IONIS PHARMACEUTICALS INC - Quarter Report: 2023 March (Form 10-Q)

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SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

(Mark One)

For the Quarterly Period Ended March 31, 2023

OR

For the transition period from _____ to _____

Commission file number 000-19125

Ionis Pharmaceuticals, Inc.

(Exact name of Registrant as specified in its charter)

760-931-9200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

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 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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12(b)-2 of the Securities Exchange Act of 1934). Yes ☐ No ☒

The number of shares of voting common stock outstanding as of April 27, 2023 was 143,092,117.

IONIS PHARMACEUTICALS, INC.

FORM 10-Q

INDEX

TRADEMARKS

“Ionis,” the Ionis logo, and other trademarks or service marks of Ionis Pharmaceuticals, Inc. appearing in this report are the property of Ionis Pharmaceuticals, Inc. “Akcea,” the Akcea logo, and other trademarks or service marks of Akcea Therapeutics, Inc. appearing in this report are the property of Akcea Therapeutics, Inc., Ionis’ wholly owned subsidiary. This report contains additional trade names, trademarks and service marks of others, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this report may appear without the ® or TM symbols.

IONIS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

See accompanying notes.

IONIS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except for per share amounts)

(Unaudited)

See accompanying notes.

IONIS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(Unaudited)

See accompanying notes.

IONIS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

See accompanying notes.

IONIS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

See accompanying notes.

IONIS PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

(Unaudited)

		March 31, 2023				December 31, 2022
Raw materials:
Raw materials - clinical		$	17,356			$	17,061
Raw materials - commercial			2,786				2,699
Total raw materials			20,142				19,760
Work in process			1,840				2,109
Finished goods			218				164
Total inventory		$	22,200			$	22,033

		March 31, 2023				December 31, 2022
Clinical development expenses		$	85,694			$	116,460
In-licensing expenses			12,704				7,945
Commercial expenses			4,704				3,498
Other miscellaneous expenses			9,600				12,198
Total accrued liabilities		$	112,702			$	140,101

		Three Months Ended March 31,
		2023				2022
SPINRAZA royalties (commercial revenue)		$	50,247			$	53,818
R&D revenue			20,254				40,049
Total revenue from our relationship with Biogen		$	70,501			$	93,867
Percentage of total revenue			54	%			66	%

		Three Months Ended March 31,
		2023				2022
R&D revenue		$	15,000			$	—
Percentage of total revenue			11	%			—

●

0 percent convertible senior notes, or 0% Notes;

●

Note hedges related to the 0% Notes;

●

0.125 percent convertible senior notes, or 0.125% Notes;

●

Note hedges related to the 0.125% Notes;

●

Dilutive stock options;

●

Unvested restricted stock units, or RSUs;

●

Unvested performance restricted stock units, or PRSUs; and

●

Employee Stock Purchase Plan, or ESPP.

One year or less			74	%
After one year but within two years			23	%
After two years but within three and a half years			3	%
Total			100	%

		Amortized				Gross Unrealized								Estimated
March 31, 2023		Cost				Gains				Losses				Fair Value
Available-for-sale debt securities:
Corporate debt securities (1)		$	623,940			$	62			$	(6,026	)		$	617,976
Debt securities issued by U.S. government agencies			247,629				69				(1,283	)			246,415
Debt securities issued by the U.S. Treasury (1)			556,394				62				(3,738	)			552,718
Debt securities issued by states of the U.S. and political subdivisions of the states			57,322				4				(498	)			56,828
Total debt securities with a maturity of one year or less			1,485,285				197				(11,545	)			1,473,937
Corporate debt securities			200,661				336				(5,205	)			195,792
Debt securities issued by U.S. government agencies			99,635				256				(649	)			99,242
Debt securities issued by the U.S. Treasury			257,651				364				(2,726	)			255,289
Debt securities issued by states of the U.S. and political subdivisions of the states			14,564				106				(182	)			14,488
Total debt securities with a maturity of more than one year			572,511				1,062				(8,762	)			564,811
Total available-for-sale debt securities		$	2,057,796			$	1,259			$	(20,307	)		$	2,038,748
Equity securities:
Publicly traded equity securities included in other current assets (2)		$	11,897			$	—			$	(4,508	)		$	7,389
Privately held equity securities included in deposits and other assets (3)			23,115				25,001				(5,125	)			42,991
Total equity securities			35,012				25,001				(9,633	)			50,380
Total available-for-sale debt and equity securities		$	2,092,808			$	26,260			$	(29,940	)		$	2,089,128

		Amortized				Gross Unrealized								Estimated
December 31, 2022		Cost				Gains				Losses				Fair Value
Available-for-sale debt securities:
Corporate debt securities (1)		$	513,790			$	23			$	(4,365	)		$	509,448
Debt securities issued by U.S. government agencies			133,585				—				(1,829	)			131,756
Debt securities issued by the U.S. Treasury (1)			512,655				23				(5,124	)			507,554
Debt securities issued by states of the U.S. and political subdivisions of the states			57,484				18				(686	)			56,816
Other municipal debt securities			6,008				—				(14	)			5,994
Total debt securities with a maturity of one year or less			1,223,522				64				(12,018	)			1,211,568
Corporate debt securities			227,631				14				(10,143	)			217,502
Debt securities issued by U.S. government agencies			34,339				—				(1,040	)			33,299
Debt securities issued by the U.S. Treasury			245,030				—				(4,109	)			240,921
Debt securities issued by states of the U.S. and political subdivisions of the states			18,314				116				(329	)			18,101
Total debt securities with a maturity of more than one year			525,314				130				(15,621	)			509,823
Total available-for-sale debt securities		$	1,748,836			$	194			$	(27,639	)		$	1,721,391
Equity securities:
Publicly traded equity securities included in other current assets (2)		$	11,897			$	—			$	(1,358	)		$	10,539
Privately held equity securities included in deposits and other assets (3)			23,115				17,257				—				40,372
Total equity securities			35,012				17,257				(1,358	)			50,911
Total available-for-sale debt and equity securities		$	1,783,848			$	17,451			$	(28,997	)		$	1,772,302

(1)	Includes investments classified as cash equivalents in our condensed consolidated balance sheets.

(2)

Our publicly traded equity securities are included in other current assets. We recognize publicly traded equity securities at fair value. In the three months ended March 31, 2023, we recognized a $3.2 million unrealized loss in our condensed consolidated statements of operations related to a decrease in the fair value of our investments in publicly traded companies.

(3)

Our privately held equity securities are included in deposits and other assets. We recognize our privately held equity securities at cost minus impairments, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer, which are Level 3 inputs. In the three months ended March 31, 2023, we recorded a net gain of $2.6 million in our condensed consolidated statements of operations related to changes in the fair value of our investments in privately held companies.

						Less than 12 Months of Temporary Impairment								More than 12 Months of Temporary Impairment								Total Temporary Impairment
		Number of Investments				Estimated Fair Value				Unrealized Losses				Estimated Fair Value				Unrealized Losses				Estimated Fair Value				Unrealized Losses
Corporate debt securities			361			$	434,500			$	(1,697	)		$	291,713			$	(9,534	)		$	726,213			$	(11,231	)
Debt securities issued by U.S. government agencies			68				138,211				(424	)			70,965				(1,508	)			209,176				(1,932	)
Debt securities issued by the U.S. Treasury			64				603,444				(3,873	)			91,448				(2,591	)			694,892				(6,464	)
Debt securities issued by states of the U.S. and political subdivisions of the states			110				22,778				(140	)			32,792				(540	)			55,570				(680	)
Total temporarily impaired securities			603			$	1,198,933			$	(6,134	)		$	486,918			$	(14,173	)		$	1,685,851			$	(20,307	)

		At March 31, 2023				Quoted Prices in Active Markets (Level 1)				Significant Other Observable Inputs (Level 2)
Cash equivalents (1)		$	276,352			$	276,352			$	—
Corporate debt securities (2)			813,768				—				813,768
Debt securities issued by U.S. government agencies (2)			345,657				—				345,657
Debt securities issued by the U.S. Treasury (2)			808,007				808,007				—
Debt securities issued by states of the U.S. and political subdivisions of the states (3)			71,316				—				71,316
Publicly traded equity securities included in other current assets (4)			7,389				7,389				—
Total		$	2,322,489			$	1,091,748			$	1,230,741

		At December 31, 2022				Quoted Prices in Active Markets (Level 1)				Significant Other Observable Inputs (Level 2)
Cash equivalents (1)		$	211,655			$	211,655			$	—
Corporate debt securities (5)			726,950				—				726,950
Debt securities issued by U.S. government agencies (2)			165,055				—				165,055
Debt securities issued by the U.S. Treasury (2)			748,475				748,475				—
Debt securities issued by states of the U.S. and political subdivisions of the states (2)			74,917				—				74,917
Other municipal debt securities (2)			5,994				—				5,994
Publicly traded equity securities included in other current assets (4)			10,539				10,539				—
Total		$	1,943,585			$	970,669			$	972,916

(1)	Included in cash and cash equivalents in our condensed consolidated balance sheets.

(2)	Included in short-term investments in our condensed consolidated balance sheets.

(3)	$1.0 million was included in cash and cash equivalents in our condensed consolidated balance sheets, with the difference included in short-term investments in our condensed consolidated balance sheets.

(4)	Included in other current assets in our condensed consolidated balance sheets.

(5)	$11.0 million was included in cash and cash equivalents in our condensed consolidated balance sheets, with the difference included in short-term investments in our condensed consolidated balance sheets.

		Three Months Ended March 31,
		2023				2022
Risk-free interest rate			3.6	%			1.7	%
Dividend yield			0.0	%			0.0	%
Volatility			47.5	%			55.2	%
Expected life*		6.3 years				6.3 years

*

In 2021, our Compensation Committee approved an amendment to the 2011 Equity Incentive Plan, or 2011 Plan, and the 2020 Equity Incentive Plan, or 2020 Plan, that increased the contractual term of stock options granted under these plans from seven years to ten years for stock options granted on January 1, 2022 and thereafter. We determined that we are unable to rely on our historical exercise data as a basis for estimating the expected life of stock options granted to employees following this change because the contractual term changed and we have no other means to reasonably estimate future exercise behavior. We therefore used the simplified method for determining the expected life of stock options granted to employees in the three months ended March 31, 2023 and 2022. Under the simplified method, we calculate the expected term as the average of the time-to-vesting and the contractual life of the options. As we gain additional historical information, we will transition to calculating our expected term based on our historical exercise patterns.

		Three Months Ended March 31,
		2023				2022
Risk-free interest rate			5.2	%			0.6	%
Dividend yield			0.0	%			0.0	%
Volatility			36.7	%			50.2	%
Expected life		6 months				6 months

		Three Months Ended March 31,
		2023				2022
Cost of sales		$	119			$	160
Research, development and patent expense			19,567				19,082
Selling, general and administrative expense			7,262				6,994
Total		$	26,948			$	26,236

Proceeds from sale of future royalties		$	500,000
Interest expense related to sale of future royalties			15,363
Liability related to sale of future royalties as of March 31, 2023		$	515,363
Net issuance costs related to sale of future royalties as of March 31, 2023			(10,282	)
Net liability related to sale of future royalties as of March 31, 2023		$	505,081

		0% Notes
Outstanding principal balance		$	632.5
Unamortized debt issuance costs		$	9.5
Maturity date		April 2026
Interest rate		0 percent
Effective interest rate		0.5 percent
Conversion price per share		$	57.84
Effective conversion price per share with call spread		$	76.39
Total shares of common stock subject to conversion			10.9

		0.125% Notes
Outstanding principal balance		$	548.8
Unamortized debt issuance costs		$	3.8
Maturity date		December 2024
Interest rate		0.125 percent
Effective interest rate		0.5 percent
Conversion price per share		$	83.28
Effective conversion price per share with call spread		$	123.38
Total shares of common stock subject to conversion			6.6

In this Report on Form 10-Q, unless the context requires otherwise, “Ionis,” “Company,” “we,” “our,” and “us,” means Ionis Pharmaceuticals, Inc. and its wholly owned affiliate, Akcea Therapeutics, Inc.

Forward-Looking Statements

In addition to historical information contained in this Report on Form 10-Q, the Report includes forward-looking statements regarding our business and the therapeutic and commercial potential of QALSODY (tofersen), SPINRAZA (nusinersen), TEGSEDI (inotersen), WAYLIVRA (volanesorsen), eplontersen, olezarsen, donidalorsen, ION363, pelacarsen, bepirovirsen, our technologies and our other products 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, including those inherent in the process of discovering, developing and commercializing medicines that are safe and effective for use as human therapeutics, and in the endeavor of building a business around such medicines. 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 and described in additional detail in our annual report on Form 10-K for the year ended December 31, 2022, which is on file with the U.S. Securities and Exchange Commission and is available from us, and those identified within Part II Item 1A. Risk Factors of this Report. 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.

Overview

We were founded over 30 years ago to deliver innovative medicines for diseases with great medical need. Today, we are building on our advancements in RNA-targeted therapeutics to move us closer to achieving our vision to be the leader in genetic medicines. We believe our medicines have the potential to pioneer new markets, change standards of care and transform the lives of people with devastating diseases. We currently have four marketed medicines: QALSODY, SPINRAZA, TEGSEDI and WAYLIVRA. On April 25, 2023, the U.S. Food and Drug Administration, or FDA, granted Biogen accelerated approval of QALSODY for the treatment of superoxide dismutase 1 amyotrophic lateral sclerosis, or SOD1-ALS. Additionally, the FDA accepted our New Drug Application, or NDA, of eplontersen for polyneuropathy caused by hereditary TTR amyloidosis, or ATTRv-PN. Eplontersen’s Prescription Drug User Fee Act, or PDUFA, date is December 22, 2023. We also have a rich innovative late- and mid-stage pipeline primarily focused on our leading cardiovascular and neurology franchises. We recently expanded our Phase 3 pipeline to seven programs across nine indications following the start of GSK’s bepirovirsen hepatitis B program.

Our multiple sources of revenue and strong balance sheet enable us to continue investing in our commercial readiness efforts for multiple late-stage programs and our innovative pipeline. By continuing to focus on these priorities, we believe we are well positioned to drive future growth and to deliver increasing value for patients and shareholders.

Marketed Medicines

SPINRAZA is the global market leader for the treatment of patients with spinal muscular atrophy, or SMA, a progressive, debilitating and often fatal genetic disease. Biogen is our partner responsible for commercializing SPINRAZA worldwide. From inception through March 31, 2023, we have earned more than $1.9 billion in revenues from our SPINRAZA collaboration, including more than $1.4 billion in royalties on sales of SPINRAZA.

TEGSEDI is a once weekly, self-administered subcutaneous medicine approved in the U.S., Europe, Canada and Brazil for the treatment of patients with polyneuropathy caused by hereditary polyneuropathy, or ATTRv-PN, a debilitating, progressive, and fatal disease. We launched TEGSEDI in the United States, or U.S., and the European Union, or EU, in late 2018. In 2021, we began selling TEGSEDI in Europe through our distribution agreement with Swedish Orphan Biovitrum AB, or Sobi, and in the second quarter of 2021, Sobi began distributing TEGSEDI in the U.S. and Canada. In Latin America, PTC Therapeutics International Limited, or PTC, is commercializing TEGSEDI in Brazil and is pursuing access in additional Latin American countries through its exclusive license agreement with us.

WAYLIVRA is a once weekly, self-administered, subcutaneous medicine that received conditional marketing authorization in May 2019 from the European Commission, or EC, as an adjunct to diet in adult patients with genetically confirmed familial chylomicronemia syndrome, or FCS, and at high risk for pancreatitis. We launched WAYLIVRA in the EU in the third quarter of 2019. In 2021, we began selling WAYLIVRA in Europe through our distribution agreement with Sobi. In Latin America, PTC is commercializing WAYLIVRA in Brazil for two indications, FCS and familial partial lipodystrophy, or FPL, and is pursuing access in additional Latin American countries through its exclusive license agreement with us.

QALSODY is an antisense medicine that received accelerated approval in April 2023 from the FDA for the treatment of patients with SOD1-ALS, a rare, neurodegenerative disorder that causes progressive loss of motor neurons leading to death. The European Medicines Agency, or EMA, is currently reviewing QALSODY for approval in the EU.

Medicines in Registration and Phase 3 Studies

We currently have seven medicines in Phase 3 studies for nine indications, which include:

Critical Accounting Estimates

We prepare our condensed consolidated financial statements in conformity with accounting principles generally accepted in the U.S. 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. The following are our significant accounting estimates, which we believe are the most critical to aid in fully understanding and evaluating our reported financial results:

There have been no other material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2022.

Results of Operations

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

Revenue

Total revenue for the three months ended March 31, 2023 was $130.5 million compared to $141.9 million for the same period in 2022 and was comprised of the following (in millions):

We continued to derive our revenue for the first quarter of 2023 from diverse sources, with approximately half of our revenue coming from commercial products and half from numerous partnered programs. Commercial revenue for the first quarter of 2023 included $50 million from SPINRAZA royalties. Global SPINRAZA product sales of $443 million decreased six percent in the first quarter of 2023 compared to the same period in 2022 primarily due to the impact from foreign currency, fewer new patient starts in the U.S. and channel dynamics.

R&D revenue for the first quarter of 2023 included $24 million from AstraZeneca for its share of the global Phase 3 development costs for eplontersen, $20 million from Biogen for advancing several neurology disease programs and $15 million from GSK for advancing bepirovirsen into Phase 3 development.

Already in the second quarter of 2023, we have earned a $16 million milestone payment when QALSODY was approved in the U.S.

Eplontersen Collaboration with AstraZeneca

Our financial results for the three months ended March 31, 2023 and 2022 reflected the cost-sharing provisions related to our collaboration with AstraZeneca to develop and commercialize eplontersen for the treatment of ATTR. Under the terms of the collaboration agreement, AstraZeneca is currently paying 55 percent of the costs associated with the ongoing global Phase 3 development program. Because we are leading and conducting the Phase 3 development program, we are recognizing as R&D revenue the 55 percent of cost-share funding AstraZeneca is responsible for, net of our share of AstraZeneca's development expenses, in the same period we incur the related development expenses. In the first quarter of 2023, we earned $24 million in joint development revenue and recorded $47 million of R&D expenses related to Phase 3 development expenses under this collaboration. In the first quarter of 2022, we earned $20 million in joint development revenue and recorded $36 million of R&D expenses related to Phase 3 development expenses under this collaboration.

As AstraZeneca is responsible for the majority of the medical affairs and commercial costs in the U.S. and all costs associated with bringing eplontersen to market outside the U.S., we are recognizing cost-share funding we receive from AstraZeneca related to these activities as a reduction of our medical affairs and commercialization expenses, which we classify as R&D and selling, general and administrative, or SG&A expenses, respectively. In the first quarter of 2023, we recognized $0.7 million and $1.3 million of medical affairs expenses and commercialization expenses for eplontersen, respectively, net of cost-share funding from AstraZeneca. In the first quarter of 2022, we recognized $0.4 million and $0.2 million of medical affairs expenses and commercialization expenses for eplontersen, respectively, net of cost-share funding from AstraZeneca. We expect our medical affairs and commercialization expenses to increase as eplontersen advances toward the market under our collaboration with AstraZeneca.

Operating Expenses

Our operating expenses were as follows (in millions):

Operating expenses, excluding non-cash compensation expense related to equity awards, for the three months ended March 31, 2023 increased compared to the same period in 2022. Our R&D expenses increased as we advanced our pipeline, which included an increase in the costs associated with our clinical studies as most of our Phase 3 studies were either fully enrolled or approaching full enrollment at the end of March 2023. Our SG&A expenses increased due to expenses related to our go-to-market activities for eplontersen, olezarsen and donidalorsen. We expect our operating expenses, excluding non-cash compensation expense related to equity awards, to continue to increase during the remainder of 2023 as we continue to advance our late-stage medicines in development and prepare for commercialization.

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 related to equity awards is not indicative of our operating results or cash flows from our operations. Further, we internally evaluate the performance of our operations excluding it.

Cost of Sales

Our cost of sales consisted of manufacturing costs, including certain fixed costs, transportation and freight, indirect overhead costs associated with the manufacturing and distribution of TEGSEDI and WAYLIVRA and certain associated period costs.

Our cost of sales were as follows (in millions):

Research, Development and Patent Expenses

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

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

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 drug discovery research, and that of our partners. Drug discovery is also the function that is responsible for advancing our core technology. This function is also responsible for making investments in complementary technologies to expand the reach of our technologies.

Our drug discovery expenses were as follows (in millions):

Drug discovery expenses, excluding non-cash compensation expense related to equity awards, increased in the three months ended March 31, 2023 compared to the same period in 2022 as we continued to advance our research programs.

The following table sets forth drug development expenses, including expenses for our marketed medicines and those in Phase 3 development for which we have incurred significant costs (in millions):

Our development expenses, excluding non-cash compensation expense related to equity awards, increased for the three months ended March 31, 2023 compared to the same period in 2022 primarily due to our advancing late-stage pipeline and full or nearly full enrollment of multiple Phase 3 studies.

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 medicines 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 medicine. Although we may characterize a medicine 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 medicines based on each medicine’s particular needs at that time. This means we are constantly shifting resources among medicines. Therefore, what we spend on each medicine during a particular period is usually a function of what is required to keep the medicines progressing in clinical development, not what medicines 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 medicine to another and cannot be used to accurately predict future costs for each medicine. Because we always have numerous medicines in preclinical and varying stages of clinical research, the fluctuations in expenses from medicine to medicine, in large part, offset one another. If we partner a medicine, it may affect the size of a trial, its timing, its total cost and the timing of the related costs.

Our medical affairs function is responsible for communicating scientific and clinical information to healthcare providers, medical professionals and patients.

Our medical affairs expenses were as follows (in millions):

Medical affairs expenses, excluding non-cash compensation expense related to equity awards, increased in the three months ended March 31, 2023 compared to the same period in 2022. We expect medical affairs expenses, excluding non-cash compensation expense related to equity awards, to increase in the remainder of 2023 as we advance our late-stage pipeline.

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

Our manufacturing and development chemistry expenses were as follows (in millions):

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, information technology 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 millions):

R&D support expenses, excluding non-cash compensation expense related to equity awards, increased in the three months ended March 31, 2023 compared to the same period in 2022. The increase was primarily related to increased occupancy and personnel costs to support advancing our pipeline and our technology. In October 2022, we executed a sale and leaseback transaction for our headquarters in Carlsbad, California. As a result, beginning in the fourth quarter of 2022, our occupancy costs increased because we began incurring rent expense for these facilities.

Selling, General and Administrative Expenses

SG&A expenses include personnel and outside costs associated with the pre-commercialization and commercialization activities for our medicines and costs to support our company, our employees and our stockholders including, legal, human resources, investor relations, and finance. Additionally, we include in selling, 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. We also include fees we owe under our in-licensing agreements related to SPINRAZA.

The following table sets forth information on SG&A expenses (in millions):

SG&A expenses, excluding non-cash compensation expense related to equity awards, increased in the three months ended March 31, 2023 compared to the same period in 2022 due to increased expenses related to our go-to-market activities for eplontersen, olezarsen and donidalorsen.

Investment Income

Investment income for the three months ended March 31, 2023 was $18.6 million compared to $2.0 million for the same period in 2022. Our investment income increased primarily due to an increase in interest rates associated with our investments in debt securities and an increase in our cash balance during the three months ended March 31, 2023 compared to the same period in 2022. Our cash balance increased due to the $500 million upfront payment we received in January 2023 from our royalty purchase agreement with Royalty Pharma Investments, or Royalty Pharma.

Interest Expense

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

Interest Expense Related to Sale of Future Royalties

We recorded $15.5 million of interest expense related to the sale of future royalties in the three months ended March 31, 2023 as a result of the Royalty Pharma transaction, in which we sold a minority interest in our future royalties to Royalty Pharma for a $500 million upfront payment and $625 million of potential future payments. Refer to Part I, Item 1, Note 10, Liability Related to Sale of Future Royalties, in the Notes to our condensed consolidated financial statements for further details.

Loss on Investments

We recorded a net loss on investments of $0.5 million for the three months ended March 31, 2023 compared to $6.6 million for the same period in 2022 due to changes in the fair value of our investments in privately held and publicly traded biotechnology companies.

Income Tax Expense

Beginning in 2022, the Tax Cuts and Jobs Act of 2017, or TCJA, requires taxpayers to amortize research and development expenditures over five years pursuant to Internal Revenue Code, or IRC, Section 174. Additionally, we expect to reflect the royalty purchase agreement with Royalty Pharma as a taxable sale, requiring us to include the proceeds from the sale, net of currently deductible issuance costs, as taxable income in 2023.

We recorded income tax expense of $11.4 million and $1.1 million for the three months ended March 31, 2023 and 2022, respectively. The increase in income tax expense for the three months ended March 31, 2023, compared to the same period in 2022, relates primarily to the impact of the Royalty Pharma transaction.

Net Loss and Net Loss per Share

We had a net loss of $124.3 million for the three months ended March 31, 2023 compared to net loss of $65.2 million for the same period in 2022, which reflects the fluctuations discussed above. Our basic and diluted net loss per share for the three months ended March 31, 2023 and 2022 was $0.87 and $0.46, respectively.

Liquidity and Capital Resources

We have financed our operations primarily from research and development collaborative agreements. We also finance our operations from commercial revenue from SPINRAZA royalties and TEGSEDI and WAYLIVRA commercial revenue. From our inception through March 31, 2023, we have earned approximately $6.6 billion in revenue. We have also financed our operations through the sale of our equity securities, the issuance of long-term debt and the sale of future royalties. From the time we were founded through March 31, 2023, we have raised net proceeds of approximately $2.1 billion from the sale of our equity securities. Additionally, from our inception through March 31, 2023, we have borrowed approximately $2.1 billion under long-term debt arrangements and received proceeds of $0.5 billion from the sale of future royalties to finance a portion of our operations.

Our cash, cash equivalents and short-term investments, working capital and long-term obligations increased from December 31, 2022 to March 31, 2023. As discussed above, in the first quarter of 2023, we received an upfront payment of $500 million when we entered into a royalty purchase agreement with Royalty Pharma and recorded a corresponding long-term liability related to the sale of future royalties.

The following table summarizes our contractual obligations, excluding our liability related to the sale of future royalties, as of March 31, 2023. The table provides a breakdown of when obligations become due. We provide a more detailed description of the major components of our debt in the paragraphs following the table:

Our contractual obligations consist primarily of our convertible debt. In addition, we also have facility leases, a facility mortgage, equipment financing arrangements and other obligations. Due to the uncertainty with respect to the timing of future cash flows associated with our unrecognized tax benefits, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities. Therefore, we have excluded our gross unrecognized tax benefits from our contractual obligations table above. We have not entered into, nor do we currently have, any off-balance sheet arrangements (as defined under SEC rules).

Convertible Debt and Call Spread

Refer to Part I, Item 1, Note 11, Convertible Debt, in the Notes to our condensed consolidated financial statements for the significant terms of each convertible debt instrument.

Operating Facilities

In July 2017, we purchased the building that houses our primary R&D facility for $79.4 million and our manufacturing facility for $14.0 million. We financed the purchase of these two facilities with mortgage debt of $60.4 million in total. Our primary R&D facility mortgage had an interest rate of 3.88 percent. Our manufacturing facility mortgage has an interest rate of 4.20 percent. During the first five years of both mortgages, we were only required to make interest payments. We began making principal payments in 2022. Our manufacturing facility mortgage matures in August 2027.

In October 2022, we concurrently entered into two purchase and sale agreements with a real estate investor. Under the agreements, we sold and leased back the facilities at our headquarters location in Carlsbad, California and will sell, subject to meeting certain closing conditions, two lots of undeveloped land adjacent to our headquarters. We sold the facilities at our headquarters, which includes our primary R&D facility, for a total purchase price of $263.4 million and we expect to receive total proceeds of $33.0 million upon the close of the sale of the two lots. We used a portion of the sale proceeds to extinguish our outstanding mortgage debt on our primary R&D facility of $51.3 million.

Operating Leases

Refer to our Leases accounting policy in Part IV, Item 15, Note 1 of our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022 for further details on our operating leases.

Liability Related to Sale of Future Royalties

Refer to Part I, Item 1, Note 10, Liability Related to Sale of Future Royalties, in the Notes to our condensed consolidated financial statements for further details on our royalty purchase agreement with Royalty Pharma.

Other Obligations

In addition to contractual obligations, we had outstanding purchase orders as of March 31, 2023 for the purchase of services, capital equipment and materials as part of our normal course of business.

We may enter into additional collaborations with partners which could provide for additional revenue to us and we may incur additional cash expenditures related to our obligations under any of the new agreements we may enter into. We currently intend to use our cash, cash equivalents and short-term investments to finance our activities. However, we may also pursue other financing alternatives, like issuing additional shares of our common stock, issuing debt instruments, refinancing our existing debt, or securing lines of credit. Whether we use our existing capital resources or choose to obtain financing will depend on various factors, including the future success of our business, the prevailing interest rate environment and the condition of financial markets generally.

We are exposed to changes in interest rates primarily from our investments in certain short-term investments. We primarily invest our excess cash in highly liquid short-term investments of the U.S. Treasury and reputable financial institutions, corporations, and U.S. government agencies with strong credit ratings. We typically hold our investments for the duration of the term of the respective instrument. We do not utilize derivative financial instruments, derivative commodity instruments or other market risk sensitive instruments, positions or transactions to manage exposure to interest rate changes. Accordingly, we believe that, while the securities we hold are subject to changes in the financial standing of the issuer of such securities, we are not subject to any material risks arising from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices or other market changes that affect market risk sensitive instruments.

We are also exposed to changes in foreign currency exchange rates as we have foreign subsidiaries with functional currencies other than the U.S. dollar. We translate our subsidiaries’ functional currencies into our reporting currency, the U.S. dollar. As a result, our financial position, results of operations and cash flows can be affected by market fluctuations in the foreign currencies to U.S. dollar exchange rate, which are difficult to predict. A hypothetical 10 percent change in foreign exchange rates during any of the periods presented would not have had a material impact on our condensed consolidated financial statements.