietary rights, public concern regarding the safety of our drugs and general market conditions.

We are exposed to potential product liability claims, and insurance against these claims may not be available to us at a reasonable rate in the future or at all.

Our business exposes us to potential product liability risks that are inherent in the testing, manufacturing, marketing and sale of therapeutic products, including potential product liability claims related to SPINRAZA, volanesorsen, IONIS-TTR_Rx and Kynamro. We have clinical study insurance coverage and commercial product liability insurance coverage. However, this insurance coverage may not be adequate to cover claims against us, or be available to us at an acceptable cost, if at all. Regardless of their merit or eventual outcome, products liability claims may result in decreased demand for our drug products, injury to our reputation, withdrawal of clinical study volunteers and loss of revenues. Thus, whether or not we are insured, a product liability claim or product recall may result in losses that could be material.

Because we use biological materials, hazardous materials, chemicals and radioactive compounds, if we do not comply with laws regulating the protection of the environment and health and human safety, our business could be adversely affected.

Our research, development and manufacturing activities involve the use of potentially harmful biological materials as well as materials, chemicals and various radioactive compounds that could be hazardous to human health and safety or the environment. We store these materials and various wastes resulting from their use at our facilities in Carlsbad, California pending ultimate use and disposal. We cannot completely eliminate the risk of contamination, which could cause:



interruption of our research, development and manufacturing efforts;



injury to our employees and others;



environmental damage resulting in costly clean up; and



liabilities under federal, state and local laws and regulations governing health and human safety, as well as the use, storage, handling and disposal of these materials and resultant waste products.

In such an event, we may be held liable for any resulting damages, and any liability could exceed our resources. Although we carry insurance in amounts and types that we consider commercially reasonable, we do not have insurance coverage for losses relating to an interruption of our research, development or manufacturing efforts caused by contamination, and the coverage or coverage limits of our insurance policies may not be adequate. If our losses exceed our insurance coverage, our financial condition would be adversely affected.

If a natural or man-made disaster strikes our research, development or manufacturing facilities or otherwise affects our business, it could delay our progress developing and commercializing our drugs.

We manufacture our research and clinical supplies in a manufacturing facility located in Carlsbad, California. The facilities and the equipment we use to research, develop and manufacture our drugs would be costly to replace and could require substantial lead time to repair or replace. Our facilities may be harmed by natural or man-made disasters, including, without limitation, earthquakes, floods, fires and acts of terrorism; and if our facilities are affected by a disaster, our development and commercialization efforts would be delayed. Although we possess insurance for damage to our property and the disruption of our business from casualties, this insurance may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, or at all. In addition, our development and commercialization activities could be harmed or delayed by a shutdown of the U.S. government, including the FDA.

Our business and operations would suffer in the event of computer system failures.

Despite the implementation of security measures, our internal computer systems, and those of our clinical research organizations, manufacturers, commercial partners and other third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. If issues were to arise and cause interruptions in our operations, it could result in a material disruption of our drug programs. For example, the loss of clinical study data from completed or ongoing clinical studies could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development or commercialization of our drugs, including SPINRAZA, volanesorsen, IONIS-TTR_Rx and Kynamro could be harmed or delayed.

Provisions in our certificate of incorporation, other agreements and Delaware law may prevent stockholders from receiving a premium for their shares.

Our certificate of incorporation provides for classified terms for the members of our board of directors. Our certificate also includes a provision that requires at least 66 2/3 percent of our voting stockholders to approve a merger or certain other business transactions with, or proposed by, any holder of 15 percent or more of our voting stock, except in cases where certain directors approve the transaction or certain minimum price criteria and other procedural requirements are met.

Our certificate of incorporation also requires that any action required or permitted to be taken by our stockholders must be taken at a duly called annual or special meeting of stockholders and may not be taken by written consent. In addition, only our board of directors, chairman of the board or chief executive officer can call special meetings of our stockholders. We have in the past, and may in the future, implement a stockholders' rights plan, also called a poison pill, which could make it uneconomical for a third party to acquire our company on a hostile basis. In addition, our board of directors has the authority to fix the rights and preferences of, and issue shares of preferred stock, which may have the effect of delaying or preventing a change in control of our company without action by our stockholders.

The provisions of our convertible senior notes could make it more difficult or more expensive for a third party to acquire us. Upon the occurrence of certain transactions constituting a fundamental change, holders of the notes will have the right, at their option, to require us to repurchase all of their notes or a portion of their notes, which may discourage certain types of transactions in which our stockholders might otherwise receive a premium for their shares over the then current market prices.

These provisions, as well as Delaware law, including Section 203 of the Delaware General Corporation Law, and other of our agreements, may discourage certain types of transactions in which our stockholders might otherwise receive a premium for their shares over then current market prices, and may limit the ability of our stockholders to approve transactions that they think may be in their best interests.

Future sales of our common stock in the public market could adversely affect the trading price of our securities.

Future sales of substantial amounts of our common stock in the public market, or the perception that such sales could occur, could adversely affect trading prices of our securities. For example, we may issue approximately 10.3 million shares of our common stock upon conversion of our convertible senior notes. The addition of any of these shares into the public market may have an adverse effect on the price of our securities.

Our business is subject to changing regulations for corporate governance and public disclosure that has increased both our costs and the risk of noncompliance.

Each year we are required to evaluate our internal controls systems in order to allow management to report on and our Independent Registered Public Accounting Firm to attest to, our internal controls as required by Section 404 of the Sarbanes-Oxley Act. As a result, we continue to incur additional expenses and divert our management's time to comply with these regulations. In addition, if we cannot continue to comply with the requirements of Section 404 in a timely manner, we might be subject to sanctions or investigation by regulatory authorities, such as the SEC, the Public Company Accounting Oversight Board, or PCAOB, or The Nasdaq Global Select Market. Any such action could adversely affect our financial results and the market price of our common stock.

The SEC and other regulators have continued to adopt new rules and regulations and make additional changes to existing regulations that require our compliance. On July 21, 2010, the Dodd-Frank Wall Street Reform and Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation-related provisions in the Dodd-Frank Act that require the SEC to adopt, or where the SEC has adopted, additional rules and regulations in these areas such as "say on pay" and proxy access. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business.

Negative conditions in the global credit markets and financial services and other industries may adversely affect our business.

The global credit markets, the financial services industry, the U.S. capital markets, and the U.S. economy as a whole have in the past experienced periods of substantial turmoil and uncertainty characterized by unprecedented intervention by the U.S. federal government and the failure, bankruptcy, or sale of various financial and other institutions. It is possible that a crisis in the global credit markets, the U.S. capital markets, the financial services industry or the U.S. economy may adversely affect our business, vendors and prospects, as well as our liquidity and financial condition. More specifically, our insurance carriers and insurance policies covering all aspects of our business may become financially unstable or may not be sufficient to cover any or all of our losses and may not continue to be available to us on acceptable terms, or at all.

Item 1B. Unresolved Staff Comments

Not applicable.

Item 2. Properties

As of February 21, 2017, we occupied the following properties, which are all leased:

Under our lease agreements for our 176,000 and 28,700 square foot facilities, we have the option to purchase the facilities, independent of each other each year from 2017 through 2020, and at the end of 2026 and 2031. 

We believe our existing facilities are adequate for our requirements in the foreseeable future and that we have sufficient manufacturing capacity to meet our current and future obligations under existing agreements with our partners for commercial, research and development needs, including for the Phase 3 clinical trials for volanesorsen and IONIS-TTR_Rx. We produced the launch quantities for SPINRAZA and now Biogen is responsible for further manufacturing.

Item 3. Legal Proceedings

Gilead Litigation

 

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded publicly through The Nasdaq Global Select Market under the symbol “IONS.” Prior to our name change in December 2015, we traded under the symbol “ISIS.” The following table presents quarterly information on the price range of our common stock. This information indicates the high and low sale prices reported by The Nasdaq Global Select Market. These prices do not include retail markups, markdowns or commissions.

As of February 21, 2017, there were approximately 587 stockholders of record of our common stock. We have never paid dividends and do not anticipate paying any dividends in the foreseeable future.

Set forth below is a table and chart comparing the total return on an indexed basis of $100 invested on December 31, 2010 in our common stock, the NASDAQ Composite Index (total return) and the NASDAQ Biotechnology Index. The total return assumes reinvestment of dividends.

Performance Graph (1)

*$100 invested on December 31, 2010 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN

Among Ionis Pharmaceuticals, Inc., the NASDAQ Composite Index,

and the NASDAQ Biotechnology Index

 

(1)

This section is not “soliciting material,” is not deemed “filed” with the SEC, is not subject to the liabilities of Section 18 of the Exchange Act and is not to be incorporated by reference in any of our filings under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

Item 6. Selected Financial Data

Set forth below are our selected consolidated financial data (in thousands, except per share amounts):

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are leaders in discovering and developing RNA-targeted therapeutics. We have created an efficient and broadly applicable drug discovery platform. Using this platform, we have developed a large, diverse and advanced pipeline of potentially first-in-class and/or best-in-class drugs that we believe can provide high value for patients with significant unmet medical needs. In this way, we believe we are fundamentally changing medicine with the goal to transform the lives of those suffering from severe, often life-threatening, diseases. The recent U.S. approval of SPINRAZA for pediatric and adult patients with SMA highlights our progress toward this goal. Our pipeline also contains two near-term potentially transformative medicines for two different severe and rare diseases, each with significant commercial potential. We plan to report data from our Phase 3 study of volanesorsen in patients with familial chylomicronemia, or FCS in the first quarter of 2017. We also plan to report data from our Phase 3 study of IONIS-TTR_Rx in patients with FAP in the second quarter of 2017.

With FDA approval in December 2016, SPINRAZA injection became the first and only approved drug  to treat pediatric and adult patients with SMA. SMA is a leading genetic cause of death in infants and toddlers that is marked by progressive, debilitating muscle weakness. Biogen has filed for marketing authorization in the EU, Japan, Australia and Canada, and plans to file in other countries this year. The European Medicines Agency, or EMA, is reviewing the SPINRAZA marketing application under accelerated assessment. Biogen estimates that there are approximately 20,000 patients with SMA in the U.S., EU and Japan, with a large percentage in the United States.

Akcea Therapeutics, Inc. is our wholly owned subsidiary focused on developing and commercializing volanesorsen and three other clinical-stage drugs for serious cardiometabolic diseases caused by lipid disorders, AKCEA-APO(a)-L_Rx, AKCEA-ANGPTL3-L_Rx and AKCEA-APOCIII-L_Rx. Each of these four drugs could potentially treat multiple patient populations. Moving these drugs into a company that we own allows us to retain substantial value from them and ensures our core focus remains on innovation. Akcea is assembling the global infrastructure to continue developing the drugs in its pipeline, to commercialize them with a focus on lipid specialists as the primary call point and to provide the specialized patient and physician support required to address rare disease patient populations.

We and Akcea are developing volanesorsen to treat two severe and rare, genetically defined diseases, FCS and familial partial lipodystrophy, or FPL. FCS and FPL are orphan diseases characterized by severely high triglyceride levels that result in severe, daily symptoms and a high risk of life-threatening pancreatitis. The clinical development program for volanesorsen consists of three Phase 3 studies called APPROACH, BROADEN and COMPASS. The APPROACH study, in patients with FCS, is fully enrolled and we plan to report data from it in the first quarter of 2017. We plan to file for marketing authorization in the U.S., Europe and Canada in 2017 if the data are positive. We also recently completed the COMPASS study in patients with triglycerides above 500 mg/dL to expand the exposure database for volanesorsen to support global regulatory filings. In December 2016, we reported that the COMPASS study met its primary endpoint of a statistically significant 71% mean reduction in triglycerides in volanesorsen-treated patients. Safety in this study was supportive of continuing development. We estimate that FCS and FPL each affect 3,000 to 5,000 patients globally. If approved, we plan to commercialize volanesorsen for both FCS and FPL through Akcea.

In addition to our Phase 3 programs, we have a pipeline of drugs with the potential to be first-in-class and/or best-in-class drugs to treat patients with diseases that have inadequate treatment options. We are addressing a broad spectrum of diseases from common diseases affecting millions, such as cardiovascular disease, clotting disorders, Alzheimer’s and Parkinson’s disease, to rare diseases, such as amyotrophic lateral sclerosis and Huntington’s disease. Our pipeline has over a dozen drugs in Phase 2 development, many of which we believe have the potential to be significant commercial opportunities. In particular, IONIS-FXI_Rx and AKCEA-APO(a)-L_Rx represent the value we have created. IONIS-FXI_Rx is the first antithrombotic in development that has shown it can decrease the risk of blood vessel obstruction caused by a blood clot without increasing bleeding risk. AKCEA-APO(a)-L_Rx is the first and only drug in clinical development designed to selectively and robustly lower Lp(a), a key driver of cardiovascular disease. We believe that addressing Lp(a) is the next important horizon in lipid-focused cardiovascular disease treatment.

The depth of our knowledge and expertise with antisense technology, together with our strong financial position, provides us the flexibility to determine the optimal development and commercialization strategy to maximize the near- and longer-term value of our drugs. We have distinct partnering strategies that we employ based on the specific drug, therapeutic area and expertise and resources our potential partners may bring to the collaboration. We have established alliances with a cadre of leading global pharmaceutical companies that are working alongside us in developing our drugs, advancing our technology and preparing to commercialize our products. Our partners bring substantial resources and expertise that augment and build upon our internal capabilities. We have strategic partnerships with Biogen and AstraZeneca through which we can broadly expand our drug discovery efforts to new disease targets in specific therapeutic areas for which our partners can provide expertise, tools and resources to complement our drug discovery efforts. We also have partnerships with Bayer, GSK, Janssen, Novartis and Roche. Each of these companies brings significant expertise and global resources to develop and potentially commercialize the drugs under each partnership. We also form early stage research and development partnerships that allow us to expand the application of our technology to new therapeutic areas. Lastly, we also work with a consortium of companies that can exploit our drugs and technologies outside our primary areas of focus. We refer to these companies as satellite companies.

Through our partnerships, we have created a broad and sustaining base of potential R&D revenue in the form of license fees, upfront payments and milestone payments while spending prudently to advance our pipeline and technology. Our R&D revenue has consistently grown year over year since 2011. We have the potential to earn nearly $13 billion in future milestone payments and licensing fees from our current partnerships. We also have the potential to share in the future commercial success of our inventions and drugs resulting from our partnerships through earn out or royalty arrangements. With the approval of SPINRAZA in the U.S., we are adding commercial revenue from SPINRAZA royalties to our existing R&D revenue base. Looking forward, we have the potential to increase our commercial revenue from SPINRAZA royalties if Biogen achieves marking authorization in additional countries. We also have the potential to further increase our commercial revenue with volanesorsen product sales and IONIS-TTR_Rx royalties. We believe we have the key elements in place to achieve sustained long-term financial growth, including multiple drivers of revenue; a mature, broad and rapidly-advancing clinical pipeline; a partnership strategy that leverages partner resources; and an innovative drug technology that we continue to deploy across a range of therapeutic areas to address both rare and large patient populations.

Financial Highlights

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

During 2016 we increased our revenue by 22 percent over 2015. Further, our R&D revenue has consistently grown year over year since 2011. The substantial increase in 2016 revenue was primarily due to the license of SPINRAZA by Biogen and its subsequent approval by the FDA. With the approval of SPINRAZA in the U.S., we are adding commercial revenue from SPINRAZA royalties to our broad base of R&D revenue. In addition, in 2016 we continued to advance our pipeline of drugs to treat both rare and more prevalent diseases across multiple therapeutic areas. During each of the years above, we were conducting several Phase 3 studies for SPINRAZA, volanesorsen and IONIS-TTR_Rx along with advancing numerous earlier-stage drugs. During 2016, we received more than $190 million from our partners, reflecting the successes of our partnered programs and drugs. In addition to cash and revenue, our partners provide expertise and additional resources, which we believe will maximize the commercial value of our partnered drugs. We believe our strong financial position will enable us to continue to execute on our corporate goals throughout 2017.

Business Segments

In 2015, we began reporting our financial results in two reportable segments, Ionis Core, and Akcea Therapeutics, our wholly owned subsidiary. Segment loss from operations includes revenue less operating expenses attributable to each segment.

In our Ionis Core segment we are exploiting a novel drug discovery platform we created to generate a broad pipeline of first-in-class or best-in-class drugs for us and our partners. Our Ionis Core segment generates revenue from a multifaceted partnering strategy.

We formed Akcea to develop and commercialize novel drugs to treat patients with serious cardiometabolic diseases caused by lipid disorders. Akcea’s goal is to become the premier company offering treatments for inadequately treated lipid disorders. Moving our lipid drugs into a company that we own ensures that our core focus at Ionis remains on innovation while allowing us to maintain control over and retain more value from our lipid drugs.

Critical Accounting Policies

We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States. As such, we make certain estimates, judgments and assumptions that we believe are reasonable, based upon the information available to us. These judgments involve making estimates about the effect of matters that are inherently uncertain and may significantly impact our quarterly or annual results of operations and financial condition. Each quarter, our senior management reviews the development, selection and disclosure of such estimates with the audit committee of our board of directors. In the following paragraphs, we describe the specific risks associated with these critical accounting policies and we caution that future events rarely develop exactly as one may expect, and that best estimates may require adjustment.

The following are our significant accounting policies, which we believe are the most critical to aid in fully understanding and evaluating our reported financial results:



Assessing the propriety of revenue recognition and associated deferred revenue;



Determining the proper valuation of investments in marketable securities and other equity investments;



Determining the appropriate cost estimates for unbilled preclinical studies and clinical development activities;



Estimating our net deferred income tax asset valuation allowance; and



Determining the fair value of convertible debt without the conversion feature.

Descriptions of these critical accounting policies follow.

Revenue Recognition

We generally recognize revenue when we have satisfied all contractual obligations and are reasonably assured of collecting the resulting receivable. We are often entitled to bill our customers and receive payment from our customers in advance of recognizing the revenue. In the instances in which we have received payment from our customers in advance of recognizing revenue, we include the amounts in deferred revenue on our consolidated balance sheet.

Our collaboration agreements typically contain multiple elements, or deliverables, including technology licenses or options to obtain technology licenses, research and development services, and in certain cases manufacturing services, and we allocate the consideration to each unit of accounting based on the relative selling price of each deliverable.

Identifying deliverables and units of accounting

We evaluate the deliverables in our collaboration agreements to determine whether they meet the criteria to be accounted for as separate units of accounting or whether they should be combined with other deliverables and accounted for as a single unit of accounting. When the delivered items in an arrangement have "stand-alone value" to our customer, we account for the deliverables as separate units of accounting. Delivered items have stand-alone value if they are sold separately by any vendor or the customer could resell the delivered items on a stand-alone basis. For example, in May 2015, we entered into an exclusive license agreement with Bayer to develop and commercialize IONIS-FXI_Rx for the prevention of thrombosis. As part of the agreement, Bayer paid us a $100 million upfront payment in the second quarter of 2015. We are also eligible to receive milestone payments and tiered royalties on gross margins of IONIS-FXI_Rx. At the onset of the agreement, we were responsible for completing the development services for IONIS-FXI_Rx, and for providing an initial supply of active pharmaceutical ingredient, or API. Since the agreement had multiple elements, we evaluated the deliverables in this arrangement when we entered into the agreement and determined that certain deliverables have stand-alone value. In February 2017, we expanded our collaboration with Bayer, refer to Note 6, Collaborative Arrangements and Licensing Agreements, in the Notes to the Consolidated Financial Statements for further information.

Below is a list of the three units of accounting under our original agreement:



The exclusive license we granted to Bayer to develop and commercialize IONIS-FXIRx for the treatment of thrombosis;



The development services we agreed to perform for IONIS-FXIRx; and



The initial supply of API.

We determined that each of these three units of accounting have stand-alone value. The license we granted to Bayer has stand-alone value because it gives Bayer the exclusive right to develop IONIS-FXI_Rx or to sublicense its rights. The development services and the initial supply of API each have stand-alone value because Bayer or another third party could provide these items without our assistance.

Measurement and allocation of arrangement consideration

Our collaborations may provide for various types of payments to us including upfront payments, funding of research and development, milestone payments, licensing fees and royalties on product sales. We initially allocate the amount of consideration that is fixed and determinable at the time the agreement is entered into and exclude contingent consideration. We allocate the consideration to each unit of accounting based on the relative selling price of each deliverable. We use the following hierarchy of values to estimate the selling price of each deliverable: (i) vendor-specific objective evidence of fair value; (ii) third-party evidence of selling price; and (iii) best estimate of selling price, or BESP. BESP reflects our best estimate of what the selling price would be if we regularly sold the deliverable on a stand-alone basis. We recognize the revenue allocated to each unit of accounting as we deliver the related goods or services. If we determine that we should treat certain deliverables as a single unit of accounting, then we recognize the revenue ratably over our estimated period of performance.

We determined that the allocable arrangement consideration for the Bayer collaboration was $100 million and we allocated it based on the relative BESP of each unit of accounting. We engaged a third party, independent valuation expert to assist us with determining BESP. We estimated the selling price of the license granted for IONIS-FXI_Rx by using the relief from royalty method. Under this method, we estimated the amount of income, net of taxes, for IONIS-FXI_Rx. We then discounted the projected income to present value. The significant inputs we used to determine the projected income of the license included:



Estimated future product sales;



Estimated royalties on future product sales;



Contractual milestone payments;



Expenses we expect to incur;



Income taxes; and



An appropriate discount rate.

We estimated the selling price of the development services by using our internal estimates of the cost to perform the specific services and estimates of expected cash outflows to third parties for services and supplies over the expected period that we will perform the development services. The significant inputs we used to determine the selling price of the development services included:



The number of internal hours we will spend performing these services;



The estimated cost of work we will perform;



The estimated cost of work that we will contract with third parties to perform; and



The estimated cost of drug product we will use.

We determine the selling price of our API consistently for all of our partnerships. On an annual basis, we calculate our fully absorbed cost to manufacture API. We then determine the unit price we will charge our partners by dividing our fully absorbed costs by the quantity of API we expect to produce during the year.

For purposes of determining BESP of the services we performed and the API we delivered in our Bayer transaction, accounting guidance required us to include a markup for a reasonable profit margin.

Based on the units of accounting under the agreement, we allocated the $100 million upfront payment from Bayer as follows:



$91.2 million to the IONIS-FXIRx exclusive license;



$4.3 million for development services; and



$4.5 million for the delivery of API.

Assuming a constant selling price for the other elements in the arrangement, if there was an assumed 10 percent increase or decrease in the estimated selling price of the IONIS-FXI_Rx license, we determined that the revenue we would have allocated to the IONIS-FXI_Rx license would change by approximately one percent, or $0.9 million, from the amount we recorded.

We recognize revenue as we deliver each item under the arrangement and the related revenue is realizable and earned. For example, we recognized revenue for the exclusive license we granted Bayer for IONIS-FXI_Rx in the second quarter of 2015 because that was when we delivered the license. We also recognize revenue over time. Our collaborative agreements typically include a research and/or development project plan outlining the activities the agreement requires each party to perform during the collaboration. We must estimate our period of performance when the agreements we enter into do not clearly define such information. We estimate the period of time over which we will complete the activities for which we are responsible and use that period of time as our period of performance for purposes of revenue recognition. We then recognize revenue ratably over such period. We have made estimates of our continuing obligations under numerous agreements and in certain instances the timing of satisfying these obligations change as the development plans for our drugs progress. Accordingly, our estimates may change in the future. If our estimates and judgments change over the course of our collaboration agreements, it may affect the timing and amount of revenue that we recognize in future periods.

The following are the periods over which we are recognizing revenue for each of our units of accounting under our Bayer agreement:



We recognized the portion of the consideration attributed to the IONIS-FXIRx license immediately in the second quarter of 2015 because we delivered the license and earned the revenue;



We recognized the amount attributed to the development services for IONIS-FXIRx over the period of time we  performed the services; and



We are recognizing the amount attributed to the API supply as we deliver it to Bayer.

From time to time, we may enter into separate agreements at or near the same time with the same partner. We evaluate such agreements to determine whether they should be accounted for individually as distinct arrangements or whether the separate agreements are, in substance, a single multiple element arrangement. We evaluate whether the negotiations are conducted jointly as part of a single negotiation, whether the deliverables are interrelated or interdependent, whether fees in one arrangement are tied to performance in another arrangement, and whether elements in one arrangement are essential to another arrangement. Our evaluation involves significant judgment to determine whether a group of agreements might be so closely related that they are, in effect, part of a single arrangement. For example, in 2012 and 2013, we entered into several collaboration agreements with Biogen:



In January 2012, we entered into a collaboration agreement with Biogen to develop and commercialize SPINRAZA (nusinersen) for SMA. As part of the collaboration, we received a $29 million upfront payment and were responsible for global development of SPINRAZA through completion of Phase 2/3 clinical trials.



In June 2012, we entered into a second and separate collaboration agreement with Biogen to develop and commercialize a novel antisense drug targeting DMPK. As part of the collaboration, we received a $12 million upfront payment and we are responsible for global development of the drug through the completion of a Phase 2 clinical trial.



In December 2012, we entered into a third and separate collaboration agreement with Biogen to discover and develop antisense drugs against three targets to treat neurological or neuromuscular disorders. As part of the collaboration, we received a $30 million upfront payment and we are responsible for the discovery of a lead antisense drug for each of three targets.



In September 2013, we entered into a fourth and separate collaboration agreement with Biogen to leverage antisense technology to advance the treatment of neurodegenerative diseases. We granted Biogen exclusive rights to the use of our antisense technology to develop therapies for neurological diseases as part of this broad collaboration. We received a $100 million upfront payment and we are responsible for discovery and early development through the completion of a Phase 2 clinical trial for each antisense drug identified during the six-year term of this collaboration, while Biogen is responsible for the creation and development of small molecule treatments and biologics.

Under our collaboration agreement, in July 2016, Biogen exercised its option to license SPINRAZA. Our other collaboration agreements with Biogen give Biogen the option to license one or more drugs resulting from the specific collaboration. Similar to our collaboration agreement for SPINRAZA, if Biogen exercises an option, it will pay us a license fee and will assume future global development, regulatory and commercialization responsibilities for the licensed drug. We are also eligible to receive milestone payments associated with the research and/or development of the drugs prior to licensing, milestone payments if Biogen achieves pre-specified regulatory milestones, and royalties on any product sales from any drugs resulting from these collaborations.

We evaluated all of the Biogen agreements to determine whether we should account for them as separate agreements. We determined that we should account for the agreements separately because we conducted the negotiations independently of one another, each agreement focuses on different drugs, there are no interrelated or interdependent deliverables, there are no provisions in any of these agreements that are essential to the other agreement, and the payment terms and fees under each agreement are independent of each other.

Our collaborations often include contractual milestones, which typically relate to the achievement of pre-specified development, regulatory and/ or commercialization events. These three categories of milestone events reflect the three stages of the life-cycle of our drugs, which we describe in more detail in the following paragraphs.

Prior to the first stage in the life-cycle of our drugs, we perform a significant amount of work using our proprietary antisense technology to design chemical compounds that interact with specific genes that are good targets for drug discovery. From these research efforts, we hope to identify a development candidate. The designation of a development candidate is the first stage in the life-cycle of our drugs. A development candidate is a chemical compound that has demonstrated the necessary safety and efficacy in preclinical animal studies to warrant further study in humans.

During the first step of the development stage, we or our partners study our drugs in Investigational New Drug, or IND,

-enabling studies, which are animal studies intended to support an IND application and/or the foreign equivalent. An approved IND allows us or our partners to study our development candidate in humans. If the regulatory agency approves the IND, we or our partners initiate Phase 1 clinical trials in which we typically enroll a small number of healthy volunteers to ensure the development candidate is safe for use in patients. If we or our partners determine that a development candidate is safe based on the Phase 1 data, we or our partners initiate Phase 2 studies that are generally larger scale studies in patients with the primary intent of determining the efficacy of the development candidate.

The final step in the development stage is Phase 3 studies to gather the necessary safety and efficacy data to request marketing authorization from the FDA and/or foreign equivalents. The Phase 3 studies typically involve large numbers of patients and can take up to several years to complete. If the data gathered during the trials demonstrates acceptable safety and efficacy results, we or our partner will submit an application to the FDA and/or its foreign equivalents for marketing authorization. This stage of the drug’s life-cycle is the regulatory stage.

If a drug achieves marketing authorization, it moves into the commercialization stage, during which our partner will market and sell the drug to patients. Although our partner will ultimately be responsible for marketing and selling the partnered drug, our efforts to discover and develop a drug that is safe, effective and reliable contributes significantly to our partner’s ability to successfully sell the drug. The FDA and its foreign equivalents have the authority to impose significant restrictions on an approved drug through the product label and on advertising, promotional and distribution activities. Therefore, our efforts designing and executing the necessary animal and human studies are critical to obtaining claims in the product label from the regulatory agencies that would allow us or our partner to successfully commercialize our drug. Further, the patent protection afforded our drugs as a result of our initial patent applications and related prosecution activities in the United States and foreign jurisdictions are critical to our partner’s ability to sell our drugs without competition from generic drugs. The potential sales volume of an approved drug is dependent on several factors including the size of the patient population, market penetration of the drug, and the price charged for the drug.

Generally, the milestone events contained in our partnership agreements coincide with the progression of our drugs from development, to marketing authorization and then to commercialization. The process of successfully discovering a new development candidate, having it approved and ultimately sold for a profit is highly uncertain. As such, the milestone payments we may earn from our partners involve a significant degree of risk to achieve. Therefore, as a drug progresses through the stages of its life-cycle, the value of the drug generally increases.

Development milestones in our partnerships may include the following types of events:



Designation of a development candidate. Following the designation of a development candidate, IND-enabling animal studies for a new development candidate generally take 12 to 18 months to complete;



Initiation of a Phase 1 clinical trial. Generally, Phase 1 clinical trials take one to two years to complete;



Initiation or completion of a Phase 2 clinical trial. Generally, Phase 2 clinical trials take one to three years to complete;



Initiation or completion of a Phase 3 clinical trial. Generally, Phase 3 clinical trials take two to four years to complete.

Regulatory milestones in our partnerships may include the following types of events:



Filing of regulatory applications for marketing authorization such as a New Drug Application, or NDA, in the United States or a Marketing Authorization Application, or MAA, in Europe. Generally, it takes six to twelve months to prepare and submit regulatory filings.



Marketing authorization in a major market, such as the United States, Europe or Japan. Generally it takes one to two years after an application is submitted to obtain authorization from the applicable regulatory agency.

Commercialization milestones in our partnerships may include the following types of events:



First commercial sale in a particular market, such as in the United States or Europe.



Product sales in excess of a pre-specified threshold, such as annual sales exceeding $1 billion. The amount of time to achieve this type of milestone depends on several factors including but not limited to the dollar amount of the threshold, the pricing of the product and the pace at which customers begin using the product.

We assess whether a substantive milestone exists at the inception of our agreements. When a substantive milestone is achieved, we recognize revenue related to the milestone payment immediately. For our existing licensing and collaboration agreements in which we are involved in the discovery and/or development of the related drug or provide the partner with access to new technologies we discover, we have determined that the majority of future development, regulatory and commercialization milestones are substantive. For example, we consider most of the milestones associated with our strategic alliance with Biogen substantive because we are using our antisense drug discovery platform to discover and develop new drugs against targets for neurological diseases. In evaluating if a milestone is substantive we consider whether:



Substantive uncertainty exists as to the achievement of the milestone event at the inception of the arrangement;



The achievement of the milestone involves substantive effort and can only be achieved based in whole or in part on our performance or the occurrence of a specific outcome resulting from our performance;



The amount of the milestone payment appears reasonable either in relation to the effort expended or to the enhancement of the value of the delivered items;



There is no future performance required to earn the milestone; and



The consideration is reasonable relative to all deliverables and payment terms in the arrangement.

If any of these conditions are not met, we do not consider the milestone to be substantive and we defer recognition of the milestone payment and recognize it as revenue over our estimated period of performance, if any. Further information about our collaborative arrangements can be found in Note 6, Collaborative Arrangements and Licensing Agreements, in the Notes to the Consolidated Financial Statements.

In several of our collaboration agreements, we provide our partner with an option to obtain a license to one or more of our drugs.  When we have a multiple element arrangement that includes an option to obtain a license, we evaluate if the option is a deliverable at the inception of the arrangement.  We do not consider the option to be a deliverable if we conclude that it is substantive and not priced at a significant and incremental discount. We consider an option substantive if, at the inception of the arrangement, we are at risk as to whether our collaborative partner will choose to exercise its option to obtain the license. In those circumstances, we do not include the associated license fee in the allocable consideration at the inception of the agreement. Rather, we account for the license fee when our partner exercises its option. For example, during 2016, we earned license fee revenue when three of our partners, AstraZeneca, Biogen and Janssen, exercised their option to license three of our drugs, which under the respective agreements we concluded to be substantive options at inception. As a result, in 2016 we recognized $98 million in research and development revenue under collaborative agreements on our statement of operations as these amounts relate to drugs in development under research and development collaboration arrangements.

We often enter into agreements to license or sell our proprietary patent rights on an exclusive or non-exclusive basis in exchange for upfront fees, milestone payments and/or royalties. We generally recognize as revenue immediately those payments for which we have no significant future performance obligations and for which we are reasonably assured of collecting the resulting receivable.

Valuation of Investments

We consider all liquid investments with maturities of three months or less when we purchase them to be cash equivalents. Our short-term investments have initial maturities of greater than three months from date of purchase. We classify our short-term investments as “available-for-sale” and carry them at fair market value based upon prices for identical or similar items on the last day of the fiscal period. We record unrealized gains and losses as a separate component of comprehensive income (loss) and include net realized gains and losses in gain (loss) on investments. We use the specific identification method to determine the cost of securities sold.

We use a three-tier fair value hierarchy to prioritize the inputs used in our fair value measurements. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets, which includes our money market funds and treasury securities classified as available-for-sale securities and our investments in equity securities in publicly held biotechnology companies; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable, which includes our fixed income securities and commercial paper classified as available-for-sale securities; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring us to develop our own assumptions. Our Level 3 investments include investments in the equity securities of publicly held biotechnology companies for which we calculated a lack of marketability discount because there were restrictions on when we could trade the securities. Historically, we have determined the lack of marketability discount by using a Black-Scholes model to value a hypothetical put option to approximate the cost of hedging the stock until the restriction ended. The majority of our securities have been classified as Level 2. We obtain the fair value of our Level 2 investments from our custodian bank or from a professional pricing service. We validate the fair value of our Level 2 investments by understanding the pricing model used by the custodian banks or professional pricing service provider and comparing that fair value to the fair value based on observable market prices.

We have equity investments in privately and publicly held biotechnology companies that we have received as part of a technology license or collaboration agreement. We account for our equity investments in publicly held companies at fair value and record unrealized gains and losses related to temporary increases and decreases in the stock price of these publicly held companies as a separate component of comprehensive income (loss). At December 31, 2016, we held investments in two publicly traded companies, Antisense Therapeutics Limited and Regulus. We account for equity investments in privately held companies under the cost method of accounting because we own less than 20 percent and do not have significant influence over their operations. We hold cost method investments in three companies, Kastle Therapeutics, Atlantic Pharmaceuticals Limited and Dynacure, SAS. Realization of our equity position in these companies is uncertain. When realization of our investment is uncertain, we record a full valuation allowance. In determining if and when a decrease in market value below our cost in our equity positions is temporary or other-than-temporary, we examine historical trends in the stock price, the financial condition of the company, near term prospects of the company and our current need for cash. If we determine that a decline in value in either a public or private investment is other-than-temporary, we recognize an impairment loss in the period in which the other-than-temporary decline occurs.

During 2015 and 2014, we realized a net gain on investments of $20.3 million, and $21.2 million, respectively. Our net gain for 2015 and 2014 was primarily from the $20.2 million and $19.9 million gain we realized when we sold a portion of our stock in Regulus, respectively. We have reflected this gain in a separate line called “Gain on investment in Regulus Therapeutics Inc.” on our Consolidated Statements of Operations. See further discussion about our investment in Regulus in Note 2, Investments, in the Notes to the Consolidated Financial Statements.

Estimated Liability for Clinical Development Costs

We record accrued liabilities related to expenses for which service providers have not yet billed us. These liabilities are for products or services that we have received, specifically related to ongoing preclinical studies and clinical trials. These costs primarily relate to third-party clinical management costs, laboratory and analysis costs, toxicology studies and investigator grants. We have numerous drugs in concurrent preclinical studies and clinical trials at several clinical sites throughout the world. In order to ensure that we have adequately provided for ongoing preclinical and clinical development costs during the period in which we incur such costs, we maintain an accrual to cover these costs. We update our estimate for this accrual on at least a quarterly basis. The assessment of these costs is a subjective process that requires judgment. Upon settlement, these costs may differ materially from the amounts accrued in our consolidated financial statements. Our historical accrual estimates have not been materially different from our actual amounts.

Valuation Allowance for Net Deferred Tax Assets

We record a valuation allowance to offset any net deferred tax assets if, based upon the available evidence, it is more likely than not that we will not recognize some or all of the deferred tax assets. Except for 2009, we have had net losses since inception, and as a result, we have established a 100 percent valuation allowance for our net deferred tax asset. If we determine that we are able to realize a portion or all of these deferred tax assets in the future, we will record an adjustment to the valuation allowance.

Convertible Debt

We account for our convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) by separating the liability and equity components of the instruments in a manner that reflects our nonconvertible debt borrowing rate. We determine the carrying amount of the liability component by measuring the fair value of similar debt instruments that do not have the conversion feature. If a similar debt instrument does not exist, we estimate the fair value by using assumptions that market participants would use in pricing a debt instrument, including market interest rates, credit standing, yield curves and volatilities. Determining the fair value of the debt component requires the use of accounting estimates and assumptions. These estimates and assumptions are judgmental in nature and could have a significant impact on the determination of the debt component and the associated non-cash interest expense.

We assigned a value to the debt component of our convertible notes equal to the estimated fair value of similar debt instruments without the conversion feature, which resulted in us recording the debt at a discount. At January 1, 2016, we adopted the amended accounting guidance to simplify the presentation of debt issuance costs. As a result of this amended guidance, we reclassed our debt issuance costs in all periods presented from other assets to the net carrying amount of the related debt liability on our consolidated balance sheet. We are amortizing our debt issuance costs and our debt discount over the life of the convertible notes as additional non-cash interest expense utilizing the effective interest method. For additional information, see Note 3, Long-Term Obligations and Commitments, in the Notes to the Consolidated Financial Statements.

Results of Operations

Years Ended December 31, 2016 and December 31, 2015

Revenue

Total revenue for 2016 was $346.6 million, compared to $283.7 million for 2015. See below for our discussion of the changes in our revenue.

Our revenue for 2016 consisted of the following:



$170 million from Biogen for FDA approval, licensing and advancing the Phase 3 program for SPINRAZA;



$53 million from AstraZeneca for advancing and licensing IONIS-KRAS-2.5Rx and selecting IONIS-AZ4-2.5-LRx to move into development;



$15 million from Janssen for licensing IONIS-JBI1-2.5Rx and selecting an additional development candidate;



$15 million from Kastle Therapeutics for acquiring Kynamro;



$7.5 million from Biogen for advancing IONIS-SOD1Rx. IONIS-BIIB4Rx and IONIS-BIIB6Rx;



$61 million from the amortization of upfront fees; and



$25.1 million primarily from the manufacturing services Ionis performed for its partners.

Our revenue fluctuates based on the nature and timing of payments under agreements with our partners and consists primarily of revenue from the amortization of upfront fees, milestone payments and license fees.

Research and Development Revenue Under Collaborative Agreements

Research and development revenue under collaborative agreements for 2016 was $325.9 million, compared to $281.4 million for 2015.

Licensing and Royalty Revenue

Our revenue from licensing activities and royalties for 2016 was $20.7 million, compared to $2.3 million for 2015. Our revenue from licensing and royalties for 2016 primarily consisted of the $15 million we earned from Kastle when it acquired the global rights to develop and commercialize Kynamro.

Operating Expenses

Operating expenses for 2016 were $392.9 million, and increased compared to $359.5 million for 2015 as a result of the following:



During 2016, we were conducting five Phase 3 studies and three open-label extension studies for SPINRAZA, IONIS-TTRRx and volanesorsen. We completed target enrollment in four of these Phase 3 studies at the end of 2015, and as a result, these studies were in their most expensive stage during 2016.



Akcea’s operating expenses increased as it continued to build its commercial infrastructure and advance the pre-commercialization activities necessary to successfully launch volanesorsen, if approved for marketing.



Our non-cash compensation expense related to equity awards increased due to an increase in the exercise price of the stock options we have granted over the past several years.

Our operating expenses by segment were as follows (in thousands):

In order to analyze and compare our results of operations to other similar companies, we believe it is important to exclude non-cash compensation expense related to equity awards from our operating expenses. We believe non-cash compensation expense is not indicative of our operating results or cash flows from our operations. Further, we internally evaluate the performance of our operations excluding it.

Research, Development and Patent Expenses

Our research, development and patent expenses consist of expenses for antisense drug discovery, antisense drug development, manufacturing and operations and R&D support expenses.

The following table sets forth information on research, development and patent expenses (in thousands):

Our research, development and patent expenses by segment were as follows (in thousands):

For 2016, our total research, development and patent expenses were $289.2 million, compared to $278.7 million for 2015, and were slightly higher primarily due to the progression of our drugs in Phase 3 development. All amounts exclude non-cash compensation expense related to equity awards.

We use our proprietary antisense technology to generate information about the function of genes and to determine the value of genes as drug discovery targets. We use this information to direct our own antisense drug discovery research, and that of our partners. Antisense drug discovery is also the function that is responsible for advancing our antisense core technology.

As we continue to advance our antisense technology, we are investing in our drug discovery programs to expand our and our partners' drug pipelines. We anticipate that our existing relationships and collaborations, as well as prospective new partners, will continue to help fund our research programs and contribute to the advancement of the science by funding core antisense technology research.

Our antisense drug discovery expenses were as follows (in thousands) and are part of our Ionis Core business segment:

Antisense drug discovery expenses for 2016 were $51.0 million and were slightly higher compared to $49.3 million for 2015. All amounts exclude non-cash compensation expense related to equity awards.

The following table sets forth research and development expenses for our major antisense drug development projects (in thousands):

Antisense drug development expenses were $179.1 million for 2016 compared to $172.2 million for 2015. Expenses for 2016 were slightly higher compared to 2015 primarily due to the progression of our drugs in Phase 3 development. As drugs move forward to more advanced stages of development, including into larger, longer clinical studies, the costs of development increase. Our other antisense development project expenses declined in 2016, compared to 2015, primarily due to completing the FOCUS FH Phase 3 study of Kynamro in 2015 and our shift to LICA drugs, which are in less expensive stages of development. All amounts exclude non-cash compensation expense related to equity awards.

Our antisense drug development expenses by segment were as follows (in thousands):

We may conduct multiple clinical trials on a drug candidate, including multiple clinical trials for the various indications we may be studying. Furthermore, as we obtain results from trials we may elect to discontinue clinical trials for certain drug candidates in certain indications in order to focus our resources on more promising drug candidates or indications. Our Phase 1 and Phase 2 programs are clinical research programs that fuel our Phase 3 pipeline. When our products are in Phase 1 or Phase 2 clinical trials, they are in a dynamic state in which we may adjust the development strategy for each product. Although we may characterize a product as "in Phase 1" or "in Phase 2," it does not mean that we are conducting a single, well-defined study with dedicated resources. Instead, we allocate our internal resources on a shared basis across numerous products based on each product's particular needs at that time. This means we are constantly shifting resources among products. Therefore, what we spend on each product during a particular period is usually a function of what is required to keep the products progressing in clinical development, not what products we think are most important. For example, the number of people required to start a new study is large, the number of people required to keep a study going is modest and the number of people required to finish a study is large. However, such fluctuations are not indicative of a shift in our emphasis from one product to another and cannot be used to accurately predict future costs for each product. And, because we always have numerous drugs in preclinical and early stage clinical research, the fluctuations in expenses from drug to drug, in large part, offset one another. If we partner a drug, it may affect the size of a trial, its timing, its total cost and the timing of the related costs.

Expenditures in our manufacturing and operations function consist primarily of personnel costs, specialized chemicals for oligonucleotide manufacturing, laboratory supplies and outside services. Our manufacturing and operations function is responsible for providing drug supplies to antisense drug development, our Akcea subsidiary and our collaboration partners. Our manufacturing procedures include testing to satisfy good laboratory and good manufacturing practice requirements.

Our manufacturing and operations expenses were as follows (in thousands):

Manufacturing and operations expenses were $30.1 million for 2016 and were slightly higher compared to $28.6 million for 2015. All amounts exclude non-cash compensation expense related to equity awards.

Our manufacturing and operations expenses by segment were as follows (in thousands):

In our research, development and patent expenses, we include support costs such as rent, repair and maintenance for buildings and equipment, utilities, depreciation of laboratory equipment and facilities, amortization of our intellectual property, informatics costs, procurement costs and waste disposal costs. We call these costs R&D support expenses.

The following table sets forth information on R&D support expenses (in thousands):

R&D support expenses for 2016 were $29.0 million and were essentially flat compared to $28.5 million for 2015. All amounts exclude non-cash compensation expense related to equity awards.

Our R&D support expenses by segment were as follows (in thousands):

General and Administrative Expenses

General and administrative expenses include corporate costs required to support our company, our employees and our stockholders. These costs include personnel and outside costs in the areas of legal, human resources, investor relations, and finance. Additionally, we include in general and administrative expenses such costs as rent, repair and maintenance of buildings and equipment, depreciation and utilities costs that we need to support the corporate functions listed above.

The following table sets forth information on general and administrative expenses (in thousands):

General and administrative expenses were $31.6 million for 2016 and increased compared to $21.5 million for 2015  primarily due to Akcea continuing to build its organization. Expenses for Akcea will increase as it continues to build the commercial infrastructure and advance the pre-commercialization activities necessary for the commercial launch of volanesorsen.  All amounts exclude non-cash compensation expense related to equity awards.

Our general and administrative expenses by segment were as follows (in thousands):

Akcea Therapeutics, Inc.

The following table sets forth information on operating expenses (in thousands) for our Akcea Therapeutics business segment:

Operating expenses for Akcea were $73.4 million for 2016 and increased compared to $46.3 million for 2015. The increase in expenses was primarily because Akcea was conducting more and later-stage clinical studies in 2016 than it conducted in 2015, including the continuation of the Phase 3 studies for volanesorsen in patients with FCS and FPL. In 2016, we began charging Akcea for Ionis’ internal development costs associated with the ongoing work we are performing for Akcea's drugs. For each period presented, we allocated a portion of Ionis' R&D support expenses, which are included in research and development expenses in the table above, to Akcea for work we performed on behalf of Akcea.

Akcea also incurred additional general and administrative costs as it continued to build its organization and advance the pre-commercialization activities necessary to launch volanesorsen, if approved for marketing. We expect that these costs will continue to increase in 2017. For each year presented, we allocated a portion of Ionis' general and administrative expenses, which are included in general and administrative expenses in the table above, to Akcea for work we performed on Akcea’s behalf.

All amounts exclude non-cash compensation expense related to equity awards.

Investment Income

Investment income for 2016 was $5.4 million compared to $4.3 million for 2015. Investment income increased primarily due to an improvement in the market conditions during 2016 compared to 2015.

Interest Expense

Interest expense includes non-cash amortization of the debt discount and debt issuance costs plus interest expense payable in cash for our 1 percent and 2¾ percent notes, non-cash interest expense related to the long-term financing liability for our primary facility and other miscellaneous debt.

The following table sets forth information on interest expense (in thousands):

Interest expense for 2016 was $38.8 million, and was relatively flat compared to $36.7 million for 2015. In December 2016, we issued an additional $185.5 million of 1 percent convertible senior notes in exchange for the redemption of $61.1 million of our 2¾ percent convertible senior notes. As a result of this exchange, we expect cash interest expense in 2017 to be essentially flat compared to 2016 because we increased the principal outstanding on our debt but significantly lowered our interest rate.

Gain on Investment in Regulus Therapeutics Inc.

In 2015, we recorded a gain on our investment in Regulus of $20.2 million related to our sale of a portion of our Regulus common stock.

Early Retirement of Debt

As a result of the debt exchange we completed in December 2016, we recorded a $4.0 million non-cash loss on early retirement of debt, reflecting the early retirement of the majority of our remaining 2¾ percent convertible notes in December 2016. We did not recognize any loss on early retirement of debt in 2015.

Income Tax Expense (Benefit)

In 2016, we recorded a net tax expense of $2.9 million, compared to $0.4 million in 2015. Our tax expense increased in 2016 compared to 2015 primarily due to the taxable income resulting from our strong financial performance in 2016 and excess tax benefits related to share-based compensation. Included in our tax expense for 2015, is $4.3 million of tax benefit we recorded in 2015 related to a tax refund we received in 2015 from the State of California Franchise Tax Board related to the California franchise taxes we paid for the tax year ended December 31, 2009. In 2014, we recorded a net tax benefit of $15.4 million, of which $12.8 million related to our application of the intraperiod tax allocation rules that required us to record a tax benefit in continuing operations to offset the tax provision we recorded directly to other comprehensive income primarily related to the unrealized gains on our equity investment in Regulus.

Net Loss and Net Loss per Share

Net loss for 2016 was $86.6 million, compared to $88.3 million for 2015. Basic and diluted net loss per share for 2016 was $0.72 compared to $0.74 for 2015. We had a lower net loss in 2016 primarily due to the increase in revenue earned in 2016 compared to 2015.

Net Operating Loss Carryforward

At December 31, 2016, we had federal and California tax net operating loss carryforwards of approximately $679.8 million and $973.1 million, respectively. Our federal tax loss carryforwards begin to expire in 2024. A portion of our California tax loss carryforwards continued to expire in 2016. At December 31, 2016, we also had federal and California research and development tax credit carryforwards of approximately $189.6 million and $48.0 million, respectively. Our Federal research and development tax credit carryforwards will begin to expire in 2018. Our California research and development tax credit carryforwards are available indefinitely.

Years Ended December 31, 2015 and December 31, 2014

Revenue

Total revenue for 2015 was $283.7 million compared to $214.2 million for 2014.

Research and Development Revenue Under Collaborative Agreements

Research and development revenue under collaborative agreements for 2015 was $281.4 million compared to $202.5 million for 2014. We earned $115.7 million in milestone payments and $91.2 million when Bayer licensed IONIS-FXI_Rx during 2015 compared to milestone payments of $135.0 million in 2014. Our revenue in 2015 was primarily comprised of:



$91.2 million from Bayer in connection with our exclusive license agreement for IONIS-FXIRx;



$72.6 million from Biogen for advancing the Phase 3 program for SPINRAZA, advancing IONIS-DMPK-2.5Rx and IONIS-BIIB4Rx, and validating three new targets for neurological disorders;



$22 million from Roche for initiating a Phase 1/2 study of IONIS-HTTRx;



$20 million from GSK for advancing the Phase 3 study of IONIS-TTRRx and initiating a Phase 1 study of IONIS-GSK4-LRx; and



$75.6 million primarily from the amortization of upfront fees and manufacturing services we performed for our partners.

Licensing and Royalty Revenue

Our revenue from licensing activities and royalties for 2015 was $2.3 million, compared to $11.6 million for 2014. The decrease in 2015 was primarily a result of the $9.5 million in revenue we earned in 2014 from Alnylam related to its license of our technology to one of its partners.

Operating Expenses

Operating expenses for 2015 were $359.5 million, and increased compared to $261.9 million for 2014. The expected increase in operating expenses was primarily due:

●

We incurred higher costs associated with our Phase 3 programs for SPINRAZA, volanesorsen and IONIS-TTRRx,

●

Akcea’s operating expenses increased as it began building its commercial infrastructure and advanced the

pre-commercialization activities necessary to successfully launch volanesorsen, if approved for marketing; and

●

Our stock compensation expense increased due to the increase in our stock price in January 2015 compared to January 2014 since we grant the majority of our stock options in January.

Our operating expenses by segment were as follows (in thousands):

Research, Development and Patent Expenses

Our research, development and patent expenses consist of expenses for antisense drug discovery, antisense drug development, manufacturing and operations and R&D support expenses.

The following table sets forth information on research, development and patent expenses (in thousands):