IONIS PHARMACEUTICALS INCIONS
IONIS PHARMACEUTICALS INC Debt Disclosure
7. Long-Term Obligations and Commitments
The carrying value of our long-term obligations was as follows (in thousands):
|
December 31,
|
||||||||
|
2024
|
2023
|
|||||||
|
1.75%
convertible senior notes
|
$
|
565,026
|
$
|
562,285
|
||||
|
0%
convertible senior notes
|
628,535
|
625,380
|
||||||
|
Liability related to sale of future royalties
|
542,212
|
513,736
|
||||||
|
Lease liabilities
|
170,869
|
178,969
|
||||||
|
Mortgage debt
|
8,714
|
8,859
|
||||||
|
Other obligations
|
43,425
|
33,714
|
||||||
|
Total
|
$
|
1,958,781
|
$
|
1,922,943
|
||||
|
Less: current portion
|
(9,279
|
)
|
(8,831
|
)
|
||||
|
Total Long-Term Obligations
|
$
|
1,949,502
|
$
|
1,914,112
|
||||
As of December 31, 2023, our 0.125%
Notes was classified as a current liability because they matured in December 2024.
Convertible Debt and Call Spread
1.75 Percent
Convertible Senior Notes
In 2023, we completed a $575.0
million offering of our 0.125% Notes and used $488.2
million of the net proceeds from the issuance of the 1.75% Notes to repurchase $504.4 million in principal of our 0.125% Notes. In December 2024, we
used $44.5 million of the net proceeds to settle the remaining principal balance of our 0.125% Notes upon maturity.
At December 31, 2024, we had the
following 1.75% Notes outstanding (in millions, except interest rate and price per share data):
|
1.75% Notes
|
||||
|
Outstanding principal balance
|
$
|
575.0
|
||
|
Unamortized debt issuance costs
|
$
|
10.0
|
||
|
Maturity date
|
|
|||
|
Interest rate
|
1.75
|
%
|
||
|
Effective interest rate
|
2.3
|
%
|
||
|
Conversion price per share
|
$
|
53.73
|
||
|
Total shares of common stock subject to conversion
|
10.7
|
|||
0 Percent
Convertible Senior Notes and Call Spread
In 2021, we completed a $632.5
million offering of our 0% Notes. We used $319.0
million of the net proceeds from the issuance of our 0% Notes to pay the remaining $309.9 million principal balance of our 1% convertible senior notes, or 1% Notes, in 2021.
At December 31, 2024, we had the
following 0% Notes outstanding (in millions, except interest rate and price per share data):
|
0% Notes
|
||||
|
Outstanding principal balance
|
$
|
632.5
|
||
|
Unamortized debt issuance costs
|
$
|
4.0
|
||
|
Maturity date
|
|
|||
|
Interest rate
|
0
|
%
|
||
|
Effective interest rate
|
0.5
|
%
|
||
|
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
|
|||
In conjunction with the 2021 offering, we entered into a call spread transaction, which was comprised of purchasing note hedges and
selling warrants, to minimize the impact of potential economic dilution upon conversion of our 0% Notes by increasing the effective conversion
price on our 0% Notes. We increased our effective conversion price to $76.39 with the same number of underlying shares as our 0% Notes. The
call spread cost us $46.9 million, of which $136.7
million was for the note hedge purchase, offset by $89.8 million we received for selling the warrants. Similar to our 0% Notes, our note hedges are subject to adjustment. Additionally, our note hedges are exercisable upon conversion of the 0% Notes. The note hedges will expire upon maturity of the 0%
Notes, or . The note hedges and warrants are separate transactions and are not part of the terms of our 0% Notes. The holders of the 0% Notes do not
have any rights with respect to the note hedges and warrants.
We recorded the amount we paid for the note hedges and the amount we received for the warrants in additional paid-in capital in our
consolidated balance sheets. Refer to Note 1, Organization and Significant Accounting Policies, for our Call Spread accounting policy. We reassess our ability to continue to classify the note hedges and warrants in shareholders’ equity at each reporting period.
0.125 Percent
Convertible Senior Notes and Call Spread
In 2019, we entered into privately negotiated exchange and/or subscription agreements with certain new investors and certain holders of
our 1% Notes to exchange $375.6
million of our 1% Notes for $439.3
million of our 0.125% Notes, and to issue $109.5
million of our 0.125% Notes.
As discussed above, in 2023, we repurchased $504.4
million of our 0.125% Notes. As a result of the repurchase, we recognized a $13.4 million gain on the early retirement of debt, which we recorded as other income in our consolidated statement of operations for the year ended December 31, 2023. The gain on the early retirement of our debt is the difference between the amounts paid to repurchase our 0.125% Notes and the net carrying balance of the liability at the time that we completed the repurchases. We paid the remaining principal balance of our 0.125% Notes with $44.5 million of cash at
maturity in December 2024.
In conjunction with the issuance of our 0.125% Notes in 2019, we entered into a call spread transaction, which was
comprised of purchasing note hedges and selling warrants, to minimize the impact of potential economic dilution upon conversion of our 0.125%
Notes by increasing the effective conversion price on our 0.125% Notes. We increased our effective conversion price from $83.28 to $123.38 with the same number of underlying
shares as our 0.125% Notes. The call spread cost us $52.6 million, of which $108.7 million was for the note hedge purchase, offset by $56.1 million we received for selling the warrants. Similar to our 0.125% Notes, our note hedges were subject to adjustment. Additionally, our
note hedges were exercisable upon conversion of the 0.125% Notes. The note hedges expired upon maturity of the 0.125% Notes in . The warrants will expire in
March 2025. The note hedges and warrants were separate transactions and were not part of the terms of our 0.125% Notes. The holders of the 0.125% Notes did not have any rights with respect to the note hedges and warrants.
We recorded the amount we paid for the note hedges and the amount we received for the warrants in additional paid-in capital in our
consolidated balance sheets. Refer to Note 1, Organization and Significant Accounting Policies, for our Call Spread accounting policy. We reassess our ability to continue to classify the note hedges and warrants in shareholders’ equity at each reporting period.
Other Terms of Convertible Senior Notes
The 1.75% and 0% Notes are convertible under certain conditions, at the option of the note holders. We can settle conversions of the notes, at our election, in cash,
shares of our common stock or a combination of both. We may not redeem the notes prior to maturity, and we do not have to provide a sinking fund for them. Holders of the notes may require us to purchase some or all of their notes upon the occurrence of
certain fundamental changes, as set forth in the indentures governing the notes, at a purchase price equal to 100 percent of the principal
amount of the notes to be purchased, plus any accrued and unpaid interest. The 0.125% Notes were subject to similar terms.
Our total interest expense for our outstanding senior convertible notes for the years ended December 31, 2024, 2023 and 2022 included $6.1 million, $5.9 million and $5.3 million, respectively, of
non-cash interest expense related to the amortization of debt issuance costs for our convertible notes.
Financing Arrangements
Operating Facilities
In 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. We repaid our primary R&D facility mortgage in 2022 in conjunction with a sale and leaseback transaction.
In 2022, we concurrently entered into two
purchase and sale agreements with a real estate investor. In the same period, we closed the first transaction in which we sold the facilities at our headquarters in Carlsbad, California, which includes our primary R&D facility, for a purchase price
of $263.4 million. As a result, we de-recognized the related land and improvements, building and building improvements, which resulted in a net
gain of $150.1 million that we reported in other income in our consolidated statements of operations. We used a portion of the sale proceeds to
extinguish our outstanding mortgage debt on our primary R&D facility of $51.3 million. In connection with this transaction, we leased back
our headquarters facilities for an initial lease term of 15 years with options to extend the lease for two additional terms of five years each.
In August 2023, we closed the second transaction and transferred legal ownership of two lots of undeveloped land adjacent to our headquarters to the real estate investor for a purchase price of $33 million. In connection with this transaction, we entered into a build-to-suit lease agreement with the same real estate investor to lease a new R&D facility. The lessor will
develop and construct a new building composed of R&D and office space. We will design and construct tenant improvements to customize the facility’s interior space. We will lease the facility for an initial term of 15 years with options to extend the lease for two
additional terms of five years each. The lease will commence once the structure of this new facility is completed.
Since the building is under construction and unavailable to lease, we are unable to complete the sale-leaseback evaluation under ASC 842,
Leases. As a result, the land remains in our consolidated balance sheets and we accounted for the proceeds as a financial liability. We will
reassess the transaction under the sale-leaseback accounting guidance when the facilities are available for lease commencement.
Debt Maturity Schedules
Annual convertible and mortgage debt maturities, including fixed and determinable interest, at December 31, 2024 are as follows (in thousands):
|
2025
|
$
|
10,657
|
||
|
2026
|
643,157
|
|||
|
2027
|
18,737
|
|||
|
2028
|
580,091
|
|||
|
2029
|
60
|
|||
|
Thereafter
|
360
|
|||
|
Total debt and mortgage maturities
|
$
|
1,253,062
|
||
|
Less: Current portion included in other current liabilities
|
(165
|
)
|
||
|
Less: Fixed and determinable interest
|
(36,511
|
)
|
||
|
Less: Debt issuance costs
|
(13,981
|
)
|
||
|
Total debt
|
$
|
1,202,405
|
Royalty Revenue Monetization
In January 2023, we entered into a royalty purchase agreement with Royalty Pharma Investments, or Royalty Pharma, to monetize a portion of
our future SPINRAZA and pelacarsen royalties we are entitled to under our agreements with Biogen and Novartis, respectively. As a result, we received an upfront payment of $500 million and we are eligible to receive up to $625 million in additional milestone payments. Under the terms of
the agreement, Royalty Pharma will receive 25 percent of our SPINRAZA royalty payments from 2023 through 2027, increasing to 45 percent of royalty payments in 2028, on up to $1.5
billion in annual sales. In addition, Royalty Pharma will receive 25 percent of any future royalty payments on pelacarsen. Royalty Pharma’s
royalty interest in SPINRAZA will revert to us after total SPINRAZA royalty payments to Royalty Pharma reach either $475 million or $550 million, depending on the timing and occurrence of FDA approval of pelacarsen.
We recorded the upfront payment of $500
million as a liability related to the sale of future royalties, net of transaction costs of $10.4 million, which we are amortizing over the
estimated life of the arrangement using the effective interest rate method. We recognize royalty revenue in the period in which the counterparty sells the related product and recognizes the related revenue. We record royalty payments made to Royalty
Pharma as a reduction of the liability.
We determine the effective interest rate used to record
interest expense under this agreement based on an estimate of future royalty payments to Royalty Pharma. As of December 31, 2024 and
2023, the estimated effective interest rate under the agreement
was 13.5 percent.
The following is a summary of our liability related to
sale of future royalties for the year ended December 31, 2024 (in thousands):
|
Proceeds from sale of future royalties in January 2023
|
$
|
500,000
|
||
|
Issuance costs related to sale of future royalties
|
(10,434
|
)
|
||
|
Royalty payments to Royalty Pharma
|
(44,628
|
)
|
||
|
Interest expense related to sale of future royalties
|
68,238
|
|||
|
Amortization of issuance costs related to sale of future royalties
|
560
|
|||
|
Net liability related to sale of future royalties as of December 31, 2023
|
513,736
|
|||
|
Royalty payments to Royalty Pharma
|
(44,981
|
)
|
||
|
Interest expense related to sale of future royalties
|
72,846
|
|||
|
Amortization of issuance costs related to sale of future royalties
|
611
|
|||
|
Net liability related to sale of future royalties as of December 31, 2024
|
$
|
542,212
|
There are numerous factors, most of which are not within our control, that could materially impact the amount and timing of royalty
payments from Biogen and Novartis, and result in changes to our estimate of future royalty payments to Royalty Pharma. Such factors include, but are not limited to, the commercial sales of SPINRAZA, the regulatory approval and commercial sales of
pelacarsen, competing products or other significant events.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2024 | Feb 19, 2025 | Showing above |
| 2023 | Feb 21, 2024 | |
About Debt Disclosures
Debt disclosures detail a company's borrowing structure — the types of instruments, interest rates, maturity schedule, and covenant restrictions that define its financial obligations and flexibility. This section is essential for assessing refinancing risk, interest rate exposure, and the margin of safety against financial distress.
Key signals: the maturity schedule reveals concentration risk — large maturities within 1-2 years during tight credit markets can force dilutive refinancing or asset sales. Compare the fair value of debt against carrying amount to gauge whether the market views the company's credit risk differently than the balance sheet suggests. Watch covenant compliance disclosures for tightening cushions, especially leverage and interest coverage ratios. Variable-rate debt exposure quantifies sensitivity to interest rate changes. Secured versus unsecured mix affects recovery rates and future borrowing capacity. Compare net debt-to-EBITDA against industry peers and covenant limits to assess financial health.