Revenue Recognition

~~Adoption of New Revenue Recognition Accounting Standard (Topic 606)~~

~~In May 2014, the FASB issued accounting guidance on the recognition of revenue from customers.~~ ~~This guidance supersedes the revenue recognition requirements we previously followed in Accounting Standards Codification, or ASC, Topic 605,~~ ~~Revenue Recognition, or Topic 605, and created a new Topic 606,~~ ~~Revenue from Contracts with Customers, or Topic 606.~~ Under Topic 606, an entity will recognize revenue when it transfers control of promised goods or services to customers in an amount that reflects what the entity expects to receive in exchange for the goods or services. Further, an entity will recognize revenue upon satisfying the performance obligation(s) under the related contract. We adopted Topic 606 on January 1, 2018 under the full retrospective approach, which required us to revise our prior period revenue. Under Topic 606, we were required to review all of our ongoing collaboration agreements in which we recognized revenue after January 1, 2016. We were required to assess what our revenue would have been for the period from January 1, 2016 to December 31, 2017 under Topic 606. As a result of this analysis, we determined that the cumulative revenue we would have recognized under Topic 606 decreased by $53.6 million. We recorded this amount as a cumulative adjustment to our accumulated deficit as of December 31, 2017. We have labeled our prior period financial statements “as revised” to indicate the change required under the accounting rules. Below is a summary of the change from our first quarter 2017 revenue under Topic 605 to the new Topic 606 guidance:

~~The following table summarizes the adjustments we were required to make to revenue we originally reported at March 31, 2017 to adopt Topic 606 (in thousands):~~

Three Months Ended March 31, 2017

As Previously Reported under
Topic 605

Topic 606
Adjustment
As Revised
Revenue:
Commercial revenue:
SPINRAZA royalties $ 5,211 $ — $ 5,211
Licensing and other royalty revenue 3,547 (957 ) 2,590
Total commercial revenue 8,758 (957 ) 7,801
Research and development revenue under collaborative agreements 101,546 6,453 107,999
Total revenue $ 110,304 $ 5,496 $ 115,800

~~During the first quarter of 2017, our revenue increased $5.5 million under Topic 606, compared to Topic 605. The change in our revenue was primarily due to:~~

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~~A change in how we recognize milestone payments:~~ Topic 606 requires us to amortize more of the milestone payments we achieve, rather than recognizing the milestone payments in full in the period in which we achieved the milestone event as we did under Topic 605. This change resulted in a $10.3 million increase in our revenue for the first quarter of 2017.

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~~A change in how we calculate revenue for payments we are recognizing into revenue over time:~~ Under Topic 605, we amortized payments into revenue evenly over the period of our obligations. Under Topic 606, we are required to use an input method to determine the amount we amortize each reporting period. Each period, we will review our “inputs” such as our level of effort expended or costs incurred relative to the total expected inputs to satisfy the performance obligation. For certain collaborations, such as Novartis and Bayer, the input method resulted in a change to the revenue we had previously recognized using a straight-line amortization method. This change resulted in a $3.8 million decrease in our revenue for the first quarter of 2017.

~~Our updated revenue recognition policy reflecting Topic 606 is as follows:~~

Our Revenue Sources

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 ~~condensed~~ consolidated balance sheet.

Commercial Revenue: SPINRAZA royalties and Licensing and other royalty revenue

We earn commercial revenue primarily in the form of royalty payments on net sales of SPINRAZA. We will also recognize as commercial revenue future sales milestone payments and royalties we earn under our partnerships.

Commercial Revenue: TEGSEDI Product Sales, net

We added product sales from TEGSEDI to our commercial revenue in the fourth quarter of 2018. In the U.S., TEGSEDI is distributed through an exclusive distribution agreement with a third-party logistics company, or 3PL, that takes title to TEGSEDI. The 3PL is our sole customer in the U.S. The 3PL then distributes TEGSEDI to a specialty pharmacy and a specialty distributor, which we collectively refer to as wholesalers, who then distribute TEGSEDI to health care providers and patients. In Germany, TEGSEDI is distributed through a non-exclusive distribution model with a 3PL that takes title to TEGSEDI. The 3PL is our sole customer in Germany. The 3PL in Germany then distributes TEGSEDI to hospitals and pharmacies.

Research and development revenue under collaborative agreements

We often enter into collaboration agreements to license and sell our technology on an exclusive or non-exclusive ~~basis in exchange for upfront fees, license fees, milestone payments, royalties and/or profit sharing arrangements.~~basis. Our collaboration agreements typically contain multiple elements, or performance obligations, including technology licenses or options to obtain technology licenses, research and development, or R&D, services, and ~~in certain cases~~ manufacturing services.

~~Our~~We provide details about our collaboration agreements ~~are detailed~~ in Note 6,7, Collaborative Arrangements and Licensing ~~Agreements.~~Agreements, in our Annual Report on Form 10-K for the year ended December 31, 2018. Under each collaboration note we discuss our specific revenue recognition conclusions, including our significant performance obligations under each collaboration.

Steps to Recognize Revenue

We use a ~~five step~~five-step process to determine the amount of revenue we should recognize and when we should recognize it. The five step process is as follows:

Identify the contract

Accounting rules require us to first determine if we have a contract with our partner, including confirming that we have met each of the following criteria:

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We and our partner approved the contract and we are both committed to perform our obligations;

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We have identified our rights, our partner’s rights and the payment terms;

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We have concluded that the contract has commercial substance, meaning that the risk, timing, or amount of our future cash flows is expected to change as a result of the contract; and

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We believe collectability is probable.

Identify the performance obligations

We next identify the distinct goods and services we are required to provide under the contract. Accounting rules refer to these as our performance obligations. We typically have only one performance obligation at the inception of a contract, which is to perform R&D services.

Often times ~~when~~ we enter into a collaboration agreement in which we provide our partner with an option to license a ~~drug~~medicine in the future. We may also provide our partner with an option to request that we provide additional goods or services in the future, such as active pharmaceutical ingredient, or API. We evaluate whether these options are material rights at the inception of the agreement. If we determine an option is a material right, we will consider the option a separate performance obligation. Historically, we have concluded that the options we grant to license a ~~drug~~medicine in the future or to provide additional goods and services as requested by our partner are not material rights. These items are contingent upon future events that may not occur. When a partner exercises its option to license a ~~drug~~medicine or requests additional goods or services, then we identify a new performance obligation for that item.

~~Additionally, in~~In some cases, we deliver a license at the start of an agreement. If we determine that our partner has full use of the license and we do not have any additional performance obligations related to the license after delivery, then we consider the license to be a separate performance obligation.

Determine the transaction price

We then determine the transaction price by reviewing the amount of consideration we are eligible to earn under the collaboration agreement, including any variable consideration. Under our collaboration agreements, consideration typically includes fixed consideration in the form of an upfront payment and variable consideration in the form of potential milestone payments, license fees ~~royalties or profit share arrangements.~~and royalties. At the start of an agreement, our transaction price usually ~~only~~ consists of only the upfront payment. We do not typically include any payments we may receive in the future in our initial transaction price because the payments are not ~~probable.~~probable and are contingent on certain events. We reassess the total transaction price at each reporting period to determine if we should include additional payments in the transaction price.

~~Our~~Milestone payments are our most common type of variable ~~consideration are milestone payments.~~consideration. We recognize milestone payments using the most likely amount method because we will either receive the milestone payment or we will not, which makes the potential milestone payment a binary event. The most likely amount method requires us to determine the likelihood of earning the milestone payment. We include a milestone payment in the transaction price once it is probable we will achieve the milestone event. Most often, we do not consider our milestone payments probable until we or our partner achieve the milestone event because the majority of our milestone payments are contingent upon events that are not within our ~~control.~~control and are usually based on scientific progress. For example, in the first quarter of 2019, we earned $35 million in milestone payments from Roche when it dosed the first patient in the Phase 3 study of IONIS-HTT_Rx(RG6042) because we do not have any performance obligations related to these milestone payments as Roche is conducting the Phase 3 study of IONIS-HTT_Rx. At December 31, 2018, we determined it was not probable that we could earn these milestone payments. As such, we did not recognize any revenue associated with the milestone payments in 2018.

Allocate the transaction price

Next, we allocate the transaction price to each of our performance obligations. When we have to allocate the transaction price to more than one performance obligation, we make estimates of the relative stand-alone selling price of each performance obligation because we do not typically sell our goods or services on a stand-alone basis. We then allocate the transaction price to each performance obligation based on the relative stand-alone selling price.

We may engage a third party, independent valuation specialist to assist us with determining a stand-alone selling price for collaborations in which we deliver a license at the start of an agreement. We estimate the stand-alone selling price of these licenses using ~~appropriate~~ valuation methodologies, such as the relief from royalty method. Under this method, we estimate the amount of income, net of taxes, for the license. We then discount the projected income to present value. The significant inputs we use to determine the projected income of a license could include:

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Estimated future product sales;

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Estimated royalties on future product sales;

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Contractual milestone payments;

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Expenses we expect to incur;

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Income taxes; and

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~~An appropriate~~A discount rate.

We typically estimate the selling price of R&D 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 R&D~~ services. The significant inputs we use to determine the selling price of our R&D services include:

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

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The estimated cost of work we will perform;

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

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The estimated cost of API we will use.

For purposes of determining the stand-alone selling price of the R&D services we perform and the API we will deliver, accounting guidance requires us to include a markup for a reasonable profit margin.

We do not reallocate the transaction price after the start of an agreement to reflect subsequent changes in stand-alone selling prices.

Recognize revenue

We recognize revenue in one of two ways, over time or at a point in time. We recognize revenue over time when we are executing on our performance obligation over time and our partner receives benefit over time. For example, we recognize revenue over time when we provide R&D services. We recognize revenue at a point in time when our partner receives full use of an item at a specific point in time. For example, we recognize revenue at a point in time when we deliver a license or API to a partner.

For R&D services that we recognize over time, we measure our progress using an input method. The input methods we use are based on the effort we expend or costs we incur toward the satisfaction of our performance obligation. We estimate the amount of effort we expend, including the time we estimate it will take us to complete the activities, or costs we incur in a given period, relative to the estimated total effort or costs to satisfy the performance obligation. This results in a percentage that we multiply by the transaction price to determine the amount of revenue we ~~will~~ recognize each period. ~~The~~This approach requires us to make numerous estimates and use significant ~~judgement that if they~~judgement. If our estimates or judgements change over the course of the collaboration, they may affect the timing and amount of revenue that we recognize in the current and future periods.

During the three months ended March 31, 2017, we recognized $8.2 million of additional revenue related to changes in our estimates. The additional revenue was primarily from our Biogen collaboration for IONIS-DMPK_Rx ~~because we shortened our estimated period of performance. Slightly offsetting this increase was a decrease in revenue related to changes in estimates for our collaboration with Roche for IONIS-HTT~~_Rx (RG6042) because we increased our estimated total effort required to satisfy our performance obligation. During the three months ended March 31, 2018, we recognized $0.5 million of additional revenue related to changes in our estimated period of performance under our neurology collaboration with Biogen.

The following are examples of when we typically recognize revenue based on the types of payments we receive.

9Commercial Revenue: SPINRAZA royalties and Licensing and other royalty revenue

We recognize royalty revenue in the period in which the counterparty sells the related product, which in certain cases may require us to estimate our royalty revenue. We recognize royalties from SPINRAZA sales in the period Biogen records the sale of SPINRAZA.

Commercial Revenue: TEGSEDI Product Sales, net

We recognize TEGSEDI product sales in the period when our customer obtains control of TEGSEDI, which occurs at a point in time upon transfer of title to the customer. We classify payments to customers or other parties in the distribution channel for services that are distinct and priced at fair value as selling, general and administrative expenses in our condensed consolidated statements of operations. Otherwise payments to customers or other parties in the distribution channel that do not meet those criteria are classified as a reduction of revenue, as discussed further below. We exclude from revenues, taxes collected from customers relating to product sales and remitted to governmental authorities.

Reserves for TEGSEDI Product Sales

We record TEGSEDI product sales at our net sales price, or transaction price. We include in our transaction price estimated reserves for discounts, returns, chargebacks, rebates, co-pay assistance and other allowances that we offer within contracts between us and our customers, wholesalers, health care providers and other indirect customers. We estimate our reserves using the amounts we have earned or what we can claim on the associated sales. We classify our reserves as reductions of accounts receivable when the amount is payable to our customer or a current liability when the amount is payable to a party other than our customer in our condensed consolidated balance sheet. In certain cases, our estimates include a range of possible outcomes that are probability-weighted for relevant factors such as our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall, our reserves reflect our best estimates under the terms of our respective contracts. When calculating our reserves and related product sales, we only recognize amounts to the extent that we consider it probable that we would not have to reverse in a future period a significant amount of the cumulative sales we previously recognized. The actual amounts we receive may ultimately differ from our reserve estimates. If actual amounts in the future vary from our estimates, we will adjust these estimates, which would affect our net TEGSEDI product sales in the respective period.

The following are the components of variable consideration related to TEGSEDI product sales:

Chargebacks: In the U.S., we estimate obligations resulting from contractual commitments with the government and other entities to sell products to qualified healthcare providers at prices lower than the list prices charged to our U.S. customer. Our U.S. customer charges us for the difference between what it pays for the product and the selling price to the qualified healthcare providers. We record reserves for these chargebacks related to TEGSEDI product sales to our U.S. customer during the reporting period. We also estimate the amount of product remaining in the distribution channel at the end of the reporting period that we expect our customer to sell to healthcare providers in future periods.

Government rebates: We are subject to discount obligations under government programs, including Medicaid programs and Medicare in the U.S. and we record reserves for government rebates based on statutory discount rates and estimated utilization. We estimate Medicaid and Medicare rebates based on a range of possible outcomes that are probability-weighted for the estimated payer mix. We record these reserves as an accrued liability on our condensed consolidated balance sheet with a corresponding offset reducing our TEGSEDI product sales in the same period we recognize the related sale. For Medicare, we also estimate the number of patients in the prescription drug coverage gap for whom we will owe an additional liability under the Medicare Part D program. On a quarterly basis, we update our estimates and record any adjustments in the period that we identify the adjustments.

Trade discounts and allowances: We provide customary invoice discounts on TEGSEDI product sales to our U.S. customer for prompt payment. We record this discount as a reduction of TEGSEDI product sales in the period in which we recognize the related product revenue. In addition, we receive and pay for various distribution services from our U.S. customer and wholesalers in our U.S. distribution channel. For services we receive that are either not distinct from the sale of TEGSEDI or for which we cannot reasonably estimate the fair value, we classify such fees as a reduction of TEGSEDI product sales.

Product Returns: Our U.S. customer has return rights and the wholesalers have limited return rights primarily related to the TEGSEDI’s expiration date. We estimate the amount of TEGSEDI product sales that our customer may return. We record our return estimate as an accrued refund liability on our condensed consolidated balance sheet with a corresponding offset reducing our TEGSEDI product sales, in the same period we recognize the related sale. Based on our distribution model for TEGSEDI, contractual inventory limits with our customer and wholesalers and the price of TEGSEDI, we believe we will have minimal returns. Our customer in Germany only takes title to the product once it receives an order from a hospital or pharmacy and therefore does not maintain any inventory of TEGSEDI, as such we do not estimate returns in Germany.

Other incentives: In the U.S., we estimate reserves for other incentives including co-payment assistance we provide to patients with commercial insurance who have coverage and reside in states that allow co-payment assistance. We record a reserve for the amount we estimate we will pay for co-payment assistance. We base our reserve on the number of estimated claims and our estimate of the cost per claim related to TEGSEDI product sales that we have recognized as revenue. We record our other incentive reserve estimates as an accrued liability on our condensed consolidated balance sheet with a corresponding offset reducing our TEGSEDI product sales, in the same period we recognize the related sale.

Research and development revenue under collaboration agreements:

Upfront Payments

When we enter into a collaboration agreement with an upfront payment, we typically record the entire upfront payment as deferred revenue if our only performance obligation is for R&D services we will provide in the future. We amortize the upfront payment into revenue as we perform the R&D services. For example, under our ~~new SMA~~ collaboration agreement with ~~Biogen,~~Roche to develop IONIS-FB-L_Rx for the treatment of complement-mediated diseases, we received a ~~$25~~$75 million upfront payment in ~~December 2017.~~the fourth quarter of 2018. We allocated the upfront payment to our single performance obligation, R&D services. We are ~~therefore,~~ amortizing the ~~$25~~$75 million upfront payment using an input method over the estimated period of time we are providing R&D services. ~~Refer~~

Milestone Payments

We are required to ~~Note 6,~~ ~~Collaborative Arrangements~~include additional consideration in the transaction price when it is probable. We typically include milestone payments for R&D services in the transaction price when they are achieved. We include these milestone payments when they are achieved because there is considerable uncertainty in the research and ~~Licensing Agreements, for further discussion. Under Topic 605,~~development processes that trigger these payments under our collaboration agreements. Similarly, we ~~amortized~~include approval milestone payments ~~evenly over~~in the transaction price once the medicine is approved by the applicable regulatory agency. We will recognize sales based milestone payments in the period ~~of our obligation.~~we achieve the milestone under the sales-based royalty exception allowed under accounting rules.

~~Milestone Payments~~

We recognize milestone payments that relate to an ongoing performance obligation over our period of performance. For example, in the third quarter of 2017, we initiated a Phase 1/2a clinical study of IONIS-MAPT_Rxin patients with mild Alzheimer’s disease. We earned a $10 million milestone payment from Biogen related to the initiation of this study. ~~Under Topic 606, we~~We added this payment to the transaction price and allocated ~~this payment~~it to our R&D services performance obligation. We are recognizing revenue from this milestone payment over our estimated period of performance. ~~Under Topic 605, this milestone payment was recognized in full in the third quarter of 2017, which was the period in which we achieved the milestone event.~~

Conversely, we recognize in full those milestone payments that we earn based on our partners’ activities when our partner achieves the milestone ~~event.~~event and we do not have a performance obligation. For example, in the ~~second~~first quarter of ~~2017,~~2019, we ~~earned a $50~~recognized $35 million ~~milestone payment from Biogen for the EU approval of SPINRAZA. Our revenue recognition of~~in milestone payments when Roche dosed the first patient in a Phase 3 study for IONIS-HTT_Rx. We concluded that the milestone payments were not related to our R&D services performance obligation. Therefore, we ~~earn based on our partners’ activities did not change as a result~~recognized these milestone payments in full in the first quarter of ~~adopting Topic 606.~~2019.

License Fees

We generally recognize as revenue the total amount we determine to be the stand-alone selling price of a license when we deliver the license to our ~~partner~~partner. This is because our partner has full use of the license and we do not have any additional performance obligations related to the license after delivery. ~~Our recognition~~For example, in the first quarter of 2019, we earned a $150 million license ~~fees did not change as a result of adopting Topic 606.~~fee when Novartis licensed AKCEA-APO(a)-L_Rx from us.

~~Royalties~~

~~We recognize royalty revenue in the period in which the counterparty sells the related product, which in certain cases may require us to estimate our royalty revenue.~~ ~~We recognize royalties from SPINRAZA sales in the period Biogen records the sale of SPINRAZA. Our accounting for SPINRAZA royalties did not change as a result of adopting Topic 606.~~

Amendments to Agreements

From time to time we amend our collaboration agreements. ~~For these agreements,~~When this occurs, we are required to assess the following items to determine the accounting for the amendment:

If the additional goods and/or services are distinct from the other performance obligations in the original agreement; and

If the goods and/or services are at a stand-alone selling price.

If we conclude the goods and/or services ~~under~~in the amendment are distinct from the performance obligations in the original agreement and at a stand-alone selling price, we account for the amendment as a separate agreement. If we conclude the goods and/or services are not distinct ~~under the amendment,~~and at their stand-alone selling price, we then assess whether the ~~additional~~remaining goods or services are distinct ~~under the original agreement.~~from those already provided. If the goods and/or services are distinct ~~under the original agreement~~from what we have already provided, then we allocate the remaining transaction price from the original agreement and the additional transaction price from the amendment to the remaining goods and/or services. If ~~they~~the goods and/or services are not distinct from ~~the original agreement,~~what we have already provided, we update the transaction price for our single performance obligation and recognize any change in our estimated revenue as a cumulative adjustment.

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. At the onset of the agreement, we were responsible for completing a Phase 2 study of IONIS-FXI_Rx in people with end-stage renal disease on hemodialysis and for providing an initial supply of API. In February 2017, we amended our agreement with Bayer to advance IONIS-FXI_Rx and to initiate development of IONIS-FXI-L_Rx, which Bayer licensed. As part of the 2017 amendment, Bayer paid us $75 million. We are also eligible to receive milestone payments and tiered royalties on gross margins of IONIS-FXI_Rx and IONIS-FXI-L_Rx. Under the 2017 amendment, we concluded we had a new agreement with three performance obligations. These performance obligations were to deliver the license of IONIS-FXI-L_Rx, to provide R&D services and to deliver API. We allocated the $75 million transaction price to ~~the~~these performance obligations. Refer to Note 6,7, Collaborative Arrangements and Licensing Agreements, for further discussion of our accounting treatment for our Bayer collaboration.Our allocation of the consideration we received for the Bayer amendment did not change as a result of adopting Topic 606. However the method in which we are recognizing revenue related to our R&D services performance obligation did change. We are amortizing revenue related to our R&D services performance obligation using the input method under Topic 606.

Multiple Agreements

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 we should account for them individually as distinct arrangements or whether the separate agreements should be combined and accounted for together. We evaluate the following to determine the accounting for the agreements:

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Whether the agreements ~~are~~were negotiated together with a single objective;

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Whether the amount of consideration in one contract depends on the price or performance of the other agreement; or

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Whether the goods and/or services promised under the agreements are a single performance obligation.

Our evaluation involves significant judgment to determine whether a group of agreements might be so closely related that ~~we are required~~accounting guidance requires us to account for them as a combined arrangement.

For example, in the ~~first~~second quarter of ~~2017,~~2018, we ~~and Akcea~~ entered into two separate agreements with ~~Novartis~~Biogen at the same time: a new strategic neurology collaboration agreement and a stock purchase agreement, or SPA. We evaluated the ~~Novartis~~Biogen agreements to determine whether we should treat the agreements separately or combine them. We considered that the agreements were negotiated concurrently and in contemplation of one another. Based on these facts and circumstances, we concluded that we should evaluate the provisions of the agreements on a combined basis. ~~Refer to Note 6,~~ ~~Collaborative Arrangements and Licensing Agreements~~ ~~for further discussion of the accounting treatment for the Novartis collaboration.~~

Contracts Receivable

Our contracts receivable balance represents the amounts we have billed our partners or customers and that are due to us unconditionally for goods we have delivered or services we have ~~performed that are due to us unconditionally.~~performed. When we bill our partners or customers with payment terms based on the passage of time, we consider the contract receivable to be unconditional. We typically receive payment within one quarter of billing our partner or customer. ~~Our contracts receivable balance as of December 31, 2017 did not change when we adopted Topic 606.~~

Unbilled SPINRAZA Royalties

Our unbilled SPINRAZA royalties represent our right to receive consideration from Biogen in advance of when we are eligible to bill Biogen for SPINRAZA royalties. We include these unbilled amounts in other current assets on our condensed consolidated balance sheet.~~Our unbilled SPINRAZA royalties as of December 31, 2017 did not change when we adopted Topic 606.~~

Deferred Revenue

We are often entitled to bill our customers and receive payment from our customers in advance of our obligation to provide services or transfer goods to our partners. In ~~the~~these instances, ~~in which we have billed our customers or received payment from our customers in advance of satisfying our performance obligation,~~ we include the amounts in deferred revenue on our condensed consolidated balance sheet. During the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, we recognized ~~$34.9~~$40.3 million and ~~$26.7~~$34.9 million of revenue from amounts that were in our beginning deferred revenue ~~balances~~balance for ~~those periods, respectively. Refer~~each respective period. For further discussion, refer to our revenue recognition policy ~~above detailing how we recognize revenue for further discussion.~~above.

~~The following table summarizes the adjustments we were required to make to our deferred revenue amounts to adopt Topic 606 (in thousands):~~

At December 31, 2017

As Previously Reported under
Topic 605

Topic 606
Adjustment
As Revised
Current portion of deferred revenue $ 106,465 $ 18,871 $ 125,336
Long-term portion of deferred revenue 72,708 35,318 108,026
Total $ 179,173 $ 54,189 $ 233,362

Our deferred revenue balance increased $54.2 million at December 31, 2017 under Topic 606, compared to Topic 605. The increase was primarily related to the change in the accounting for certain milestone payments and the way in which we amortize payments. Under Topic 605, we previously recognized the majority of the milestone payments we earned in the period we achieved the milestone event, which did not impact our deferred revenue balance. Under Topic 606 we are now amortizing more milestone payments over the period of our performance obligation, which adds to our deferred revenue balance. Additionally, under Topic 605 we amortized payments evenly over the period of our obligation. Under Topic 606, we are required to use an input method to determine the amount we amortize each reporting period. The increase in deferred revenue relates to agreements with the following partners:

	~~$24.2 million from Biogen;~~

	~~$15.9 million from AstraZeneca;~~

	~~$11.8 from Novartis; and~~

	~~$2.3 million from other partners.~~

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Cost of Products Sold

Our cost of products sold includes manufacturing costs, transportation and freight costs and indirect overhead costs associated with the manufacturing and distribution of TEGSEDI. We also may include certain period costs related to manufacturing services and inventory adjustments in cost of products sold. Prior to obtaining regulatory approval in July 2018, we expensed a significant portion of the costs we incurred to produce the TEGSEDI supply we are using in the commercial launch as research and development expense. We previously recognized $0.3 million of costs to produce TEGSEDI related to the TEGSEDI commercial revenue we recognized in the three months ended March 31, 2019.

Noncontrolling Interest in Akcea Therapeutics, Inc.

Prior to Akcea’s IPO in July 2017, we owned 100 percent of ~~Akcea’s stock and consolidated 100 percent~~Akcea. From the closing of Akcea’s ~~results~~IPO in ~~our financial statements. In connection with Akcea’s IPO, Akcea sold shares of its common stock to third parties. We~~July 2017 through mid-April 2018, we owned approximately 68 percent of ~~Akcea after~~Akcea. In the ~~IPO~~second, third and ~~at March 31, 2018.~~ ~~In April~~fourth quarters of 2018, we received ~~8 million~~additional shares of Akcea’s stock ~~for the~~related to our license of TEGSEDI and AKCEA-TTR-L_Rx to Akcea, ~~and purchased an additional 10.7 million shares of Akcea’s stock for $200 million,~~ increasing our ownership percentage to approximately 75 percent. In the first quarter of 2019, we received 2.8 million shares of Akcea common stock as payment for the sublicense fee Akcea owed us when Novartis licensed AKCEA-APO(a)-L_Rx, increasing our ownership to approximately 76 percent at March 31, 2019. We ~~will reflect~~reflected this increase in our ownership percentage in ~~the second quarter of 2018.~~these financial statements as an adjustment to noncontrolling interest. The shares third parties own represent an interest in Akcea’s equity that is not controlled by us. However, as we continue to maintain overall control of Akcea through our voting interest, we reflect the assets, liabilities and results of operations of Akcea in our condensed consolidated financial statements. We reflect the noncontrolling interest attributable to other owners of Akcea’s common stock in a separate line on the statement of operations and a separate line within stockholders’ equity in our condensed consolidated balance sheet. In addition, we record a noncontrolling interest adjustment to account for the stock options Akcea grants, which if exercised, will dilute our ownership in Akcea. This adjustment is a reclassification within stockholders’ equity from additional paid-in capital to noncontrolling interest in Akcea equal to the amount of stock-based compensation expense Akcea had recognized.

Cash, cash equivalents and 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 debt 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.~~period for identical or similar items. We record unrealized gains and losses on debt securities 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 also have equity investments of less than 20 percent ownership in publicly and privately held biotechnology companies that we received as part of a technology license or partner agreement. At March 31, ~~2018,~~2019, we held an equity ~~investment~~investments in ~~one~~two publicly held ~~company,~~companies, ProQR Therapeutics N.V., or ProQR, and Antisense Therapeutics Limited, or ATL. ~~Our other~~We also held equity investments ~~were~~ in ~~five~~four privately-held companies, Atlantic Pharmaceuticals Limited, Dynacure SAS, ~~Kastle Therapeutics,~~ Seventh Sense Biosystems and Suzhou Ribo Life Science ~~CO.~~Co, Ltd.

In January 2018, we adopted the amended accounting guidance related to the recognition, measurement, presentation, and disclosure of certain financial instruments. The amended guidance requires us to measure and record equity investments, except those accounted for under the equity method of accounting that have a readily determinable fair value, at fair value and for us to recognize the changes in fair value in our consolidated statement of operations. Prior to 2018, we recognized unrealized gains and losses through accumulated other comprehensive income. For investments without a readily determinable fair value, beginning in 2018, we are accounting for these investments at their 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. Prior to 2018, we accounted for our equity investments in privately held companies under the cost method of accounting. Our adoption of this guidance did not have an impact on our results.

Inventory valuation

We reflect our inventory on our condensed consolidated balance sheet at the lower of cost or market value under the first-in, first-out method, or FIFO. We capitalize the costs of raw materials that we purchase for use in producing our ~~drugs~~medicines because until we use these raw materials they have alternative future uses. We include in inventory raw material costs for ~~drugs~~medicines that we manufacture for our partners under contractual terms and that we use primarily in our clinical development activities and drug products. We can use each of our raw materials in multiple products and, as a result, each raw material has future economic value independent of the development status of any single ~~drug.~~medicine. For example, if one of our ~~drugs~~medicines failed, we could use the raw materials for that ~~drug~~medicine to manufacture our other ~~drugs.~~medicines. We expense these costs as R&D expenses when we begin to manufacture API for a particular ~~drug.~~ medicine if the medicine has not been approved for marketing by a regulatory agency.

We ~~reflect~~obtained the first regulatory approval for TEGSEDI in July 2018. At March 31, 2019 and December 31, 2018, our physical inventory onfor TEGSEDI included API that we produced prior to when we obtained regulatory approval and accordingly has no cost basis as we had previously expensed the ~~balance sheet at the lower of cost or market value under the first-in, first-out method, or FIFO.~~ costs as R&D expenses.

We review our inventory periodically and reduce the carrying value of items we consider to be slow moving or obsolete to their estimated net realizable ~~value.~~value based on forecasted demand compared to quantities on hand. We consider several factors in estimating the net realizable value, including shelf life of ~~raw materials,~~our inventory, alternative uses for our ~~drugs and clinical trial materials,~~medicines in development and historical write-offs. We did not record any inventory write-offs for the three months ended March 31, ~~2018~~2019 and ~~2017.~~2018. Total inventory was ~~$9.1~~$11.1 million and ~~$10.0~~$8.6 million as of March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

Leases

Topic 842 Adoption

In February 2016, the FASB issued amended accounting guidance related to lease accounting. This guidance supersedes the lease requirements we previously followed in Accounting Standards Codification, or ASC, Topic 840, Leases, or Topic 840, and created a new lease accounting standard, Topic 842, Leases, or Topic 842. Under Topic 842, an entity will record on its balance sheet all leases with a term longer than one year. Further, an entity will record a liability with a value equal to the present value of payments it will make over the life of the lease (lease liability) and an asset representing the underlying leased asset (right-of-use asset). The new accounting guidance requires entities to determine if its leases are operating or financing leases. Entities will recognize expense for operating leases on a straight-line basis as an operating expense. If an entity determines a lease is a financing lease, it will record

both interest and amortization expense and generally the expense will be higher in the earlier periods of the lease. We adopted Topic 842 on January 1, 2019 and adjusted our opening balance sheet on that date for our right-of-use operating lease assets and operating lease liabilities. At adoption, we recorded $13.5 million in right-of-use operating lease assets and $18.5 million in operating lease liabilities, of which we classified $2 million as a current liability. We adopted Topic 842 using the available practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification of those leases we had in place as of January 1, 2019. The adoption did not have an impact on our condensed consolidated statement of operations.

Leases

We determine if an arrangement contains a lease at inception. We currently only have operating leases. We recognize a right-of-use operating lease asset and associated short- and long-term operating lease liability on our condensed consolidated balance sheet for operating leases greater than one year. Our right-of-use assets represent our right to use an underlying asset for the lease term and our lease liabilities represent our obligation to make lease payments arising from the lease arrangement. We recognize our right-of-use operating lease assets and lease liabilities based on the present value of the future minimum lease payments we will pay over the lease term. We determined the lease term at the commencement date of the lease, and in certain cases our lease term could include renewal options if we concluded we were reasonably certain that we will exercise the renewal option.

As our current leases do not provide an interest rate implicit in the lease, we used our or Akcea’s incremental borrowing rate, based on the information available on the date we adopted Topic 842 in determining the present value of future payments. Our right-of-use operating lease asset also includes any lease payments we made and excludes any tenant improvement allowances we received. We recognize rent expense for our minimum lease payments on a straight-line basis over the expected term of our lease. We recognize period expenses, such as common area maintenance expenses, in the period we incur the expense.

Research, development and patent expenses

Our research and development expenses include wages, benefits, facilities, supplies, external services, clinical trial and manufacturing costs and other expenses that are directly related to our research and development operations. We expense research and development costs as we incur them. When we make payments for research and development services prior to the services being rendered, we record those amounts as prepaid assets on our condensed consolidated balance sheet and we expense them as the services are provided.

We capitalize costs consisting principally of outside legal costs and filing fees related to obtaining patents. We amortize patent costs over the useful life of the patent, beginning with the date the United States Patent and Trademark Office, or foreign equivalent, issues the patent. We review our capitalized patent costs regularly to ensure that they include costs for patents and patent applications that have future value. We evaluate patents and patent applications that we are not actively pursuing and write off any associated costs.

Income Taxes

We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. In addition, deferred tax assets are recorded for the future benefit of utilizing net operating losses and research and development credit carryforwards. We record a valuation allowance when necessary to reduce our net deferred tax assets to the amount expected to be realized.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017, or the Tax Act. The Tax Act created a new requirement on global intangible low-taxed income, or GILTI, earned by foreign subsidiaries for tax years beginning on or after January 1, 2018. The GILTI provisions require foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s assets to be included in our U.S. income tax return. Under U.S. GAAP, we are permitted to make an accounting policy election to either treat taxes due on future inclusions in U.S. taxable income related to GILTI as a current-period expense when incurred or to factor such amounts into our measurement of deferred taxes. We have made the election to account for GILTI as a component of current taxes incurred rather than as a component of deferred taxes.

Long-lived assets

We evaluate long-lived assets, which include property, plant and equipment, right-of-use operating lease assets and patent costs acquired from third parties, for impairment on at least a quarterly basis and whenever events or changes in circumstances indicate that we may not be able to recover the carrying amount of such assets.

Use of estimates

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires ~~management~~us to make estimates and assumptions that affect the amounts reported in ~~the~~our condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Basic and diluted net income (loss) per share

Basic net income (loss) per share

We compute basic net income (loss) per share by dividing the total net income (loss) attributable to our common stockholders by our weighted-average number of common shares outstanding during the period.

The calculation of total net income (loss) attributable to our common stockholders for the three months ended March 31, 2019 and 2018 considered our net income for Ionis on a stand-alone basis plus our share of Akcea’s net loss for the period. To calculate the portion of Akcea’s net loss attributable to our ownership, we multiplied Akcea’s loss per share by the weighted average shares we owned in Akcea during the period. As a result of this calculation, our total net income (loss) available to Ionis common stockholders for the calculation of net income (loss) per share is different than net income (loss) attributable to Ionis Pharmaceuticals, Inc. common stockholders in the condensed consolidated statements of operations.

Our basic net income per share for the three months ended March 31, 2019, was calculated as follows (in thousands, except per share amounts):

Three months ended March 31, 2019	Weighted Average Shares Owned in Akcea		Akcea’s Net Income Per Share		Ionis’ Portion of Akcea’s Net Loss

Common shares		68,582	$	0.35	$	23,846
Akcea’s net income attributable to our ownership					$	23,846
Ionis’ stand-alone net income						63,697
Net income available to Ionis common stockholders					$	87,543
Weighted average shares outstanding						138,582
Basic net income per share					$	0.63

Our basic net loss per share for the three months ended March 31, 2018, was calculated as follows (in thousands, except per share amounts):

Three months ended March 31, 2018	Weighted Average Shares Owned in Akcea		Akcea’s Net Income (Loss) Per Share			Ionis’ Portion of Akcea’s Net Loss			Weighted Average Shares Owned in Akcea		Akcea’s Net Loss Per Share			Ionis’ Portion of Akcea’s Net Loss

Common shares		45,448	$	(0.44	)	$	(19,997	)		45,448	$	(0.44	)	$	(19,997	)
Akcea’s net loss attributable to our ownership						$	(19,997	)						$	(19,997	)
Ionis’ stand-alone net income							18,785								18,785
Net loss available to Ionis common stockholders						$	(1,212	)						$	(1,212	)
Weighted average shares outstanding							125,330								125,330
Basic net loss per share						$	(0.01	)						$	(0.01	)

Dilutive net income (loss per share)

For the three months ended March 31, ~~2017, we owned 100 percent of Akcea. As a result, we did not have to adjust our earnings per share calculation. For the three months ended March 31, 2017,~~2019, we had net ~~income.~~income available to Ionis common stockholders. As a result, we computed diluted net income per share using the weighted-average number of common shares and dilutive common equivalent shares outstanding during ~~those periods. Diluted common equivalent shares~~the period.

We calculated our diluted net income per share for the three months ended March 31, ~~2017 consisted of the following~~2019 as follows (in thousands except per share amounts):

Three months ended March 31, 2017	Income (Numerator)		Shares (Denominator)		Per-Share Amount
Three months ended March 31, 2019							Income (Numerator)		Shares (Denominator)		Per-Share Amount

Net income available to Ionis common stockholders	$	8,964		122,861	$	0.07	$	87,543		138,582	$	0.63
Effect of dilutive securities:
Shares issuable upon exercise of stock options		—		1,674				—		2,252
Shares issuable upon restricted stock award issuance		—		377				—		665
Shares issuable related to our ESPP		—		60				—		38
Income available to Ionis common stockholders	$	8,964		124,972	$	0.07	$	87,543		141,537	$	0.62

For the three months ended March 31, ~~2017,~~2019, the calculation excluded the 1 ~~percent and 2¾~~ percent notes because the effect on diluted earnings per share was anti-dilutive.

~~Accumulated other comprehensive loss~~

Accumulated other comprehensive loss is primarily comprised of unrealized gains and losses on investments, net of taxes and adjustments we made to reclassify realized gains and losses on investments from other accumulated comprehensive income (loss) to our condensed consolidated statement of operations. The following table summarizes changes in accumulated other comprehensive income (loss) forFor the three months ended March 31, 2018, ~~and 2017 (in thousands):~~we incurred a net loss; therefore, we did not include dilutive common equivalent shares in the computation of diluted net loss per share because the effect would have been anti-dilutive. Common stock from the following would have had an anti-dilutive effect on net loss per share:

Three Months Ended
March 31,

2018 2017
Beginning balance accumulated other comprehensive loss $ (31,759 ) $ (30,358 )
Unrealized gains (losses) on securities, net of tax (1) (1,530 ) 266
Amounts reclassified from accumulated other comprehensive income (2) — (374 )
Currency translation adjustment 55 6
Net current period other comprehensive loss (1,475 ) (102 )
Ending balance accumulated other comprehensive loss $ (33,234 ) $ (30,460 )

~~(1)~~●

~~There was no tax benefit for other comprehensive loss for the three months ended March 31, 2018~~1 percent convertible senior notes;

●

Dilutive stock options;

●

Unvested restricted stock units; and ~~2017.~~

●

Employee Stock Purchase Plan, or ESPP.

~~(2)~~

~~Amounts are included in investment income on our condensed consolidated statement of operations.~~

Convertible debt

We account for 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 no similar debt instrument exists, we estimate 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~~To determine the fair value of the debt component ~~requires the~~we are required to 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 our debt at a discount. We are amortizing our debt issuance costs and debt discount over the life of the convertible notes as additional non-cash interest expense utilizing the effective interest method.

Segment information

We have two operating segments, our Ionis Core segment and Akcea ~~Therapeutics.~~Therapeutics, our majority-owned affiliate. Akcea is a biopharmaceutical company focused on developing and commercializing ~~drugs~~medicines to treat patients with rare and serious diseases. We provide segment financial information and results for our Ionis Core segment and our Akcea Therapeutics segment based on the segregation of revenues and expenses that our chief decision maker reviews to assess operating performance and to make operating decisions. We allocate a portion of Ionis’ development, R&D support ~~expenses~~ and general and administrative expenses to Akcea for work ~~we performed~~Ionis performs on behalf of Akcea.

Stock-based compensation expense

We measure stock-based compensation expense for equity-classified awards, principally related to stock options, restricted stock units, or RSUs, and stock purchase rights under our ESPP based on the estimated fair value of the award on the date of grant. We recognize the value of the portion of the award that we ultimately expect to vest as stock-based compensation expense over the requisite service period in our condensed consolidated statements of operations. We reduce stock-based compensation expense for estimated forfeitures at the time of grant and revise in subsequent periods if actual forfeitures differ from those estimates.

We use the Black-Scholes model to estimate the fair value of stock options granted and stock purchase rights under our ESPP. The expected term of stock options granted represents the period of time that we expect them to be outstanding. We estimate the expected term of options granted based on historical exercise patterns. For the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, we used the following weighted-average assumptions in our Black-Scholes calculations:

Ionis Employee Stock Options:

	Three Months Ended March 31,				Three Months Ended March 31,
	2018		2017		2019		2018
Risk-free interest rate		2.2%		1.8%		2.4%		2.2%
Dividend yield		0.0%		0.0%		0.0%		0.0%
Volatility		63.2%		66.3%		60.3%		63.2%
Expected life		4.6 years		4.5 years		4.6 years		4.6 years

Ionis ESPP:

	Three Months Ended March 31,				Three Months Ended March 31,
	2018		2017		2019		2018
Risk-free interest rate		1.6%		0.7%		2.5%		1.6%
Dividend yield		0.0%		0.0%		0.0%		0.0%
Volatility		44.4%		66.5%		45.5%		44.4%
Expected life		6 months		6 months		6 months		6 months

The fair value of RSUs is based on the market price of our common stock on the date of grant. RSUs vest annually over a four-year period. The weighted-average grant date fair value of RSUs granted to employees for the three months ended March 31, ~~2018~~2019 was ~~$53.22~~$58.26 per share.

~~We did not grant stock options or RSUs~~

In addition to our ~~Board of Directors during~~stock plans, Akcea has its own stock plan under which it grants options and RSUs and under which it derives its stock-based compensation expense. The following are the weighted-average Black-Scholes assumptions Akcea used under its plan for the three months ended March 31, ~~2018 or 2017.~~2019 and March 31, 2018:

Akcea Employee Stock Options:

	Three Months Ended March 31,
	2019		2018
Risk-free interest rate		2.5%		2.6%
Dividend yield		—		—
Volatility		76.4%		77.1%
Expected life		6.1 years		6.1 years

Akcea ESPP:

	Three Months Ended March 31,
	2019		2018
Risk-free interest rate		2.5%		1.6%
Dividend yield		—		—
Volatility		64.1%		62.3%
Expected life		6 months		6 months

The following table summarizes stock-based compensation expense for the three months ended March 31, ~~2018~~2019 and ~~2017~~2018 (in thousands). Our non-cash stock-based compensation expense includes ~~$6.4~~$18.6 million and ~~$3.2~~$6.4 million of stock-based compensation expense for Akcea employees for the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, respectively.

	Three Months Ended March 31,						Three Months Ended March 31,
	2018			2017			2019		2018
Cost of products sold							$	118	$	—
Research, development and patent		$	19,682		$	16,122		24,435		19,682
Selling, general and administrative			8,769			4,790		20,952		8,769
Total		$	28,451		$	20,912	$	45,505	$	28,451

As of March 31, ~~2018,~~2019, total unrecognized estimated non-cash stock-based compensation expense related to non-vested stock options and RSUs was ~~$90.7~~$192.2 million and ~~$40.4~~$68.7 million, respectively. We will adjust total unrecognized compensation cost for future forfeitures. We expect to recognize the cost of non-cash stock-based compensation expense related to non-vested stock options and RSUs over a weighted average amortization period of ~~1.5~~1.4 years and ~~1.9~~2.0 years, respectively.

Impact of recently issued accounting standards

In February 2016, the FASB issued amended accounting guidance related to lease accounting, which will require us to record all leases with a term longer than one year on our balance sheet. When we record leases on our balance sheet under the new guidance, we will record a liability with a value equal to the present value of payments we will make over the life of the lease and an asset representing the underlying leased asset. The new accounting guidance requires us to determine if our leases are operating or financing leases. We will record expense for operating leases on a straight-line basis as an operating expense. If we determine a lease is a financing lease, we will record both interest and amortization expense and generally the expense will be higher in the earlier periods of the lease. The new lease standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. We must adopt the new standard on a modified retrospective basis, which requires us to reflect our leases on our balance sheet for the earliest comparative period presented. We plan to adopt this guidance on January 1, 2019. We are currently assessing the effects the new guidance will have on our consolidated financial statements and disclosures.

In June 2016, the FASB issued guidance that changes the measurement of credit losses for most financial assets and certain other instruments. If we have credit losses, this updated guidance requires us to record allowances for these instruments under a new expected credit loss model. This model requires us to estimate the expected credit loss of an instrument over its lifetime, which represents the portion of the amortized cost basis we do not expect to collect. ~~This change will result in~~The new guidance requires us ~~remeasuring~~to remeasure our allowance in each reporting period we have credit losses. The new standard is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted for periods beginning after December 15, 2018. When we adopt the new standard, we will make any adjustments to beginning balances through a cumulative-effect adjustment to accumulated deficit on that date. We plan to adopt this guidance on January 1, 2020. We are currently assessing the effects it will have on our condensed consolidated financial statements and disclosures.

In December 2017, the SEC staff issued guidance to address how companies should account for the Tax Act of 2017, or the Tax Act, when an entity does not have the necessary information to complete the accounting for the Tax Act and gives entities up to one year from the enactment of the Tax Act to finalize their amounts. We recognized provisional amounts in our 2017 financial statements and in these financial statements. The ultimate impact may differ materially from these provisional amounts due to, among other things, additional analysis, changes in our interpretations and assumptions, additional regulatory guidance that may be issued, and other actions we may take resulting from the Tax Act. We will assess and update our provisional amounts and disclosures, as necessary, throughout the remainder of 2018.

~~In February~~August 2018, the FASB issued ~~updated~~clarifying guidance on how to account for ~~reclassification of tax effects from accumulated other comprehensive income (loss).~~implementation costs related to cloud-servicing arrangements. The ~~updated~~ guidance ~~gives entities an option to reclassify amounts included in accumulated other comprehensive income (loss)~~states that ~~under the Tax Act do not have a way~~if these fees qualify to be ~~relieved,~~capitalized and ~~allows a one-time reclassification~~amortized over the service period, they need to ~~retained earnings.~~be expensed in the same line item as the service expense and recognized in the same balance sheet category. The update can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The updated guidance is effective ~~for all entities~~ for fiscal years beginning after December 31, ~~2018,~~2019, and interim periods within those fiscal years. Early adoption is permitted ~~and adoption is optional.~~in any interim period. We are currently assessing the effects this updated guidance could have on our condensed consolidated financial statements and timing of ~~potential~~ adoption.

In August 2018, the FASB updated its disclosure requirements related to Level 1, 2 and 3 fair value measurements. The update included deletion and modification of certain disclosure requirements and additional disclosure related to Level 3 measurements. The guidance is effective for fiscal years beginning after December 31, 2019 and early adoption is permitted. We adopted this updated guidance on January 1, 2019 and it did not have a significant impact on our disclosures.

In November 2018, the FASB issued clarifying guidance of the interaction between the collaboration accounting guidance and the new revenue recognition guidance we adopted on January 1, 2018 (Topic 606). Below is the clarifying guidance and how we will implement it (in italics):

3.1)

~~Investments~~When a participant is considered a customer in a collaborative arrangement, all of the associated accounting under Topic 606 should be applied

●

We will apply all of the associated accounting under Topic 606 when we determine a participant in a collaborative arrangement is a customer

Adds “unit of account” concept to collaboration accounting guidance to align with Topic 606. The “unit of account” concept is used to determine if revenue is recognized or if a contra expense is recognized from consideration received under a collaboration

●

We will use the “unit of account” concept when we receive consideration under a collaboration to determine when we recognize revenue or a contra expense

The clarifying guidance precludes us from recognizing revenue under Topic 606 when we determine a transaction with a collaborative partner is not a customer and is not directly related to the sales to third parties

●

When we conclude a collaboration partner is not a customer and is not directly related to the sales to third parties, we will not recognize revenue for the transaction

The updated guidance is effective for public entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. We plan to adopt this guidance on January 1, 2020. We are currently assessing the effects it will have on our condensed consolidated financial statements and disclosures.

3. Investments

As of March 31, ~~2018,~~2019, we had invested our excess cash primarily in debt instruments of the U.S. Treasury, financial institutions, corporations, and U.S. government agencies with strong credit ratings and an investment grade rating at or above A-1, P-1 or F-1 by Moody’s, Standard & Poor’s, or S&P, or Fitch, respectively. We have established guidelines relative to diversification and maturities that maintain safety and liquidity. We periodically review and modify these guidelines to maximize trends in yields and interest rates without compromising safety and liquidity.

The following table summarizes the contract maturity of the available-for-sale securities we held as of March 31, ~~2018:~~2019:

One year or less	~~77%~~74%
After one year but within two years	~~18%~~21%
After two years but within three ~~and a half~~ years	5%
Total	100%

As illustrated above, at March 31, ~~2018,~~2019, 95 percent of our available-for-sale securities had a maturity of less than two years.

All of our available-for-sale securities are available to us for use in our current operations. As a result, we categorize all of these securities as current assets even though the stated maturity of some individual securities may be one year or more beyond the balance sheet date.

At March 31, ~~2018,~~2019, we had an ownership interest of less than 20 percent in ~~five~~four private companies and ~~one~~two public ~~company~~companies with which we conduct business. The privately-held companies are Atlantic Pharmaceuticals Limited, Dynacure SAS, ~~Kastle Therapeutics,~~ Seventh Sense Biosystems and Suzhou Ribo Life Science ~~CO.~~Co, Ltd. The publicly-traded ~~company is Antisense Therapeutics Limited.~~companies are ProQR and ATL.

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

Gross Unrealized
March 31, 2018
Cost (1)
Gains Losses Estimated Fair Value
Available-for-sale securities:
Corporate debt securities (2) $ 433,297 $ 1 $ (1,286 ) $ 432,012
Debt securities issued by U.S. government agencies 129,235 — (323 ) 128,912
Debt securities issued by the U.S. Treasury (2) 54,076 1 (43 ) 54,034
Debt securities issued by states of the U.S. and political subdivisions of the states (2) 31,624 1 (194 ) 31,431
Total securities with a maturity of one year or less 648,232 3 (1,846 ) 646,389
Corporate debt securities 126,128 5 (1,807 ) 124,326
Debt securities issued by U.S. government agencies 21,547 — (162 ) 21,385
Debt securities issued by states of the U.S. and political subdivisions of the states 52,746 — (785 ) 51,961
Total securities with a maturity of more than one year 200,421 5 (2,754 ) 197,672
Total available-for-sale securities $ 848,653 $ 8 $ (4,600 ) $ 844,061

			Gross Unrealized									Gross Unrealized
December 31, 2017	Cost (1)		Gains		Losses			Estimated Fair Value
March 31, 2019										Cost (1)		Gains		Losses			Estimated Fair Value
Available-for-sale securities:
Corporate debt securities(2)	$	500,599	$	2	$	(752	)	$	499,849	$	869,483	$	326	$	(531	)	$	869,278
Debt securities issued by U.S. government agencies		83,926		—		(212	)		83,714		124,744		71		(15	)		124,800
Debt securities issued by the U.S. Treasury(2)		29,428		—		(17	)		29,411		328,340		110		(12	)		328,438
Debt securities issued by states of the U.S. and political subdivisions of the states ~~(2)~~		29,240		4		(122	)		29,122		63,366		10		(203	)		63,173
Other municipal debt securities											2,931		1		—			2,932
Total securities with a maturity of one year or less		643,193		6		(1,103	)		642,096		1,388,864		518		(761	)		1,388,621
Corporate debt securities		148,663		8		(1,059	)		147,612		360,976		1,236		(336	)		361,876
Debt securities issued by U.S. government agencies		52,779		—		(168	)		52,611		120,341		279		(112	)		120,508
Debt securities issued by the U.S. Treasury		1,409		—		(2	)		1,407		33,569		12		(22	)		33,559
Debt securities issued by states of the U.S. and political subdivisions of the states		65,550		—		(740	)		64,810		15,615		—		(125	)		15,490
Total securities with a maturity of more than one year		268,401		8		(1,969	)		266,440		530,501		1,527		(595	)		531,433
Total available-for-sale securities	$	911,594	$	14	$	(3,072	)	$	908,536	$	1,919,365	$	2,045	$	(1,356	)	$	1,920,054
Equity securities:
Total equity securities included in other current assets (3)										$	1,212	$	—	$	(244	)	$	968
Total available-for-sale and equity securities										$	1,920,577	$	2,045	$	(1,600	)	$	1,921,022

			Gross Unrealized
December 31, 2018	Cost (1)		Gains		Losses			Estimated Fair Value
Available-for-sale securities:
Corporate debt securities	$	956,879	$	13	$	(1,858	)	$	955,034
Debt securities issued by U.S. government agencies		168,839		3		(104	)		168,738
Debt securities issued by the U.S. Treasury		244,640		15		(77	)		244,578
Debt securities issued by states of the U.S. and political subdivisions of the states (2)		63,572		—		(323	)		63,249
Total securities with a maturity of one year or less		1,433,930		31		(2,362	)		1,431,599
Corporate debt securities		299,018		194		(1,286	)		297,926
Debt securities issued by U.S. government agencies		107,789		194		(109	)		107,874
Debt securities issued by the U.S. Treasury		15,600		—		(24	)		15,576
Debt securities issued by states of the U.S. and political subdivisions of the states		16,980		—		(287	)		16,693
Total securities with a maturity of more than one year		439,387		388		(1,706	)		438,069
Total available-for-sale securities	$	1,873,317	$	419	$	(4,068	)	$	1,869,668
Equity securities:
Total equity securities included in other current assets (3)		1,212		137		—			1,349
Total available-for-sale and equity securities	$	1,874,529	$	556	$	(4,068	)	$	1,871,017

(1)

Our available-for-sale securities are held at amortized cost.

(2)

Includes investments classified as cash equivalents on our condensed consolidated balance sheet.

~~Investments~~

(3)	We recognize our 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 on our condensed consolidated balance sheet.

The following is a summary of our investments we consider to be temporarily impaired at March 31, ~~2018 were as follows (in thousands):~~

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 420 $ 470,960 $ (2,308 ) $ 71,370 $ (785 ) $ 542,330 $ (3,093 )
Debt securities issued by U.S. government agencies 52 124,729 (397 ) 25,569 (88 ) 150,298 (485 )
Debt securities issued by the U.S. Treasury 7 32,329 (43 ) — — 32,329 (43 )
Debt securities issued by states of the U.S. and political subdivisions of the states 50 48,477 (588 ) 32,145 (391 ) 80,622 (979 )
Total temporarily impaired securities 529 $ 676,495 $ (3,336 ) $ 129,084 $ (1,264 ) $ 805,579 $ (4,600 )

2019. We believe that the decline in value of these securities is temporary and is primarily related to the change in market interest rates since purchase. We believe it is more likely than not that we will be able to hold our debt securities to maturity. Therefore, we anticipate full recovery of our debt securities’ amortized cost basis at maturity.

			Less than 12 Months of Temporary Impairment					More than 12 Months of Temporary Impairment					Total Temporary Impairment
(In thousands)	Number of Investments		Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
Corporate debt securities		275	$	530,786	$	(306	)	$	102,815	$	(561	)	$	633,601	$	(867	)
Debt securities issued by U.S. government agencies		24		91,005		(81	)		16,534		(46	)		107,539		(127	)
Debt securities issued by the U.S. Treasury		15		94,603		(34	)		—		—			94,603		(34	)
Debt securities issued by states of the U.S. and political subdivisions of the states		39		11,254		(9	)		51,579		(319	)		62,833		(328	)
Total temporarily impaired securities		353	$	727,648	$	(430	)	$	170,928	$	(926	)	$	898,576	$	(1,356	)

4. Fair Value Measurements

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 investment 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. We classify the majority of our securities 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. During the three months ended March 31, 2018, there were no transfers between our Level 1 and Level 2 investments. When we recognize transfers between levels of the fair value hierarchy, we recognize the transfer on the date the event or change in circumstances that caused the transfer occurs.

The following tables present the major security types we held at March 31, ~~2018~~2019 and December 31, ~~2017~~2018 that ~~are~~we regularly ~~measured~~measure and ~~carried~~carry at fair value. At March 31, 2019 and December 31, 2018, our ProQR investment was subject to trading restrictions that extend through the fourth quarter of 2019, as a result we included a lack of marketability discount in valuing this investment,

which is a Level 3 input. The amount we owned in ProQR did not change from December 31, 2018 to March 31, 2019. The tables segregate each security type by the level within the fair value hierarchy of the valuation techniques we utilized to determine the respective securities’ fair value (in thousands):

	At March 31, 2018		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		At March 31, 2019		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents (1)	$	138,350	$	138,350	$	—	$	146,542	$	146,542	$	—	$	—
Corporate debt securities (2)		556,338		—		556,338		1,231,154		—		1,231,154		—
Debt securities issued by U.S. government agencies (3)		150,297		—		150,297		245,308		—		245,308		—
Debt securities issued by the U.S. Treasury ~~(3)~~(4)		54,034		54,034		—		361,997		361,997		—		—
Debt securities issued by states of the U.S. and political subdivisions of the states (3)		83,392		—		83,392		78,663		—		78,663		—
Other municipal debt securities (3)								2,932		—		2,932		—
Investment in ProQR Therapeutics N.V. (5)								968		—		—		968
Total	$	982,411	$	192,384	$	790,027	$	2,067,564	$	508,539	$	1,558,057	$	968

	At December 31, 2017		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		At December 31, 2018		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents (1)	$	86,262	$	86,262	$	—	$	146,281	$	146,281	$	—	$	—
Corporate debt securities ~~(3)~~(6)		647,461		—		647,461		1,252,960		—		1,252,960		—
Debt securities issued by U.S. government agencies (3)		136,325		—		136,325		276,612		—		276,612		—
Debt securities issued by the U.S. Treasury ~~(3)~~(7)		30,818		30,818		—		260,154		260,154		—		—
Debt securities issued by states of the U.S. and political subdivisions of the states ~~(4)~~(3)		93,932		—		93,932		79,942		—		79,942		—
Investment in ProQR Therapeutics N.V. (5)								1,349		—		—		1,349
Total	$	994,798	$	117,080	$	877,718	$	2,017,298	$	406,435	$	1,609,514	$	1,349

(1)

Included in cash and cash equivalents on our condensed consolidated balance sheet.

(2) $27.1 million was included in cash and cash equivalents on our condensed consolidated balance sheet, with the difference included in short-term investments on our condensed consolidated balance sheet.

(3)	~~(2)~~Included in short-term investments on our condensed consolidated balance sheet.

(4)	~~At March 31, 2018, $14.6~~$15.0 million was included in cash and cash equivalents on our condensed consolidated balance sheet, with the difference included in short-term investments on our condensed consolidated balance sheet.

~~(3)~~(5)

Included in ~~short-term investments~~other current assets on our condensed consolidated balance sheet.

(6)

~~(4)~~

~~At December 31, 2017, $3.5~~$50.2 million was included in cash and cash equivalents on our condensed consolidated balance sheet, with the difference included in short-term investments on our condensed consolidated balance sheet.

~~Other Fair Value Disclosures~~

(7)	$14.2 million was included in cash and cash equivalents on our condensed consolidated balance sheet, with the difference included in short-term investments on our condensed consolidated balance sheet.

~~Novartis Future Stock Purchase~~

In January 2017, we and Akcea entered into a SPA with Novartis. As part of the SPA, Novartis was required to purchase $50 million of Akcea’s common stock at the IPO price or our common stock at a premium if an IPO did not occur by April 2018. Therefore, at the inception of the SPA, we recorded a $5.0 million asset representing the fair value of the potential future premium we could have received if Novartis purchased our common stock. We determined the fair value of the future premium by calculating the value based on the stated premium in the SPA and estimating the probability of an Akcea IPO. We also included a lack of marketability discount when we determined the fair value of the premium because we would have issued unregistered shares to Novartis if they had purchased our common stock. We measured this asset using Level 3 inputs and recorded it in other assets on our consolidated balance sheet. Because Akcea completed its IPO before April 2018, Novartis will not purchase additional shares of Ionis stock. Therefore, this asset no longer had any value and we wrote-off the remaining balance to other expenses in the third quarter of 2017.

The following is a reconciliation of the potential premium we would have received if Akcea had not completed its IPO, measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2017 (in thousands):

Beginning balance of Level 3 instruments at January 1, 2017 $ —
Value of the potential premium we would have received from Novartis at inception of the SPA (January 2017) 5,035
Recurring fair value adjustment during the three months ended March 31, 2017 (1,438 )
Ending balance of Level 3 instruments at March 31, 2017 $ 3,597

~~At March 31, 2018 and December 31, 2017, we did not have any financial instruments that were valued using Level 3 inputs.~~

Convertible Notes

Our 1 percent notes had a fair value of ~~$729.1~~$928.4 million at March 31, ~~2018.~~2019. We determine the fair value of our notes based on quoted market prices for these notes, which are Level 2 measurements because the notes do not trade regularly.

5. Operating Leases

We lease a facility adjacent to our manufacturing facility that has laboratory and office space that we use to support our manufacturing facility. We lease this space under a non-cancelable operating lease with an initial term ending in June 2021 and an option to extend the lease for up to two five-year periods.

We also lease additional office space and we sublease a portion of this space to Akcea. We lease this space under a non-cancelable operating lease with an initial term ending in June 2023 and an option to extend the lease for one five-year period. The sublease with Akcea is eliminated in our condensed consolidated financial statements.

Akcea entered into an operating lease agreement for office space located in Boston, Massachusetts for its new corporate headquarters in the second quarter of 2018. The lease commencement date was in August 2018 and Akcea took occupancy in September 2018. Akcea is leasing this space under a non-cancelable operating lease with an initial term ending after 123 months and an option to extend the lease for an additional five-year term. Under the lease agreement, Akcea received a three-month free rent period, which commenced on August 15, 2018, and a tenant improvement allowance up to $3.8 million. Akcea provided the lessor with a letter of credit to secure its obligations under the lease in the initial amount of $2.4 million, to be reduced to $1.8 million on the third anniversary of the rent commencement date and to $1.2 million on the fifth anniversary of the rent commencement date if Akcea meets certain conditions set forth in the lease at each such time.

When we determined our lease term for our operating lease right-of-use assets and lease liabilities for these leases we did not include the extension options for these leases.

Amounts related to our operating leases were as follows (dollar amounts in millions):

	At March 31, 2019

Right-of-use operating lease assets (1)	$	13.1
Operating lease liabilities (2)	$	18.0
Weighted average remaining lease term	9 years
Weighted average discount rate		7.6	%

(1)

~~Long-Term Obligations~~Included in deposits and other assets on our condensed consolidated balance sheet.

~~Line of Credit Arrangement~~

In June 2015, we entered into a five-year revolving line of credit agreement with Morgan Stanley Private Bank, National Association, or Morgan Stanley. We amended the credit agreement in February 2016 to increase the amount available for us to borrow. Under the amended credit agreement, we can borrow up to a maximum of $30 million of revolving credit for general working capital purposes. Under the credit agreement interest is payable monthly in arrears on the outstanding principal at a borrowing rate based on our option of:

~~(i)~~(2)

~~a floating rate equal to~~Current portion of $2.0 million was included in current portion of long-term obligations on our condensed consolidated balance sheet, with the ~~one-month London Interbank Offered Rate, or LIBOR,~~difference included in ~~effect plus 1.25 percent per annum;~~

~~(ii)~~

~~a fixed rate equal to LIBOR plus 1.25 percent for a period of one, two, three, four, six, or twelve months as elected by us; or~~

~~(iii)~~

~~a fixed rate equal to the LIBOR swap rate during the period of the loan.~~long-term obligations.

~~Additionally,~~

We paid cash of $1.0 million for rent payments we ~~pay 0.25 percent per annum, payable quarterly~~made during the three months ended March 31, 2019, which was included in ~~arrears, for any amount unused under~~ the ~~credit facility.~~ measurement of our lease liabilities in our net cash provided by operating activities in our condensed consolidated statement of cash flows.

As of March 31, ~~2018 we had $12.5~~2019, the payments for our operating lease liabilities are as follows (in thousands):

	Operating Leases
Remainder of 2019	$	2,341
Years ending December 31,
2020		3,008
2021		2,725
2022		2,539
2023		2,505
Thereafter		11,862
Total minimum lease payments		24,980
Less:
Imputed interest		(7,020	)
Total operating lease liabilities	$	17,960

Rent expense was $0.9 million ~~in outstanding borrowings under~~for the ~~credit facility with a 2.31 percent fixed interest rate~~three months ended March 31, 2019 and ~~a maturity date of September 2019, which we used to fund our capital equipment needs consistent with our historical practice to finance these costs.~~was negligible for the three months ended March 31, 2018.

6. Income Taxes

Our effective tax rate may vary from the U.S. federal statutory tax rate due to the change in the mix of earnings in tax jurisdictions with different statutory rates, benefits related to tax credits, and the tax impact of non-deductible expenses and other permanent differences between income before income taxes and taxable income. Our effective income tax rate of 25.5 percent for the three months ended March 31, 2019 differed from the U.S. federal statutory rate of 21 percent primarily due to state taxes, partially offset by the tax benefit related to estimated research & development and orphan drug credits and the excess tax benefit related to share-based compensation.

We recorded income tax expense of $31 million for the three months ended March 31, 2019, compared to $15,000 for the same period in 2018. The ~~credit agreement includes customary affirmative~~increase in our income tax expense was primarily due to our expectation that we will generate U.S. federal and ~~negative covenants and restrictions.~~state taxable income in 2019. Our 2019 income tax expense has two components. The first component relates to federal income taxes. We expect to utilize our deferred tax assets to offset our U.S. federal taxable income. We are recording non-cash income tax expense as we utilize our federal deferred tax assets. The other component of our income tax expense relates to the estimated cash taxes we will pay for our state income taxes. Although we are recording the expense for our state income taxes in ~~compliance with all covenants~~2019, we will not have to make the majority of the ~~credit agreement.~~payment for this liability until the first quarter of 2020.

~~Research and Development and Manufacturing Facilities~~

In July 2017, we purchased the building that houses our primary R&D facility for $79.4 million. We also purchased our manufacturing facility in July 2017 for $14.0 million. We financed the purchase of our primary R&D facility and our manufacturing facility, with mortgage debt of $51.3 million and $9.1 million, respectively. Our primary R&D facility mortgage has an interest rate of 3.88 percent. Our manufacturing facility has an interest rate of 4.20 percent. During the first five years of both mortgages, we are only required to make interest payments. Both mortgages mature in August 2027.

7. Collaborative Arrangements and Licensing Agreements

Below, we have included ~~all~~our collaborations with substantive changes during the first three months of 2019 from those included in Note 6 of our ~~significant collaborations because we adopted Topic 606~~audited financial statements included in our Annual Report on ~~January 1,~~Form 10-K for the year ended December 31, 2018. ~~We have included new disclosures for each of our collaborations as required under Topic 606.~~

Strategic ~~Partnerships~~Partnership

Biogen

~~AstraZeneca~~We have several strategic collaborations with Biogen focused on using antisense technology to advance the treatment of neurological disorders. These collaborations combine our expertise in creating antisense medicines with Biogen’s expertise in developing therapies for neurological disorders. We developed and licensed to Biogen SPINRAZA, our approved medicine to treat people with spinal muscular atrophy, or SMA. In December 2017, we entered into a collaboration with Biogen to identify new antisense medicines for the treatment of SMA. Additionally, we and Biogen are currently developing six other medicines to treat neurodegenerative diseases under these collaborations, including tofersen (formerly IONIS-SOD1_Rx) for ALS patients with SOD1 mutations, or SOD1-ALS, which Biogen moved into a Phase 3 study in the first quarter of 2019, IONIS-MAPT_Rxfor Alzheimer’s disease_, IONIS-C9_Rxfor ALS patients with C9ORF72 mutations, and IONIS-BIIB6_Rx, IONIS-BIIB7_Rx and IONIS-BIIB8_Rx to treat undisclosed neurodegenerative diseases. In addition to these medicines, we and Biogen are evaluating numerous additional targets to develop medicines to treat neurological diseases. In April 2018, we entered into a new strategic collaboration for the treatment of neurological diseases with Biogen. From inception through March 2019, we have received over $2.1 billion from our Biogen collaborations, including $1 billion we received from Biogen in the second quarter of 2018 for our 2018 strategic neurology collaboration.

~~Cardiac, Renal~~

During the three months ended March 31, 2019 and ~~Metabolic Diseases Collaboration~~2018, we earned the following revenue from our relationship with Biogen (in millions, except percentage amounts):

	Three Months Ended March 31,
	2019			2018
SPINRAZA royalties (commercial revenue)	$	59.7		$	41.1
R&D revenue		24.5			10.8
Total revenue from our relationship with Biogen	$	84.2		$	51.9
Percentage of total revenue		28	%		36	%

During the first quarter of 2019, we did not have any changes to our performance obligations or the timing in which we expect to recognize revenue under our Biogen collaborations.

In ~~July 2015,~~April 2019, we ~~and AstraZeneca formed~~achieved a ~~strategic collaboration to discover and develop antisense therapies~~$7.5 million milestone payment from Biogen, when we advanced a new target for ~~treating cardiac, renal and metabolic diseases. Under our collaboration AstraZeneca has licensed three drugs from us. As part of the agreement, we granted AstraZeneca~~ an ~~exclusive license to IONIS-AZ4-2.5-L~~_Rx~~, a drug we designed to treat cardiovascular~~unidentified neurological disease ~~and our first~~ ~~drug that combines our Generation 2.5 and~~ LIgand-Conjugated Antisense, or LICA, technology. We also granted AstraZeneca the option to license a drug for each additional target advanced under this research collaboration. In February 2018, AstraZeneca licensed a second drug under our collaboration, IONIS-AZ5-2.5_Rx~~, a drug we designed to~~ ~~treat a genetically associated form of kidney disease. In March 2018, AstraZeneca licensed a third drug under our collaboration, IONIS-AZ6-2.5-L~~_Rx~~, a drug we designed to~~ ~~inhibit an undisclosed target to treat patients with nonalcoholic steatohepatitis, or NASH. AstraZeneca is responsible for all further global development, regulatory and commercialization activities and costs for IONIS-AZ4-2.5-L~~_Rx~~, IONIS-AZ5-2.5~~_Rx ~~andIONIS-AZ6-2.5-L~~_Rx ~~and any other future drug development candidates AstraZeneca licenses.~~

~~Under~~under the terms of the agreement, we received a $65 million upfront payment. We are eligible to receive license fees and milestone payments of up to more than $4 billion as drugs under this collaboration advance, including up to $1.1 billion for the achievement of development milestones and up to $2.9 billion for regulatory milestones. In addition, we are eligible to receive tiered royalties up to the low teens on sales from any product that AstraZeneca successfully commercializes under this collaboration agreement. From inception through March 2018 ~~we have received over $124 million in upfront fees, license fees, milestone payments, and other payments under this cardiac, renal and metabolic diseases~~strategic neurology collaboration. We will achieve the next payment of up to $10 million if Biogen designates a target under ~~this collaboration if we advance a drug under this collaboration~~.our 2018 strategic neurology collaboration.

~~At commencement~~Our condensed consolidated balance sheet at March 31, 2019 and December 31, 2018 included deferred revenue of ~~our collaboration, we identified one performance obligation, which was to perform R&D services for AstraZeneca. We determined the transaction price to be the $65~~$556.4 million ~~upfront payment we received~~ and ~~we allocated it~~$580.9 million, respectively, related to our ~~single performance obligation. We are recognizing revenue for our R&D services performance obligation over our period of performance, estimated through~~ ~~August 2021~~relationship with Biogen.~~. As we achieve milestone payments for our R&D services, we include these amounts in our transaction price for our R&D services performance obligation. From inception through~~ ~~March 2018, we have included $90 million in payments in the transaction price for our R&D services performance obligation.~~

~~We identified separate performance obligations upon AstraZeneca’s license of IONIS-AZ5-2.5~~_Rx

Research, Development and ~~IONIS-AZ6-2.5-L~~_Rx in the first quarter of 2018 because the licenses are distinct from our other performance obligation and each other. We recognized each $30 million license fee in the first quarter of 2018, because AstraZeneca had full use of the licenses without any continuing involvement from us. Additionally, we did not have any further performance obligations related to the licenses after we delivered them to AstraZeneca.Commercialization Partners

~~Oncology Collaboration~~

Roche

We have two collaborations with Roche, one to develop treatments for Huntington's disease, or HD, and one to develop IONIS-FB-L_Rx for the treatment of complement-mediated diseases. In December ~~2012,~~2017, upon completion of the Phase 1/2 study of IONIS-HTT_Rx, Roche exercised its option to license IONIS-HTT_Rxand is now responsible for the global development, regulatory and commercialization activities for IONIS-HTT_Rx. In October 2018, we entered into a collaboration agreement with ~~AstraZeneca~~Roche to ~~discover and~~ develop ~~antisense drugs to treat cancer. As part of the agreement, we granted AstraZeneca an exclusive license to develop and commercialize~~ ~~danvatirsen (formerly~~ ~~IONIS-STAT3-2.5~~IONIS-FB-L_Rx) for the treatment of ~~cancer. AstraZeneca~~complement-mediated diseases. The first indication we plan to pursue is ~~now~~the treatment of patients with geographic atrophy, or GA, the advanced stage of dry age-related macular degeneration, or AMD. We are responsible for ~~all global development, regulatory~~conducting a Phase 2 study in patients with dry AMD. In addition, we plan to evaluate the medicine for a severe and ~~commercialization activities for~~rare renal indication. ~~danvatirsen~~Roche~~. We and AstraZeneca have evaluated~~ ~~danvatirsen~~ ~~in people with head and neck cancer, advanced lymphoma and advanced metastatic hepatocellular carcinoma. AstraZeneca is evaluating~~ ~~danvatirsen~~ in combination with Imfinzi (durvalumab), AstraZeneca’s programmed death ligand, or PD-L1, blocking drug, in people with head and neck cancer, advanced lymphoma, metastatic bladder cancer and metastatic non-small cell lung cancer. In additional to danvatirsen, we and AstraZeneca established an oncology research program. AstraZeneca has the option to license ~~drugs resulting from~~IONIS-FB-L_Rx at the ~~program, and if AstraZeneca exercises its option for a drug, it~~ completion of these studies. Upon licensing, Roche will be responsible for all further global development, regulatory and commercialization activities and ~~costs for such drug. The first development candidate identified under the anti-cancer research program was IONIS-KRAS-2.5~~costs._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. If AstraZeneca successfully develops ~~danvatirsen~~,~~IONIS-KRAS-2.5~~_Rx and another drug under the research program, we could receive license fees and milestone payments of up to more than $750 million, including up to $226 million for the achievement of development milestones and up to $485 million for the achievement of regulatory milestones. 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. From inception through March ~~2018,~~2019, we have received ~~$97.8~~over $220 million from our Roche collaborations, including $35 million in ~~upfront fees,~~ milestone payments ~~and other payments under this oncology collaboration.~~we earned in the first quarter of 2019 when Roche dosed the first patient in a Phase 3 study for IONIS-HTT_Rx. We will achieve the next payment of ~~up to $17.5~~$15 million if Roche advances IONIS-HTT_Rx.

During the three months ended March 31, 2019 and 2018, we ~~advance a drug~~earned the following revenue from our relationship with Roche (in millions, except percentage amounts):

	Three Months Ended March 31,
	2019			2018
R&D revenue	$	41.2		$	2.0
Percentage of total revenue		14	%		1	%

Our revenue in the first quarter of 2019, included $35 million of milestone payments we earned when Roche dosed the first patient in the Phase 3 study of IONIS-HTT_Rx. We recognized these milestone payments in full in the first quarter of 2019 because we do not have any performance obligations related to these milestone payments as Roche is conducting the Phase 3 study of IONIS-HTT_Rx.

During the first quarter of 2019, we did not have any changes to our performance obligations or the timing in which we expect to recognize revenue under our ~~cancer research~~Roche collaborations.

Our condensed consolidated balance sheet at March 31, 2019 and December 31, 2018 included deferred revenue of $67.5 million and $72.6 million, respectively, related to our relationship with Roche.

Akcea Collaboration

The following collaboration agreement relates to Akcea, our majority owned affiliate. Our consolidated results include all the revenue earned and cash received under this collaboration agreement. We reflect the noncontrolling interest attributable to other owners of Akcea’s common stock in a separate line on the statement of operations and a separate line within stockholders’ equity in our condensed consolidated balance sheet.

Novartis

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 agreement, Novartis has an exclusive option to further develop and commercialize AKCEA-APO(a)-L_Rx and AKCEA-APOCIII-L_Rx. Akcea is responsible for completing a Phase 2 program, conducting an end-of-Phase 2 meeting with ~~AstraZeneca.~~the FDA and providing initial quantities of API for each medicine. If Novartis exercises an option for either of these medicines, Novartis will be responsible for all further global development, regulatory and co-commercialization activities and costs for such medicine. In the first quarter of 2019, Novartis licensed AKCEA-APO(a)-L_Rx. Novartis is responsible for conducting and funding all future development, regulatory and commercialization activities for AKCEA-APO(a)-L_Rx, including a global pivotal cardiovascular outcomes study, for which planning and initiation activities are underway. From inception through March 2019, we have received over $330 million from our Novartis collaboration, including $150 million we earned from Novartis in the first quarter of 2019 for the license of AKCEA-APO(a)-L_Rx. Akcea paid us $75 million as a sublicense fee in 2.8 million shares of Akcea common stock.

~~At commencement of our collaboration, we~~We identified four performance obligations. We determined the transaction price to be the $31 million in upfront payments we received. We allocated the transaction price based on the estimated stand-alone selling price of each of our performance obligations and recognized the associated revenue over the period of our performance. We recognized revenue for three of our obligations over our period of performance, concluding in March 2014. Our remaininga new performance obligation ~~was to perform R&D services. We allocated $7.6 million to this performance obligation and recognized~~when we granted Novartis the associated revenue over the period of our performance, which ended in February 2018. As we achieved milestone payments for our R&D services, we included these amounts in our transaction price for our R&D services performance obligation.

~~We identified another performance obligation upon AstraZeneca’s~~ license of ~~IONIS-KRAS-2.5~~AKCEA-APO(a)-L_Rx in ~~December 2016~~the first quarter of 2019 because the license ~~we granted AstraZeneca was~~is distinct from our other performance obligations. We recognized the ~~$13~~$150 million license fee for ~~IONIS-KRAS-2.5~~AKCEA-APO(a)-L_Rx ~~in December 2016~~as revenue at that time because ~~AstraZeneca~~Novartis had full use of the license without any continuing involvement from us. Additionally, we did not have any further performance obligations related to the license after we delivered it to ~~AstraZeneca.~~

During the three months ended March 31, 2018 and 2017, we earned R&D revenue of $68.4 million and $4.9 million, respectively, from our relationship with AstraZeneca, which represented 47 percent and 4 percent, respectively, of our total revenue for those periods. Our balance sheets at March 31, 2018 and December 31, 2017 included deferred revenue of $51.3 million and $57.7 million, respectively, related to our relationship with AstraZeneca.

~~Biogen~~

We have several 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 approved drug to treat people with spinal muscular atrophy, or SMA. In ~~December 2017 we entered into a collaboration with Biogen to identify~~ ~~new antisense drugs for the treatment of SMA~~. ~~Additionally, we and Biogen are currently developing six other drugs to treat neurodegenerative diseases under these collaborations, including IONIS-SOD1~~_Rx ~~for ALS, IONIS-MAPT~~_Rx~~for Alzheimer’s disease~~_, ~~IONIS-C9~~_Rx~~for ALS, and IONIS-BIIB6~~_Rx~~, IONIS-BIIB7~~_Rx ~~and IONIS-BIIB8~~_Rx to treat undisclosed neurodegenerative diseases. In addition to these drugs, we and Biogen are evaluating numerous additional targets to develop drugs to treat neurological diseases. Most recently, in April 2018 we entered into a new strategic collaboration for the treatment of neurological diseases with Biogen. From inception through March 2018, we have received over $800 million from our Biogen collaborations. In April 2018, we and Biogen expanded our strategic collaboration to develop novel antisense drugs or a broad range of neurological diseases. We will receive $1 billion from Biogen, comprised of $~~625~~ ~~million to purchase our stock at a 25 percent cash premium and $375~~ ~~million in an upfront payment, upon receiving clearance under the Hart-Scott Rodino Antitrust Improvements Act.~~

~~SPINRAZA~~

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.

From inception through March 2018, we earned $155 million in revenue from SPINRAZA royalties. In addition to SPINRAZA royalties, from inception through March 2018, we have received $436 million in payments for advancing SPINRAZA. We are receiving 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 pay Cold Spring Harbor Laboratory and the University of Massachusetts a low single digit royalty on sales of SPINRAZA. Biogen is responsible for all further global development, regulatory and commercialization activities and costs for SPINRAZA.

Over the course of our SPINRAZA collaboration, we identified two performance obligations, which were to perform R&D services and to deliver the SPINRAZA license to Biogen. As we achieved milestone payments for our R&D services, we included these amounts in our transaction price for our R&D services performance obligation. We recognized revenue for our R&D services performance obligation over our period of performance through December 2016. We recognized the $75 million license fee for SPINRAZA as revenue when we delivered the license to Biogen in July 2016 because Biogen had full use of the license without any continuing involvement from us. Additionally, we did not have any further performance obligations related to the license after we delivered it to Biogen.

We also earned additional milestone payments that we recognized in full in the period the milestone payment became probable because we did not have a performance obligation related to the milestone payment. For example, we received $90 million of milestone payments for the approval of SPINRAZA in the EU and Japan in 2017 and recognized the full amounts into revenue in the period Biogen achieved the milestone events.

~~Neurology~~

In December 2012, we and Biogen entered into a 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-MAPT_Rx for Alzheimer’s disease under this collaboration. If Biogen exercises its option for a drug, it will assume all further global development, regulatory and commercialization responsibilities and costs 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 $210 million in a license fee and milestone payments per program, plus a mark-up on the cost estimate of the Phase 1 and 2 studies. The $210 million per program consists of up to $10 million in development milestone payments, plus a mark-up on the cost estimate of the Phase 1 and 2 studies and up to $130 million in milestone payments if Biogen achieves pre-specified regulatory milestones. In addition, we are eligible to receive tiered royalties up to the mid-teens on sales of any drugs resulting from each of the three programs. From inception through March 2018, we have received $58 million in milestone payments and upfront fees under this collaboration. We will achieve the next payment of $7.5 ~~million if we continue to advance IONIS-MAPT~~_Rx.

At commencement of our neurology collaboration, we identified one performance obligation, which was to perform R&D services for Biogen. At inception, we determined the transaction price to be the $30 million upfront payment we received and allocated it to our single performance obligation. As we achieve milestone payments for our R&D services, we include these amounts in our transaction price for our R&D services performance obligation. We are recognizing revenue over our period of performance, estimated through December 2020. From inception through ~~March 2018, we have included $40 million in total payments in the transaction price for our R&D services performance obligation.~~

~~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 March 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 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 and costs for that drug. We are currently advancing five drugs, IONIS-SOD1_Rx~~, IONIS-C9~~_Rx~~, IONIS-BIIB6~~_Rx~~, IONIS-BIIB7~~_Rx ~~and IONIS-BIIB8~~_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 per program. The $260 million per program consists of approximately $60 million in development milestones, including amounts related to the cost of clinical trials, and up to $130 million in milestone payments if Biogen achieves pre-specified regulatory milestones. 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 per program. The $90 million per program consists of up to $35 million in development milestone payments and up to $55 million in milestone payments if Biogen achieves pre-specified regulatory milestones. 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 March 2018, we have received over $165 million in upfront fees, milestone payments and other payments under this collaboration, including $15 million in milestone payments we received in 2017 for ~~validating two undisclosed neurological disease targets. We will achieve the next payment of up to $10 million if we advance a program under this collaboration.~~

At commencement of our strategic neurology collaboration, we identified one performance obligation, which was to perform R&D services for Biogen. At inception, we determined the transaction price to be the $100 million upfront payment we received and allocated it to our single performance obligation. As we achieve milestone payments for our R&D services, we include these amounts in our transaction price for our R&D services performance obligation. We are recognizing revenue over our period of performance, estimated through March 2019. From inception through ~~March 2018, we have included $145 million in total payments in the transaction price for our R&D services performance obligation.~~

~~New antisense drugs for the treatment of SMA~~

~~In December 2017, we entered into a collaboration agreement with Biogen to~~ ~~identify~~ ~~new antisense drugs for the treatment of SMA~~. Biogen will have the option to license therapies arising out of this collaboration following the completion of preclinical studies. Upon licensing, Biogen will be responsible for all further global development, regulatory and commercialization activities and costs for such therapies. Under the collaboration agreement, we received a ~~$25 million~~ upfront payment in December 2017. We will receive development and regulatory milestone payments from Biogen if new drugs advance towards marketing approval. In total over the term of our collaboration, we are eligible to receive up to $1.2 billion in license fees, milestone payments and other payments, including up to $80 million for the achievement of development milestones, up to $180 million for the achievement of commercialization milestones and up to $800 million for the achievement of sales milestones. In addition, we are eligible to receive tiered royalties from the mid-teens to mid-20 percent range on net sales. We will achieve the next payment of up to $60 millionfor the license of a drug under this collaboration.

At commencement of our collaboration, we identified one performance obligation, which was to perform R&D services for Biogen. We determined the transaction price to be the $25 million upfront payment we received when we entered into the collaboration. We allocated the transaction price to our single performance obligation. We are recognizing revenue over our period of performance, estimated through December 2020.

~~Expanded Strategic Neurology Collaboration~~

In April 2018, we and Biogen expanded our strategic collaboration to develop novel antisense drug candidates for a broad range of neurological diseases. As part of the collaboration, Biogen gained exclusive rights to the use of our antisense technology to develop therapies for these diseases for 10 years. The key terms of the collaboration are as follows:

●

We will receive $1 billion, which will include $625 million to purchase 11,501,153 shares of our stock at a price of $54.34 per share, an approximately 25 percent cash premium, and a $375 million upfront payment;

●

~~We are eligible to receive significant milestone payments and license fees of~~ ~~up to $270 million for each successful drug,~~ ~~plus royalties up to 20 percent on global net sales~~;

●

~~Biogen will assume responsibility for development and commercialization activities and costs once we identify a drug for development;~~

~~Our expanded collaboration is subject to customary closing conditions and clearances, including clearance under the Hart-Scott Rodino Antitrust Improvements Act.~~

During the three months ended March 31, 2018, we earned revenue of $51.9 million from our relationship with Biogen, comprised of $41.1 million in royalties on sales of SPINRAZA and $10.8 million in R&D revenue. Our revenue from Biogen represented 36 percent of our total revenue for the three months ended March 31, 2018. In comparison, we earned revenue of $28.7 million for the same period in 2017, comprised of $5.2 million in royalties on sales of SPINRAZA and $23.5 million in R&D revenue. Our revenue from Biogen represented 25 percent of our total revenue for the three months ended March 31, 2017. Our condensed consolidated balance sheet at March 31, 2018 and ~~December 31, 2017~~ ~~included deferred revenue of $84.6 million and $93.6 million, respectively, related to our relationship with Biogen.~~

~~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 people 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 development of IONIS-FXI-L~~_Rx~~, which Bayer licensed. In conjunction with the decision to advance these programs, we received a $75 million payment from Bayer. We are conducting a Phase 2b study evaluating IONIS-FXI~~_Rx ~~in people with end-stage renal disease on hemodialysis to finalize dose selection. Additionally, we plan to 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 and costs 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, including up to $125 million for the achievement of development milestones and up to $110 million for the achievement of commercialization milestones. In addition, we are eligible to receive tiered royalties in the low to high 20 percent range on gross margins of both drugs combined. From inception through March 2018, we have received over $175 million from our Bayer collaboration. We will achieve the next payment of $10 million if a program advances under this collaboration.

At commencement of our collaboration, we identified three performance obligations. We determined the transaction price to be the $100 million in upfront payment we received. We allocated the transaction price based on the relative stand-alone selling prices of each of our performance obligations and recognized the associated revenue as follows:

●

~~We recognized $91.2 million for the exclusive license of IONIS-FXI~~_Rx~~in May 2015 because Bayer~~ ~~had full use of the license without any continuing involvement from us~~.

●

~~We recognized $4.3 million for the R&D services for IONIS-FXI~~_Rx ~~over the period of our performance, which ended in November 2016.~~

●

~~We allocated $4.5 million for API, which we are recognizing into revenue as we deliver the API.~~

~~In February 2017, when we amended our collaboration with Bayer, we identified two new performance obligations, one for the license of IONIS-FXI-L~~_Rx ~~and one for R&D services. We determined the transaction price to be the $75 million payment. We allocated $64.9 million to~~ ~~the license of IONIS-FXI-L~~_Rx based on its estimated stand-alone selling price and recognized the associated revenue upon our delivery of the license in the first quarter of 2017. We allocated $10.1 million to our R&D services performance obligation based on an estimated stand-alone selling price. We are recognizing revenue related to our R&D services based on our effort to satisfy our performance obligation relative to our total effort expected to satisfy our performance obligation, estimated through May 2019.

During the three months ended March 31, 2018 and 2017, we earned R&D revenue of $0.6 million and $65.2 million, respectively, from our relationship with Bayer. Our revenue from Bayer for the three months ended March 31, 2017 represented 56 percent of our total revenue for that period. ~~Our condensed consolidated balance sheet at March 31, 2018 and~~ ~~December 31, 2017~~ ~~included deferred revenue of $8.7 million and $9.3 million, respectively, related to our relationship with Bayer.~~

~~Janssen Biotech, Inc.~~

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 more than $800 million in license fees and milestone payments for these programs, including up to $175 million for the achievement of development milestones, up to $440 million for the achievement of regulatory milestones and up to $180 million for the achievement of commercialization milestones. From inception through March 2018, we have received $72 million, including $15 million in license fees when Janssen licensed IONIS-JBI1-2.5_Rx ~~and IONIS-JBI2-2.5~~_Rx ~~from us in 2016 and 2017, respectively. We also received $~~5 ~~million in January 2018 for the initiation of a Phase 1 study of IONIS-JBI1-2.5~~_Rxin late 2017. In addition, we are eligible to receive tiered royalties up to the near teens on sales from any drugs resulting from this collaboration. We will achieve the next payment of $5 million if Janssen chooses another target to advance under this collaboration.

At commencement of our collaboration, we identified one performance obligation, which was to perform R&D services for Janssen. We determined the transaction price to be the $35 million upfront payments we received. We allocated the ~~$35 million~~ to our single performance obligation. As we achieved milestone payments for our R&D services, we included these amounts in our transaction price for our R&D services performance obligation. We recognized revenue for our R&D services performance obligation over our period of performance, through November 2017.

We identified separate performance obligations each time Janssen licensed one of our drugs under our collaboration because the licenses we granted to Janssen are distinct from our other performance obligation. We recognized the $10 million license fee for IONIS-JBI1-2.5_Rx ~~in July 2016 and $5 million for the license of IONIS-JBI2-2.5~~_Rx in November 2017, because Janssen had full use of the licenses without any continuing involvement from us. Additionally, we did not have any further performance obligations related to the licenses after we delivered them to Janssen.

During the three months ended March 31, 2018 and 2017, we earned R&D revenue of $0.1 million and $2.5 million, respectively, from our relationship with Janssen. Our condensed consolidated balance sheet at March 31, 2018 included deferred revenue of $2.8 million, related to our relationship with Janssen. We did not have any deferred revenue from our relationship with Janssen at December 31, 2017.

~~Novartis~~

~~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 agreement, Novartis has an exclusive option to further develop and commercialize AKCEA-APO(a)-L~~_Rx ~~and AKCEA-APOCIII-L~~_Rx. Akcea is responsible for completing a Phase 2 program, conducting an end-of-Phase 2 meeting with the FDA and providing initial quantities of API for each drug. If Novartis exercises an option for one of these drugs, Novartis will be responsible for all further global development, regulatory and co-commercialization activities and costs for such drug.

Akcea received a $75 million upfront payment in the first quarter of 2017, of which it retained $60 million and paid us $15 million as a sublicense fee. 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, for AKCEA-APO(a)-L_Rx, Akcea is eligible to receive up to $600 million in milestone payments, including $25 million for the achievement of a development milestone, up to $290 million for the achievement of regulatory milestones and up to $285 million for the achievement of commercialization milestones. In addition, for AKCEA-APOCIII-L_Rx, Akcea is eligible to receive up to $530 million in milestone payments, including $25 million for the achievement of a development milestone, up to $240 million for the achievement of regulatory milestones and up to $265 million for the achievement of commercialization milestones. Akcea is also eligible to receive tiered royalties in the mid-teens to low 20 percent range on net sales of AKCEA-APO(a)-L_Rx ~~and AKCEA-APOCIII-L~~_Rx. ~~Novartis will reduce these royalties upon the expiration of certain patents or if a generic competitor negatively impacts the product in a specific country.~~ ~~Akcea will pay 50 percent of these license fees, milestone payments and royalties to us as a sublicense fee.~~ Akcea plans to co-commercialize any licensed drug commercialized by Novartis in selected markets under terms and conditions that we plan to negotiate with Novartis in the future, through the specialized sales force we are building to commercialize WAYLIVRA (volanesorsen).

In conjunction with this collaboration, we and Akcea entered into a SPA with Novartis. As part of the SPA, Novartis purchased 1.6 million shares of our common stock for $100 million in the first quarter of 2017. As part of the SPA, Novartis was required to purchase $50 million of Akcea’s common stock at the IPO price of our common stock at a premium if an IPO did not occur by April 2018.

~~At commencement of our collaboration, we identified four separate performance obligations:~~

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~~R&D services for AKCEA-APO(a)-L~~_Rx;

●

~~R&D services for AKCEA-APOCIII-L~~_Rx;

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~~API for AKCEA-APO(a)-L~~_Rx~~; and~~

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~~API for AKCEA-APOCIII-L~~_Rx.

~~We determined that the R&D services for each drug and the API for each drug were distinct from our other performance obligations.~~

~~We determined our transaction price to be $108.4 million, comprised of the following:~~

●

~~$75 million from the upfront payment;~~

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~~$28.4 million for the premium paid by Novartis for its purchase of our common stock at a premium in the first quarter of 2017; and~~

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~~$5.0 million for the potential premium Novartis would have paid if they purchased our common stock in the future.~~

~~We allocated the transaction price based on the estimated stand-alone selling price of each performance obligation as follows:~~

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~~$64.0 million for the R&D services for~~ ~~AKCEA-APO(a)-L~~_Rx;

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~~$40.1 million for the R&D services for~~ ~~AKCEA-APOCIII-L~~_Rx;

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~~$1.5~~ ~~million for the delivery of AKCEA-APO(a)-L~~_Rx ~~API; and~~

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~~$2.8~~ ~~million for the delivery of AKCEA-APOCIII-L~~_Rx ~~API.~~

~~We are recognizing revenue related to the R&D services for the AKCEA-APO(a)-L~~_Rx ~~and AKCEA-APOCIII-L~~_Rx ~~performance obligations~~ ~~based on our effort to satisfy our performance obligation relative to our total effort expected to satisfy our performance obligation, currently estimated to be through December 2018 and June 2019, respectively. We recognized the amount attributed to the API supply for AKCEA-APOCIII-L~~_Rx ~~when we delivered it to Novartis in 2017. We will recognize the amount attributed to the API supply for AKCEA-APO(a)-L~~_Rx ~~as we deliver it to~~ Novartis.

Akcea is responsible for the development activities under this collaboration. As such, Akcea is recognizing the associated revenue in its statement of ~~operations.~~operations, and we reflect all of Akcea’s revenue in our consolidated results. Akcea pays us sublicense fees for payments that it receives under the collaboration and we recognize those fees as revenue in our Ionis Core operating segment results and Akcea recognizes the fees as R&D expense. ~~On a~~In our consolidated ~~basis,~~results, we eliminate ~~the~~this sublicense ~~fees.~~revenue and expense. Any cash Akcea receives is included in our condensed consolidated balance sheet.

During the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, we earned ~~R&D~~the following revenue ~~of $17.1 million and $6.1 million~~ from our relationship with Novartis ~~respectively. Our~~(in millions, except percentage amounts):

	Three Months Ended March 31,
	2019			2018
R&D revenue	$	157.1		$	17.1
Percentage of total revenue		53	%		12	%

During the first quarter of 2019, we did not have any changes to our performance obligations, except as noted above, or the timing in which we expect to recognize revenue ~~from~~under our Novartis ~~represented 12 percent of our total revenue for the three months ended March 31, 2018.~~ collaboration.

Our condensed consolidated balance sheet at March 31, ~~2018~~2019 and December 31, ~~2017~~2018 included deferred revenue of ~~$56.7~~$23.3 million and ~~$70.7~~$28.8 million, respectively, related to our relationship with Novartis.

~~Roche~~

8. Segment Information

In April 2013, we formed an alliance with Hoffman-La Roche Inc. and F. Hoffmann-La Roche Ltd., collectively Roche, to develop treatments for Huntington's disease, or HD, based on our antisense technology. Roche had 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 huntingtin, or HTT, protein. We evaluated a drug targeting HTT, IONIS-HTT_Rx~~, in a Phase 1/2a clinical study in people with early stage HD.~~

~~In December 2017, upon completion of the Phase 1/2a study, Roche exercised its option to license IONIS-HTT~~_Rx~~and is now responsible for the global development, regulatory and commercialization activities for IONIS-HTT~~_Rx~~. Under the terms of the agreement, we received an upfront payment of $30 million in April 2013. In December 2016, we updated development activities for IONIS-HTT~~_Rx and as a result we were eligible for an additional $3 million payment, which we achieved in 2017. We are eligible to receive up to $365 million in a license fee and milestone payments including up to $70 million for the achievement of development milestones, up to $170 million for the achievement of regulatory milestones and up to $80 million for the achievement of commercialization milestones. 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 any sales of any product resulting from this alliance. From inception through March 2018, we have received over $105 million in upfront fees, milestone payments and license fees for advancing IONIS-HTT_Rx~~, including the $45 million license fee we received in January 2018 for IONIS-HTT~~_Rx~~. We will achieve the next payment of $10 million if Roche initiates a Phase 2 trial for IONIS-HTT~~_Rx.

At commencement of our collaboration, we identified one performance obligation, which was to perform R&D services for Roche. We determined the transaction price to be the $30 million upfront payment we received and allocated it to our single performance obligation. As we achieved milestone payments for our R&D services, we included these amounts in our transaction price for our R&D services performance obligation. We recognized revenue for our R&D services performance obligation over our period of performance, through ~~September 2017~~.

~~We identified a second performance obligation upon Roche’s license of IONIS-HTT~~_Rx ~~in the fourth quarter of 2017 because the license we granted to Roche is distinct from our other performance obligation. We recognized the $45 million license fee for IONIS-HTT~~_Rx as revenue at that time because Roche had full use of the license without any continuing involvement from us. Additionally, we did not have any further performance obligations related to the license after we delivered it to Roche.

~~We do not have any remaining performance obligations under our collaboration with Roche, however we can still earn additional payments and royalties as Roche advances IONIS-HTT~~_Rx.

During the three months ended March 31, 2018 we earned R&D revenue of $2.0 million from our relationship with Roche. During the three months ended March 31, 2017, we recorded a reversal of revenue of $1.6 million, related to our updated estimate of our performance period for our R&D services. We did not have any deferred revenue from our relationship with Roche at March 31, 2018 or December 31, 2017.

~~GSK~~

In March 2010, we entered into an alliance with GSK using our antisense drug discovery platform to discover and develop new drugs against targets for rare and serious diseases, including infectious diseases and some conditions causing blindness. Under the terms of the agreement, we received upfront payments of $35 million.

~~GSK is advancing two drugs targeting hepatitis B virus, or HBV, under our collaboration: IONIS-HBV~~_Rx ~~and IONIS-HBV-L~~_Rx. GSK is currently conducting Phase 2 studies for both of these drugs, which we designed to reduce the production of viral proteins associated with HBV infection. In March 2016, we and GSK amended the development plan for IONIS-HBV_Rx to allow GSK to conduct all further development activities for this program. GSK has the exclusive option to license the drugs resulting from this alliance at Phase 2 proof-of-concept for a license fee.

Under our agreement, if GSK successfully develops these drugs and achieves pre-agreed sales targets, we could receive license fees and milestone payments of $262 million, including up to $47.5 million for the achievement of development milestones, up to $120 million for the achievement of regulatory milestones and up to $70 million for the achievement of commercialization milestones. 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. From inception through March 2018, we have received more than $162 million in payments under this alliance with GSK. We will achieve the next payment of up to $15 million if GSK initiates a Phase 3 study for the HBV program.

At commencement of our collaboration, we identified one performance obligation, which was to perform R&D services for GSK. We determined the transaction price to be the $35 million upfront payment we received and allocated it to our single performance obligation. As we achieved milestone payments for our R&D services, we included these amounts in our transaction price for our R&D services performance obligation. We recognized revenue for our R&D services performance obligation over our period of performance, through March 2015. We do not have any remaining performance obligations under our collaboration with GSK, however we can still earn additional payments and royalties as GSK advances these drugs.

During the three months ended March 31, 2018 and 2017, we earned R&D revenue of $0.1 million and $6.8 million, respectively, from our relationship with GSK. We did not have any deferred revenue from our relationship with GSK at March 31, 2018 or December 31, 2017.

~~Segment Information and Concentration of Business Risk~~

We have two reportable segments Ionis Core and Akcea Therapeutics. ~~In July 2017, Akcea completed an IPO and therefore beginning in July 2017,~~ At March 31, 2019 we ~~no longer own 100~~owned approximately 76 percent of Akcea. ~~As of July 19, 2017, the closing of the IPO and at March 31, 2018, we owned approximately 68 percent of Akcea.~~ Segment income (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~~our antisense technology to generate a broad pipeline of first-in-class and/or best-in-class ~~drugs~~medicines for us and our partners. Our Ionis Core segment generates revenue from a multifaceted partnering strategy.

Akcea is a biopharmaceutical company focused on developing and commercializing ~~drugs~~medicines to treat patients with rare and serious diseases. Akcea generates revenue from TEGSEDI product sales and from its collaborations with Novartis and PTC Therapeutics.

The following ~~table shows~~tables show our segment revenue and ~~loss~~income (loss) from operations for the three months ended March 31, ~~2018~~2019 and March 31, ~~2017 (as revised)~~2018 (in thousands), respectively.

Three Months Ended March 31, 2018	Ionis Core		Akcea Therapeutics			Elimination of Intercompany Activity			Total
Three Months Ended March 31, 2019												Ionis Core		Akcea Therapeutics		Elimination of Intercompany Activity			Total
Revenue:
Commercial revenue:
SPINRAZA royalties	$	41,081	$	—		$	—		$	41,081		$	59,711	$	—	$	—		$	59,711
TEGSEDI product sales, net													—		6,754		—			6,754
Licensing and other royalty revenue		942		—			—			942			1,623		—		—			1,623
Total commercial revenue	$	42,023	$	—		$	—		$	42,023		$	61,334	$	6,754	$	—		$	68,088
R&D revenue under collaborative agreements	$	90,517	$	17,108		$	(5,229	)	$	102,396		$	160,556	$	157,062	$	(88,492	)	$	229,126
Total segment revenue	$	132,540	$	17,108		$	(5,229	)	$	144,419		$	221,890	$	163,816	$	(88,492	)	$	297,214
Total operating expenses	$	105,544	$	47,435		$	(5,259	)	$	147,720		$	114,515	$	137,610	$	(76,446	)	$	175,679
Income (loss) from operations	$	26,996	$	(30,327	)	$	30		$	(3,301	)
Income from operations												$	107,375	$	26,206	$	(12,046	)	$	121,535

Three Months Ended March 31, 2017
(as revised)
Ionis Core Akcea Therapeutics
Elimination of
Intercompany Activity
Total
Revenue:
Commercial revenue:
SPINRAZA royalties $ 5,211 $ — $ — $ 5,211
Licensing and other royalty revenue 2,590 — — 2,590
Total commercial revenue $ 7,801 $ — $ — $ 7,801
R&D revenue under collaborative agreements $ 153,382 $ 6,094 $ (51,477 ) $ 107,999
Total segment revenue $ 161,183 $ 6,094 $ (51,477 ) $ 115,800
Total operating expense $ 78,352 $ 69,470 $ (51,507 ) $ 96,315
Income (loss) from operations $ 82,831 $ (63,376 ) $ 30 $ 19,485

Three Months Ended March 31, 2018	Ionis Core		Akcea Therapeutics			Elimination of Intercompany Activity			Total
Revenue:
Commercial revenue:
SPINRAZA royalties	$	41,081	$	—		$	—		$	41,081
Licensing and other royalty revenue		942		—			—			942
Total commercial revenue	$	42,023	$	—		$	—		$	42,023
R&D revenue under collaborative agreements	$	90,517	$	17,108		$	(5,229	)	$	102,396
Total segment revenue	$	132,540	$	17,108		$	(5,229	)	$	144,419
Total operating expense	$	105,544	$	47,435		$	(5,259	)	$	147,720
Income (loss) from operations	$	26,996	$	(30,327	)	$	30		$	(3,301	)

The following table shows our total assets by segment at March 31, ~~2018~~2019 and December 31, ~~2017 (as revised)~~2018 (in thousands), respectively.

Total Assets Ionis Core Akcea Therapeutics
Elimination of
Intercompany Activity
Total
March 31, 2018 $ 1,349,044 $ 252,466 $ (301,950 ) $ 1,299,560
December 31, 2017 (as revised) $ 1,342,578 $ 268,804 $ (288,608 ) $ 1,322,774

Total Assets	Ionis Core		Akcea Therapeutics		Elimination of Intercompany Activity			Total
March 31, 2019	$	3,112,235	$	458,717	$	(735,063	)	$	2,835,889
December 31, 2018	$	2,975,491	$	365,261	$	(672,968	)	$	2,667,784

We have historically funded our operations from collaborations with corporate partners and a relatively small number of partners have accounted for a significant percentage of our revenue. Revenue from significant partners, which is defined as ten percent or more of our total revenue, was as follows:

Three Months Ended
March 31,
2018 2017
(as revised)
Partner A 47 % 4 %
Partner B 36 % 25 %
Partner C 12 % 5 %
Partner D 0% 56%

Contracts receivables from one significant partner comprised approximately 87 percent of our contracts receivables at March 31, 2018. Contracts receivables from two significant partners comprised approximately 84 percent of our contracts receivables at December 31, 2017.

ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Forward-Looking Statements

In addition to historical information contained in this Report on Form 10-Q, ~~this~~the Report includes forward-looking statements regarding our business and the therapeutic and commercial potential of SPINRAZA (nusinersen), TEGSEDI (inotersen), WAYLIVRA (volanesorsen) and our technologies and products in development, including the business of Akcea Therapeutics, Inc., our ~~majority owned~~majority-owned affiliate. 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 and described in additional detail in our annual report on Form 10-K for the year ended December 31, 2018, 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. These and other risks concerning our programs are described in additional detail in our annual report on Form 10-K for the year ended December 31, 2017, 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.

Overview

We are ~~leaders~~a leader in discovering and developing RNA-targeted ~~therapeutics.~~therapeutics with sustained and growing revenues. We have created an efficient and broadly applicable drug discovery platform leveraging our expertise in antisense oligonucleotide ~~therapeutics. Using this platform,~~therapeutics that we ~~have developed a~~believe has fundamentally changed medicine and transformed the lives of people with devastating and often deadly diseases. Our large, diverse and advanced pipeline of ~~potentially~~over 40 first-in-class and/or best-in-class ~~drugs~~medicines addresses diseases across a broad range of therapeutic areas, targeting small, medium and large patient populations.

We have three commercial medicines approved in major markets around the world, SPINRAZA, TEGSEDI and WAYLIVRA. We have two medicines in Phase 3 studies, IONIS-HTT_Rx,for Huntington’s disease, and tofersen_,for SOD1-ALS. We also have the potential for two more medicines to begin Phase 3 studies this year and the potential for a total of 10 medicines in Phase 3 studies by the end of 2020. These medicines, along with the more than 30 additional medicines in our pipeline, represent multiple potential drivers of value for years to come. We believe our efficient drug discovery platform, coupled with our innovation-centric business model, provides us with the flexibility to determine the optimal development and commercialization strategy to maximize the commercial opportunity for each of our medicines and ensure that we continue to produce transformative medicines for patients who need them. We believe ~~can provide high~~we are positioned to drive substantial 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.and shareholders.

~~We made significant progress toward this goal with~~As of March 2019, SPINRAZA was approved in over 40 countries around the world, and our partner Biogen, who is responsible for global SPINRAZA commercial ~~launch of~~activities, reported that more than 7,500 patients are now on SPINRAZA ~~for the treatment of SMA~~therapy. In addition, Biogen plans to continue to pursue regulatory filings in ~~pediatric and adult patients. SMA~~additional countries. SPINRAZA is ~~a leading genetic cause of death in infants marked by progressive, debilitating muscle weakness. SPINRAZA became~~ the first and only approved ~~drug to treat~~medicine for the treatment of SMA. SPINRAZA is the established standard-of-care for all people with ~~SMA~~this progressive, debilitating and ~~is now~~often fatal genetic disease. In November 2018, SPINRAZA was recognized with the ~~standard of care~~2018 International Prix Galien award as Best Biotechnology Product. This prestigious honor marks the seventh Prix Galien award for ~~this debilitating disease. Our partner, Biogen, is responsible for global commercial activities. Since regulatory approval in December 2016,~~SPINRAZA. To date, we have earned ~~$155~~more than $410 million in commercial ~~revenue~~revenues from ~~SPINRAZA royalties.~~royalties on sales of SPINRAZA.

~~Our pipeline also contains two near-term, potentially transformative medicines~~TEGSEDI, a once weekly, self-administered subcutaneous medicine, was approved in 2018 in the U.S., EU and Canada for ~~two different severe~~the treatment of polyneuropathy caused by hATTR in adult patients. hATTR is a debilitating, progressive, and ~~rare diseases, each with significant commercial potential, TEGSEDI and WAYLIVRA. We licensed both of these drugs to Akcea Therapeutics, or~~ fatal disease. Akcea, our majority-owned affiliate focused on developing and commercializing ~~drugs~~medicines to treat patients with rare and serious diseases, launched TEGSEDI globally in late 2018. Our aim is to make TEGSEDI available globally. We plan to achieve this in part through Akcea’s exclusive license agreement with ~~leading-edge, RNA-targeted medicines. By licensing these drugs~~PTC to ~~Akcea, we believe we will maximize~~commercialize TEGSEDI in Latin America. In January 2019, PTC filed an application for regulatory approval in Brazil with ANVISA, the ~~commercial potential of each drug, while optimizing our commercial participation.~~

26Brazilian regulatory authority. ANVISA granted priority review for TEGSEDI. We have earned $9 million in TEGSEDI product sales since launching late last year.

~~We believe TEGSEDI has the potential to become the preferred treatment option for many people with hereditary~~WAYLIVRA, a self-administered, ~~TTR amyloidosis, or~~ subcutaneous medicine,~~hATTR. Our goal is to free these people~~ received conditional marketing authorization from the ~~burden of their disease. hATTR is a debilitating, progressive, fatal disease~~European Commission, or EC, as an adjunct to diet in which patients experience a progressive buildup of amyloid plaque deposits in tissues throughout the body. In May 2017, we reported positive top-line data from our Phase 3 study of TEGSEDI, NEURO-TTR, inadult patients with hATTR with polyneuropathy. More than half of these patients also have cardiomyopathy. We are advancing TEGSEDI to the market based on the positive data from our NEURO-TTR study. TEGSEDI is currently under regulatory reviewgenetically confirmed FCS and at high risk for ~~marketing authorization~~pancreatitis in the U.S., EU, and Canada. The Food and Drug Administration, or FDA, accepted the TEGSEDI New Drug Application, or NDA, for Priority Review. In the second quarter of 2018 the FDA decided they needed additional time to review some of our responses to their standard information requests. As such, the FDA extended the review period for TEGSEDI. The new Prescription Drug User Fee Act, or PDUFA, date is October 6, 2018. The European Medicines Agency, or EMA, granted accelerated assessment to TEGSEDI, which may reduce standard review time. The EMA also granted Orphan Drug Designation to TEGSEDI. In Canada, our New Drug Submission, or NDS, was granted Priority Review by Health Canada.May 2019. We and Akcea are preparing to commercialize WAYLIVRA in the EU and we are also focused on ~~track~~regulatory discussions in ~~our pre-commercial preparations for a potential launch this year, assuming TEGSEDI~~the U.S and Canada. Akcea plans to leverage its existing commercial infrastructure in Europe to market WAYLIVRA. Akcea is ~~approved. Additionally, we and Akcea are~~ continuing to ~~build our TTR franchise by moving AKCEA-TTR-L~~_Rxconduct open-label extension and early access programs. ~~forward rapidly.~~

~~Akcea is~~We are also ~~working closely~~developing WAYLIVRA for the treatment of people with ~~us to develop WAYLIVRA to treat two severe and rare, genetically defined diseases, familial chylomicronemia syndrome, or FCS, and~~ familial partial lipodystrophy, or FPL. ~~FCS~~People with FPL lack subcutaneous adipose tissue and ~~FPL are orphan diseases characterized by severely high triglyceride levels that result in severe, daily symptoms~~have abnormal subcutaneous fat distribution causing increased incidence of potentially life-threatening pancreatitis, diabetes, extreme insulin resistance and a high risk of life-threatening pancreatitis. We estimate that FCS and FPL each affect 3,000 to 5,000 people globally. The clinical development program for WAYLIVRA consists of three Phase 3 studies called APPROACH, BROADEN and COMPASS. In the first quarter of 2017, we and Akcea reported positive Phase 3 data from the APPROACH study in patients with FCS. In December 2016, we and Akcea reported positive results from the Phase 3 COMPASS study in patients with triglycerides above 500 mg/dL. Based on the positive data from our Phase 3 studies, Akcea filed for marketing authorization for WAYLIVRA in the U.S., EU and Canada in the third quarter of 2017. The FDA set a PDUFA date of August 30, 2018 for WAYLIVRA and an advisory committee meeting is scheduled for May 10, 2018. WAYLIVRA was granted Priority Review in Canada. Akcea is on track in its pre-commercial preparations for a potential launch this year, assuming WAYLIVRA is approved.increased liver fat.

In addition to commercializing TEGSEDI and preparing to commercialize ~~TEGSEDI and~~ WAYLIVRA, Akcea is ~~focused on~~ developing ~~and commercializing their~~four other clinical-stage ~~drugs:~~medicines: AKCEA-APO(a)-L-L_Rx(TQJ230), AKCEA-ANGPTL3-L_Rx, AKCEA-APOCIII-L_Rxand AKCEA-TTR-L_Rx, each of which could potentially treat multiple patient populations. Moving these ~~drugs~~medicines into Akcea allows us to retain substantial value from ~~them~~these medicines and ensures our core focus remains on innovation. As of ~~April 2018,~~March 2019, we owned approximately 7576 percent of Akcea.

We are ~~addressing~~continuously advancing our technology and pipeline to provide the most value to patients. We have a pipeline of over 40 medicines that, like SPINRAZA, TEGSEDI and WAYLIVRA, have the potential to transform the treatment of diseases with no adequate treatment today. These medicines range from treatments for rare diseases with small patient populations to more common diseases afflicting millions of patients. Our pipeline covers a broad spectrum of ~~diseases that affect millions of people,~~therapeutic areas, such as ~~cardiovascular disease, clotting disorders, Alzheimer’s~~cardiometabolic diseases, neurodegenerative diseases, cancer, severe and ~~Parkinson’s disease. We also are addressing~~ rare diseases ~~such as acromegaly, amyotrophic lateral sclerosis, beta-thalassemia~~ and ~~Huntington’s disease.~~others. We believe our large and diverse pipeline contains many near-, mid- and longer-term growth drivers for the company.

The depth of our knowledge and expertise with antisense technology together with our strong financial position provides us the flexibility to partner our medicines at what we believe is the optimal time to maximize the value of our medicines. We have a distinct partnering strategy based on each specific medicine and the expertise and resources we and our potential partners may bring to a collaboration. We may develop and commercialize some medicines through affiliates. In general, these are ~~continuing to advance~~medicines, like TEGSEDI and WAYLIVRA, that can benefit from our ~~mid-stage drugs in~~internal expertise and infrastructure, have manageable development ~~which~~plans and costs, and have the potential ~~to enter late-stage clinical development and progress toward the market over the next several years, like IONIS-HTT~~_Rx~~. IONIS-HTT~~_Rx ~~is the first drug in clinical development to target the cause of Huntington’s~~for initial rare disease ~~or HD, by reducing the production of toxic mutant huntingtin, or mHTT, protein. In addition to IONIS-HTT~~_Rx, indications. For other medicines, we ~~have multiple drugs that we or our partners plan~~may establish collaborations to advance ~~into pivotal studies in~~ the ~~next year or so. These include IONIS-STAT3-2.5~~_Rx ~~for patients with head and neck cancer and AKCEA-APO(a)-L~~_Rx for patients with high Lp(a) who are at risk for cardiovascular disease. We are also focusing on our Ionis-owned drugs that have the potential to move quickly toward the market, including IONIS-GHR-L_Rx ~~for patients with acromegaly and IONIS-TMPRSS6-L~~_Rx ~~for people with beta thalassemia.~~

medicine. We have ~~established~~ alliances with a cadre of leading global pharmaceutical companies that are working alongside us in developing our ~~drugs,~~medicines, advancing our technology, ~~and~~ preparing to commercialize our ~~products.~~medicines and selling our medicines. Our partners include the following companies, among others: AstraZeneca, Bayer, Biogen, GSK, Janssen, Novartis and Roche. 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.~~

In April 2018, we and Biogen expanded our strategic collaboration to develop novel antisense drug candidates for a broad range of neurological diseases. We will receive $1 billion from Biogen, comprised of $625 million to purchase our stock at a 25 percent cash premium and $375 million in an upfront payment upon receiving Hart-Scott Rodino clearance. We believe this collaboration will provide us with the opportunity to continue to build a strong pipeline for Biogen and for our own account. 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 these partnerships. Lastly, we also work with a group of companies that can develop our drugs and utilize our 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 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. Moreover, we have the potential to earn ~~more than~~over $20 billion in future milestone payments and licensing fees from our ~~current~~existing partnerships. We also have the potential to share in the future commercial success of our inventions and drugs resulting from our partnerships through royalty and profit share arrangements. In late 2016, we began 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 ~~from the continued growth we expect in the U.S., EU and in other markets globally~~. We also have the potential to further increase our commercial revenue with WAYLIVRA and TEGSEDI, assuming they are approved. We believe we have the key elements in place to achieve sustained, long-term financial growth, with multiple drivers of revenue; a mature, broad and rapidly-advancing clinical pipeline; a partnership strategy that leverages our partner resources; and an innovative drug discovery technology platform that we continue to deploy across a range of therapeutic areas to address both rare and large patient populations.

2725

Financial Highlights

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

	Three Months Ended March 31,
	2018			2017		Three Months Ended March 31,
				(as revised)		2019		2018
Total revenue	$	144,419		$	115,800	$	297,214	$	144,419
Total operating expenses	$	147,720		$	96,315	$	175,679	$	147,720
Income (loss) from operations	$	(3,301	)	$	19,485	$	121,535	$	(3,301	)
Net income (loss)	$	(10,812	)	$	8,964	$	90,884	$	(10,812	)
Net income (loss) attributable to Ionis Pharmaceuticals, Inc. common stockholders		(1,420	)		8,964	$	84,443	$	(1,420	)
Cash, cash equivalents and short-term investments		1,035,301			1,022,715

Our revenue for the three months ended March 31, ~~2018 was $144.4~~2019 of $297.2 million ~~and~~ increased significantly compared to the same period in ~~2017,~~2018, primarily from ~~increased~~the $150 million license fee we earned from Novartis when it licensed AKCEA-APO(a)-L_Rx and a more than 45 percent increase in commercial revenue from SPINRAZA royalties. ~~In addition to revenue from SPINRAZA, we also plan to add product revenue from TEGSEDI and WAYLIVRA this year, assuming they are approved.~~

Our operating expenses for the ~~three months ended March 31, 2018 were $147.7~~first quarter of 2019 of $175.7 million ~~and~~ increased ~~compared to $96.3 million for~~over the same period in ~~2017.~~2018. The increase in operating expenses was ~~primarily~~principally due to ~~higher SG&A expenses as we prepare to commercialize WAYLIVRA and TEGSEDI in 2018 and reflect the investment we are making in advancing and expanding~~ our ~~pipeline. Our SG&A expenses also increased~~investments in the ~~first quarter~~global launch of 2018 compared to 2017 because of fees we owed under our in-licensing agreements related to SPINRAZA. R&D expenses accounted for a smaller portion of the increase in operating expenses. R&D expenses increased primarily from medical affairs expenses and increases in manufacturing costs related to TEGSEDI ~~for our planned launch this year.~~.

During the first quarter of ~~2018,~~2019 we received more than ~~$155~~$270 million in payments from our partners, ~~primarily~~including $150 million from Novartis, $78 million from Biogen and $35 million from ~~SPINRAZA royalties we earned~~Roche. This is compared to more than $155 million received in the ~~fourth~~first quarter of ~~2017, Roche for its license of IONIS-HTT~~2018. We believe our strong financial position should enable us to continue to execute on our corporate goals throughout 2019 and beyond.

Recent Business Highlights_Rx ~~in late 2017~~(Q1 2019 and ~~AstraZeneca for its license of~~ subsequent activities)~~IONIS-AZ5-2.5~~_Rx~~. 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.~~

In April 2018, we and Biogen expanded our strategic collaboration to develop novel antisense drugs for a broad range of neurological diseases. We will receive $1 billion, including an upfront payment and equity investment at a 25 percent cash premium, upon receiving Hart-Scott Rodino clearances.

~~Recent Events~~

~~Our Corporate and Drug Development Highlights~~ ~~(Q1 2018 and subsequent activities)~~

~~Business Highlights~~

●

~~Expanded strategic research collaboration~~SPINRAZA – the worldwide standard-of-care for the treatment of people with ~~Biogen for neurological diseases – one~~all forms of ~~the largest research-stage collaborations ever~~spinal muscular atrophy

~~$1 billion upfront~~Biogen reported worldwide sales of SPINRAZA of $518 million in the first quarter of 2019, a 42 percent increase compared to ~~us, including $625 million to purchase our stock at a 25 percent cash premium of $125 million~~Q1 2018, driven primarily by increased penetration in existing markets, new country launches and ~~a $375 million upfront payment~~continued uptake in the U.S. by children and adult patients.

	~~Together, the cash premium and upfront payment represent a $500 million technology access fee~~

~~We are eligible to receive milestone payments~~There were more than 7,500 SMA patients from over 40 countries on SPINRAZA treatment at the end of the first quarter of 2019, including commercial patients and ~~license fees up to $270 million per drug~~patients in the expanded access program and ~~royalties up to 20 percent on net sales~~clinical trials.

~~Disease areas include dementia, neuromuscular diseases, movement disorders, ophthalmology, diseases~~SPINRAZA data from the ongoing NURTURE and SHINE open-label extension studies demonstrated continued durable efficacy and reinforced the safety profile of SPINRAZA in patients treated for up to 6 years, as presented by Biogen at the ~~inner ear, and neuropsychiatry~~2019 AAN Annual Meeting.

●

TEGSEDI – launch underway in multiple markets for the treatment of polyneuropathy of hATTR in adult patients

TEGSEDI product sales were $7 million in its first full quarter on the market and $9 million since launching in Q4 2018.

TEGSEDI received a positive Final Evaluation Document, or FED, from the National Institute for Health and Care Excellence, or NICE, authorizing reimbursement for the treatment of patients with polyneuropathy due to hATTR amyloidosis in England.

Data presented at AAN from the TEGSEDI NEURO-TTR open-label extension study demonstrated long-term efficacy and safety in patients with hATTR.

●

WAYLIVRA – approved in the EU for the treatment of adults with genetically confirmed FCS at high risk for pancreatitis

Akcea’s preparations to launch in the EU are underway, beginning in Germany in Q3 2019.

Launch in additional EU countries is planned in 2020.

Earned a $6 million milestone payment from PTC Therapeutics for the EU approval of WAYLIVRA.

●

~~SPINRAZA~~ ^®~~for SMA~~ – ~~one~~Roche presented nine-month data from the ongoing Phase 1/2 open-label extension study of ~~the most successful orphan~~IONIS-HTT_Rx in patients with Huntington’s disease ~~drug launches~~at AAN, demonstrating continued and sustained reductions in ~~history~~mutant huntingtin protein with bi-monthly dosing.

~~SPINRAZA~~^®Based on these data, Roche amended the dosing regimen in the Phase 3 study of IONIS-HTT_{, Rx}~~commercialized by Biogen, continued~~ in patients with Huntington’s disease to ~~generate growth~~replace the monthly dosing regimen with ~~global revenues of $364 million in Q1 2018~~a tri-annual (every four months) dosing regimen.

Increase of over 25 percent from last quarter in number of patients on SPINRAZA, including a 16 percent increase in number of patients treated in the U.S. and a more than 50 percent increase outside the US

~~Access expanding outside the U.S. with reimbursement in 24 countries; Biogen expects reimbursement in at least seven more countries by the end of 2018~~

Presented data from the SHINE open-label study at the American Academy of Neurology, or AAN, annual meeting demonstrating continued benefit, improved motor function and mobility, and longer event-free survival for the most severely affected patients treated with SPINRAZA

Presented data from the NURTURE study at the Muscular Dystrophy Association, or MDA, Clinical Conference demonstrating continued benefit in motor function for infants, teens and young adults treated with SPINRAZA

●

~~TEGSEDI (inotersen) for hereditary transthyretin amyloidosis, or hATTR – potential to transform the lives of people with hATTR; on-track to launch in 2018~~

~~Invested in global commercialization of TEGSEDI by licensing TEGSEDI to our majority-owned affiliate, Akcea~~

~~Optimized our commercial participation with up to $1.5 billion in milestone payments and a 60 percent profit share~~

~~Early access program enrolling in the U.S. and Europe~~

~~Global commercial organization staffed and focused on disease education; robust patient support program in place; supply chain in place and launch supplies ready to be labeled~~

Presented data from the Phase 3 NEURO-TTR study, the open label extension study and an investigator sponsored Phase 2 study at the International Symposium on Amyloidosis annual meeting and the AAN annual meeting

●

~~WAYLIVRA (volanesorsen) for FCS and FPL – potential first treatment for people with FCS; on-track to launch in 2018~~

~~Early access program enrolling in the U.S. and Europe~~

~~Global commercial organization staffed and focused on disease education; robust patient support program in place; supply chain in place and launch supplies ready to be labeled~~

~~Positive scientific opinion to initiate Early Access to Medicines Scheme, or EAMS, by the UK’s Medicines and Healthcare Products Regulatory Agency, or MHRA, for the treatment of people with FCS~~

●

~~Collaboration with AstraZeneca for Cardiovascular, Renal and Metabolic Diseases~~

~~Earned $60 million for the license of second and third antisense drugs, IONIS-AZ5-2.5~~_Rx ~~and IONIS-AZ6-2.5-L~~_Rx~~, to treat a genetically associated form of kidney disease and nonalcoholic steatohepatitis, or NASH, respectively, to AstraZeneca~~

~~As IONIS-AZ5-2.5~~_Rx ~~and IONIS-AZ6-2.5-L~~_Rx ~~advance, we may receive up to $300 million for each drug in additional development and regulatory milestone payments, as well as tiered royalties on sales of each drug~~

~~Pipeline and Technology Progress~~

●

~~Presented positive IONIS-HTT~~_Rx ~~(RG6042) Phase 1/2 data in people with Huntington's disease, or HD at the annual CHDI HD conference. IONIS-HTT~~_Rx ~~is the first drug in development to lower the disease-causing protein in people with HD~~

●

Presented data at the AAN annual meeting that demonstrated broad potential of antisense drugs for neurological diseases with 14 presentations on our drugs to treat neurological diseases, including SMA, hATTR amyloidosis, Huntington’s disease, Alzheimer’s disease, and ALS

~~Presented additional~~Biogen presented data from the Phase 1/2 study of ~~IONIS-HTT~~_Rx ~~that demonstrated correlations between reductions~~tofersen in ~~mutant huntingtin, or mHTT, and~~SOD1-ALS patients at AAN, demonstrating improvements in clinical measures of HD

ALS disease progression after three months of treatment.

oTofersen is in a Phase 3 clinical study that could support a rapid path to patients.

Biogen is collaborating with regulators to further define the scope of the clinical data package required to support registration.

●

Published review paper titled, “RNA-targeted Therapeutics” in Cell Metabolism, authored by Stanley Crooke, M.D., Ph.D.; highlights antisense and other RNA-targeting therapeutics as important platformsWe generated a $7.5 million milestone payment for ~~drug discovery across multiple diseases.~~advancing a new target for an unidentified neurological disease under our 2018 strategic neurology collaboration with Biogen.

●

Brett P. Monia, Ph.D., our chief operating officer was appointed to our board of directors.

Critical Accounting Policies

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

●

Assessing the propriety of revenue recognition and associated deferred revenue;

●

Valuing premiums received under our collaborations;

●

Determining the proper valuation of investments in marketable securities;

●

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

●

~~Estimating the impact of the Tax Act and our net deferred~~Accounting for income ~~tax asset valuation allowance;~~



~~Determining the fair value of convertible debt without the conversion feature; and~~



~~Valuing premiums received under our collaborations~~taxes.

~~These~~There have been no material changes to our critical accounting policies and estimates ~~are~~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, ~~2017 in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”~~

~~During the first quarter of 2018, we updated the following critical accounting policy:~~



~~Assessing the propriety of revenue recognition and associated deferred revenue.~~

~~Our updated critical accounting policy is as follows:~~

~~Revenue Recognition~~

~~Adoption of New Revenue Recognition Accounting Standard (Topic 606)~~

~~The following table summarizes the adjustments we were required to make to revenue we originally reported at March 31, 2017 to adopt Topic 606 (in thousands):~~

~~During the first quarter of 2017, our revenue increased $5.5 million under Topic 606, compared to Topic 605. The change in our revenue was primarily due to:~~

●

~~Our updated revenue recognition policy reflecting Topic 606 is as follows:~~

~~Our Revenue Sources~~

~~Commercial Revenue: SPINRAZA royalties and Licensing and other royalty revenue~~

~~We earn commercial revenue primarily in the form of royalty payments on net sales of SPINRAZA.~~

~~Research and development revenue under collaborative agreements~~

We often enter into collaboration agreements to license and sell our technology on an exclusive or non-exclusive basis in exchange for upfront fees, license fees, milestone payments, royalties and/or profit sharing arrangements. Our collaboration agreements typically contain multiple elements, or performance obligations, including technology licenses or options to obtain technology licenses, R&D services, and in certain cases manufacturing services.

~~Our collaboration agreements are detailed in Note 6,~~ ~~Collaborative Arrangements and Licensing Agreements.~~ ~~Under each collaboration note we discuss our specific revenue recognition conclusions, including our significant performance obligations under each collaboration.~~

~~Steps to Recognize Revenue~~

~~We use a five step process to determine the amount of revenue we should recognize and when we should recognize it. The five step process is as follows:~~

1.	~~Identify the contract~~

~~Accounting rules require us to first determine if we have a contract with our partner, including confirming that we have met each of the following criteria:~~

●

~~We and our partner approved the contract and we are both committed to perform our obligations;~~

●

~~We have identified our rights, our partner’s rights and the payment terms;~~

●

~~We have concluded that the contract has commercial substance, meaning that the risk, timing, or amount of our future cash flows is expected to change as a result of the contract; and~~

●

~~We believe collectability is probable.~~

2.	~~Identify the performance obligations~~

Often times when we enter into a collaboration agreement in which we provide our partner with an option to license a drug in the future. We may also provide our partner with an option to request that we provide additional goods or services in the future, such as API. We evaluate whether these options are material rights at the inception of the agreement. If we determine an option is a material right, we will consider the option a separate performance obligation. Historically, we have concluded that the options we grant to license a drug in the future or to provide additional goods and services as requested by our partner are not material rights. These items are contingent upon future events that may not occur. When a partner exercises its option to license a drug or requests additional goods or services, then we identify a new performance obligation for that item.

Additionally, in some cases, we deliver a license at the start of an agreement. If we determine that our partner has full use of the license and we do not have any additional performance obligations related to the license after delivery, then we consider the license to be a separate performance obligation.

3.	~~Determine the transaction price~~

We then determine the transaction price by reviewing the amount of consideration we are eligible to earn under the collaboration agreement, including any variable consideration. Under our collaboration agreements, consideration typically includes fixed consideration in the form of an upfront payment and variable consideration in the form of potential milestone payments, license fees, royalties or profit share arrangements. At the start of an agreement, our transaction price usually only consists of the upfront payment. We do not typically include any payments we may receive in the future in our initial transaction price because the payments are not probable. We reassess the total transaction price at each reporting period to determine if we should include additional payments in the transaction price.

Our most common type of variable consideration are milestone payments. We recognize milestone payments using the most likely amount method because we will either receive the milestone payment or we will not, which makes the potential milestone payment a binary event. The most likely amount method requires us to determine the likelihood of earning the milestone payment. We include a milestone payment in the transaction price once it is probable we will achieve the milestone event. Most often, we do not consider our milestone payments probable until we or our partner achieve the milestone event because the majority of our milestone payments are contingent upon events that are not within our control.

4.	~~Allocate the transaction price~~

We may engage a third party, independent valuation specialist to assist us with determining a stand-alone selling price for collaborations in which we deliver a license at the start of an agreement. We estimate the stand-alone selling price of these licenses using appropriate valuation methodologies, such as the relief from royalty method. Under this method, we estimate the amount of income, net of taxes, for the license. We then discount the projected income to present value. The significant inputs we use to determine the projected income of a license could include:

●

~~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 typically estimate the selling price of R&D 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 R&D services. The significant inputs we use to determine the selling price of our R&D services include:

●

~~The number of internal hours we estimate 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 API we will use.~~

~~We do not reallocate the transaction price after the start of an agreement to reflect subsequent changes in stand-alone selling prices.~~

5.	~~Recognize revenue~~

For R&D services that we recognize over time, we measure our progress using an input method. The input methods we use are based on the effort we expend or costs we incur toward the satisfaction of our performance obligation. We estimate the amount of effort we expend or costs we incur in a given period, relative to the estimated total effort or costs to satisfy the performance obligation. This results in a percentage that we multiply by the transaction price to determine the amount of revenue we will recognize each period. The approach requires numerous estimates and significant judgement that if they ~~change over the course of the collaboration, may affect the timing and amount of revenue that we recognize in the current and future periods.~~

~~The following are examples of when we typically recognize revenue based on the types of payments we receive.~~

~~Upfront Payments~~

When we enter into a collaboration agreement with an upfront payment, we typically record the entire upfront payment as deferred revenue if our only performance obligation is for R&D services we will provide in the future. We amortize the upfront payment into revenue as we perform the R&D services. For example, under our new SMA collaboration with Biogen, we received a $25 million upfront payment in December 2017. We allocated the upfront payment to our single performance obligation, R&D services. We are, therefore, amortizing the $25 million upfront payment using an input method over the estimated period of time we are providing R&D services. Refer to ~~Note 6,~~ ~~Collaborative Arrangements and Licensing Agreements, for further discussion. Under Topic 605, we amortized payments evenly over the period of our obligation.~~

~~Milestone Payments~~

We recognize milestone payments that relate to an ongoing performance obligation over our period of performance. For example, in the third quarter of 2017, we initiated a Phase 1/2a clinical study of IONIS-MAPT_Rxin patients with mild Alzheimer’s disease. We earned a $10 million milestone payment from Biogen related to the initiation of this study. Under Topic 606, we allocated this payment to our R&D services performance obligation. We are recognizing revenue from this milestone payment over our estimated period of performance. Under Topic 605, this milestone payment was recognized in full in the third quarter of 2017, which was the period in which we achieved the milestone event.

Conversely, we recognize in full those milestone payments that we earn based on our partners’ activities when our partner achieves the milestone event. For example, in the second quarter of 2017, we earned a $50 million milestone payment from Biogen for the EU approval of SPINRAZA. Our revenue recognition of milestone payments we earn based on our partners’ activities did not change as a result of adopting Topic 606.

~~License Fees~~

We generally recognize as revenue the total amount we determine to be the stand-alone selling price of a license when we deliver the license to our partner because our partner has full use of the license and we do not have any additional performance obligations related to the license after delivery. ~~Our recognition of license fees did not change as a result of adopting Topic 606.~~

~~Royalties~~

~~Amendments to Agreements~~

~~From time to time we amend our collaboration agreements. For these agreements, we are required to assess the following items to determine the accounting for the amendment:~~

1)	~~If the additional goods and/or services are distinct from the other performance obligations in the original agreement; and~~

2)	~~If the goods and/or services are at a stand-alone selling price.~~

If we conclude the goods and/or services under the amendment are distinct and at a stand-alone selling price, we account for the amendment as a separate agreement. If we conclude the goods and/or services are not distinct under the amendment, we then assess whether the additional goods or services are distinct under the original agreement. If the goods and/ or services are distinct under the original agreement then we allocate the remaining transaction price from the original agreement and the additional transaction price from the amendment to the remaining goods and/or services. If they are not distinct from the original agreement, we update the transaction price for our single performance obligation and recognize any change in our estimated revenue as a cumulative adjustment.

~~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. At the onset of the agreement, we were responsible for completing a Phase 2 study of IONIS-FXI~~_Rx ~~in people with end-stage renal disease on hemodialysis and for providing an initial supply of API. In February 2017, we amended our agreement with Bayer to advance IONIS-FXI~~_Rx ~~and to initiate development of IONIS-FXI-L~~_Rx~~, which Bayer licensed. As part of the 2017 amendment, Bayer paid us $75 million. We are also eligible to receive milestone payments and tiered royalties on gross margins of IONIS-FXI~~_Rx ~~and IONIS-FXI-L~~_Rx~~. Under the 2017 amendment, we concluded we had a new agreement with three performance obligations. These performance obligations were to deliver the license of IONIS-FXI-L~~_Rx~~, to provide R&D services and to deliver API. We allocated the $75 million transaction price to the performance obligations.~~ ~~Refer to~~ ~~Note 6,~~ ~~Collaborative Arrangements and Licensing Agreements, for further discussion~~ ~~of our accounting treatment for our Bayer collaboration.~~ Our allocation of the consideration we received for the Bayer amendment did not change as a result of adopting Topic 606. However the method in which we are recognizing revenue related to our R&D services performance obligation did change. We are amortizing revenue related to our R&D services performance obligation using the input method under Topic 606.

~~Multiple Agreements~~

	~~Whether the agreements are negotiated together with a single objective;~~

	~~Whether the amount of consideration in one contract depends on the price or performance of the other agreement; or~~

	~~Whether the goods and/or services promised under the agreements are a single performance obligation.~~

~~Our evaluation involves significant judgment to determine whether a group of agreements might be so closely related that we are required to account for them as a combined arrangement.~~

~~For example, in the first quarter of 2017, we and Akcea entered into two separate agreements with Novartis at the same time: a collaboration agreement and a SPA.~~ We evaluated the Novartis agreements to determine whether we should treat the agreements separately or combine them. We considered that the agreements were negotiated concurrently and in contemplation of one another. Based on these facts and circumstances, we concluded that we should evaluate the provisions of the agreements on a combined basis. Refer to Note 6, ~~Collaborative Arrangements and Licensing Agreements~~ ~~for further discussion of the accounting treatment for the Novartis collaboration.~~

2018.

Results of Operations

Revenue

~~Whenever we refer to prior period results, they reflect the impact of Topic 606, which we adopted in the first quarter of 2018.~~

Total revenue for the three months ended March 31, ~~2018~~2019 was ~~$144.4~~$297.2 million compared to ~~$115.8~~$144.4 million for the same period in ~~2017~~2018 and was comprised of the following (amounts in thousands):

	Three Months Ended March 31, 2017				Three Months Ended March 31,
	2018		2017		2019		2018
Revenue:			(as revised)
Commercial revenue:
SPINRAZA royalties	$	41,081	$	5,211	$	59,711	$	41,081
TEGSEDI product sales, net						6,754		—
Licensing and other royalty revenue		942		2,590		1,623		942
Total commercial revenue		42,023		7,801		68,088		42,023
R&D revenue:
Amortization from upfront payments						35,851		28,011
Milestone payments						40,017		6,329
License fees		62,326		64,468		150,000		61,678
Milestone payments		1,500		2,500
Amortization from:
Upfront payments		27,363		19,761
Milestone payments		4,829		17,065
Other services		6,378		4,205		3,258		6,378
Total R&D revenue		102,396		107,999		229,126		102,396
Total revenue		144,419		115,800	$	297,214	$	144,419

~~License fees~~In the first quarter of 2019, we significantly increased both commercial revenue and R&D revenue. Commercial revenue from SPINRAZA royalties increased over 45 percent. We also added growing TEGSEDI product sales to our commercial revenue.

Our R&D revenue substantially increased in the first quarter of ~~2018 were $62.3~~2019 due to the $150 million ~~primarily~~license fee we earned from ~~AstraZeneca for the license of IONIS-AZ5-2.5~~Novartis when it licensed AKCEA-APO(a)-L_Rx and ~~IONIS-AZ6-2.5-L~~$35 million we earned from Roche when it enrolled the first patient in the Phase 3 study of IONIS-HTT_Rx~~. The first~~ in patients with Huntington’s disease.

In the second quarter of ~~2017 included $64.5~~2019, Alnylam announced it licensed our technology to Regeneron. Once the transaction closes, we expect to earn $20 million in ~~a license fee from Bayer for the license of IONIS-FXI-L~~_Rx.sublicensing revenue.

Operating Expenses

Operating expenses for the three months ended March 31, ~~2018~~2019 were ~~$147.7~~$175.7 million, and increased compared to ~~$96.3~~$147.7 million for the same period in ~~2017.~~2018. Our operating expenses increased year over year principally due to ~~higher SG&A expenses as we prepare to commercialize WAYLIVRA and TEGSEDI~~ ~~and reflect~~our investment in the ~~investment we are making in advancing and expanding our pipeline. Our SG&A expenses also~~global launch of TEGSEDI. Stock-based compensation expense increased year over year ~~because of fees we owed under our in-licensing agreements related~~primarily due to ~~SPINRAZA, which increase as our SPINRAZA revenue increases. R&D expenses accounted for a smaller portion of~~ the increase in ~~operating expenses. R&D expenses increased primarily due~~the grant date fair value of Akcea options granted and from stock option grants made to ~~increases in medical affairs expenses and in manufacturing costs related~~new employees as Akcea continued to ~~TEGSEDI for the planned launch this year.~~build out its organization.

27 ~~As this year progresses, we expect our operating expenses to continue to increase primarily related to the commercialization of WAYLIVRA and TEGSEDI.~~

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

	Three Months Ended March 31,						Three Months Ended March 31,
	2018			2017			2019			2018
Ionis Core	$	83,476		$	60,620		$	78,514		$	83,476
Akcea Therapeutics		41,052			66,290			128,106			41,052
Elimination of intercompany activity		(5,259	)		(51,507	)		(76,446	)		(5,259	)
Subtotal		119,269			75,403			130,174			119,269
Non-cash compensation expense related to equity awards		28,451			20,912			45,505			28,451
Total operating expenses	$	147,720		$	96,315		$	175,679		$	147,720

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.

Cost of Products Sold

Our cost of products sold consisted of manufacturing costs, including certain fixed costs, transportation and freight, indirect overhead costs associated with the manufacturing and distribution of TEGSEDI and certain associated period costs. We do not expect our fixed costs will increase in direct correlation to TEGSEDI product sales. We expensed a significant portion of the cost of producing TEGSEDI that Akcea is using in the commercial launch as R&D expense prior to the regulatory approval of TEGSEDI. We expect cost of products sold to increase as we deplete these inventories.

Our cost of products sold by segment were as follows (in thousands):

	Three Months Ended March 31,
	2019
Ionis Core	$	—
Akcea Therapeutics		2,326
Elimination of intercompany activity		(1,403	)
Subtotal		923
Non-cash compensation expense related to equity awards		118
Total cost of products sold	$	1,041

For the three months ended March 31, 2019, our cost of products sold was $0.9 million. We began recognizing cost of products sold in the third quarter of 2018 when TEGSEDI was approved. We previously recognized $0.3 million of costs we incurred to produce the amount of TEGSEDI we sold in the first quarter of 2019. We recognized these costs prior to the first quarter of 2019 because we incurred these costs before we obtained regulatory approval. We did not have cost of products sold in the first quarter of 2018. Akcea includes the amortization for milestone payments it made to us related to the U.S. and European approvals of TEGSEDI in its cost of products sold. Akcea is recognizing this amortization over TEGSEDI’s remaining estimated patent life. We eliminate this amortization in our consolidated results. All amounts exclude non-cash compensation expense related to equity awards.

Research, Development and Patent Expenses

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

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

	Three Months Ended March 31,						Three Months Ended March 31,
	2018			2017			2019		2018
Research, development and patent expenses, excluding non-cash compensation expense related to equity awards		$	84,385		$	66,516	$	81,982	$	84,385
Non-cash compensation expense related to equity awards			19,682			16,122		24,435		19,682
Total research, development and patent expenses		$	104,067		$	82,638	$	106,417	$	104,067

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

	Three Months Ended March 31,
	2019			2018
Ionis Core	$	61,327		$	63,988
Akcea Therapeutics		95,698			25,657
Elimination of intercompany activity		(75,043	)		(5,259	)
Subtotal		81,982			84,386
Non-cash compensation expense related to equity awards		24,435			19,682
Total research, development and patent expenses	$	106,417		$	104,068

Three Months Ended March 31,
2018 2017
Ionis Core $ 63,988 $ 54,829
Akcea Therapeutics 25,656 63,194
Elimination of intercompany activity (5,259 ) (51,507 )
Subtotal 84,385 66,516
Non-cash compensation expense related to equity awards 19,682 16,122
Total research, development and patent expenses $ 104,067 $ 82,638

For the three months ended March 31, ~~2018,~~2019, our total research, development and patent expenses were ~~$84.4~~$82.0 million ~~and increased~~ compared to ~~$66.5~~$84.4 million for the same period in ~~2017.~~2018. All amounts exclude non-cash compensation expense related to equity awards.

Antisense Drug Discovery

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. Our antisense drug discovery expenses are part of our Ionis Core business segment.

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

	Three Months Ended March 31,						Three Months Ended March 31,
	2018			2017			2019		2018
Antisense drug discovery expenses, excluding non-cash compensation expense related to equity awards		$	13,904		$	12,598	$	14,632	$	13,905
Non-cash compensation expense related to equity awards			4,376			3,963		5,493		4,376
Total antisense drug discovery expenses		$	18,280		$	16,561	$	20,125	$	18,281

Antisense drug discovery expenses for the three months ended March 31, ~~2018~~2019 were ~~$13.9~~$14.6 million, and were slightly higher compared to ~~$12.6~~$13.9 million for the same period in 2017, due to expenses we incurred related to advancing our early stage research programs. All amounts exclude non-cash compensation expense related to equity awards.

Antisense Drug Development

The following table sets forth ~~research and~~drug development expenses, including the breakdown for ~~our major antisense drug~~medicines in Phase 3 development ~~projects~~and/or commercialization for which we have incurred significant costs (in thousands):

	Three Months Ended March 31,				Three Months Ended March 31,
	2018		2017		2019		2018
SPINRAZA	$	60	$	5,648
WAYLIVRA		6,401		4,258	$	1,971	$	6,401
TEGSEDI		5,836		6,786		4,691		5,836
Other antisense development projects		20,593		10,417		22,310		20,653
Development overhead expenses		11,978		10,303		18,944		17,110
Total antisense drug development, excluding non-cash compensation expense related to equity awards		44,868		37,412		47,916		50,000
Non-cash compensation expense related to equity awards		8,092		6,456		12,234		8,858
Total antisense drug development expenses	$	52,960	$	43,868	$	60,150	$	58,858

Antisense drug development expenses were ~~$44.9~~$47.9 million for the three months ended March 31, ~~2018,~~2019, and decreased slightly compared to ~~$37.4~~$50.0 million for the same period in ~~2017. Expenses for the three months ended March 31, 2018 increased compared to the same period in 2017. During the first quarter of 2018, we advanced our pipeline, including AKCEA-APO(a)-L~~_Rx ~~and AKCEA-APOCIII-L~~_Rx~~. Akcea completed enrollment of its Phase 2 clinical study of AKCEA-APO(a)-~~L_Rx ~~during the first quarter of~~ 2018. ~~Akcea also initiated a Phase 2 clinical study of AKCEA-APOCIII-~~L_Rx in patients with hypertriglyceridemia and established cardiovascular disease. Slightly offsetting these increases were decreased expenses for SPINRAZA and TEGSEDI. Specifically, we have transitioned all further development of SPINRAZA to Biogen and we completed our Phase 3 TEGSEDI trial in people with hATTR with polyneuropathy. All amounts exclude non-cash compensation expense related to equity awards.

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

	Three Months Ended March 31,					Three Months Ended March 31,
	2018		2017			2019			2018
Ionis Core	$	27,626	$	27,711		$	29,070		$	30,972
Akcea Therapeutics		17,242		58,996			93,846			19,028
Elimination of intercompany activity		—		(48,394	)		(75,000	)		—
Subtotal		44,868		38,313			47,916			50,000
Non-cash compensation expense related to equity awards		8,092		7,012			12,234			8,858
Total antisense drug development expenses	$	52,960	$	45,325		$	60,150		$	58,858

In the first quarter of 2019, we received 2.8 million shares of Akcea common stock as payment for the $75 million sublicense fee Akcea owed us when Novartis licensed AKCEA-APO(a)-L_Rx. Akcea recognized the $75 million sublicense fee in its R&D development expenses. We eliminated this expense in our consolidated results.

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~~“in Phase 1"1” or ~~"in~~“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~~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~~medicines in preclinical and early stage clinical research, the fluctuations in expenses from ~~drug~~medicine to ~~drug,~~medicine, in large part, offset one another. If we partner a ~~drug,~~medicine, it may affect the size of a trial, its timing, its total cost and the timing of the related costs.

~~Medical Affairs~~

Our medical affairs function is responsible for performing further research regarding our drugs to ensure appropriate medical use. In addition, members of our medical affairs team educate the medical community about the diseases our drugs are designed to treat.

~~Expenditures in our medical affairs function include personnel costs and outside services.~~

~~Our medical affairs expenses were as follows (in thousands):~~

Three Months Ended March 31,
2018 �� 2017
Medical affairs expenses, excluding non-cash compensation expense related to equity awards $ 5,132 $ 901
Non-cash compensation expense related to equity awards 766 556
Total medical affairs expenses $ 5,898 $ 1,457

Medical affairs expenses were $5.1 million for three months ended March 31, 2018 and were higher compared to $0.9 million for the same period in 2017. The increase was primarily due to the build-out of our medical affairs teams and associated activities to educate the medical community on FCS and hATTR and we expect these costs to continue to increase this year as we continue to build-out these teams. All amounts exclude non-cash compensation expense related to equity awards.

~~Our medical affairs expenses by segment were as follows (in thousands):~~

Three Months Ended March 31,
2018 2017
Ionis Core $ 3,346 $ —
Akcea Therapeutics 1,786 901
Subtotal 5,132 901
Non-cash compensation expense related to equity awards 766 556
Total medical affairs expenses $ 5,898 $ 1,457

Manufacturing and Operations

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, Akcea 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):

	Three Months Ended March 31,						Three Months Ended March 31,
	2018			2017			2019		2018
Manufacturing and operations expenses, excluding non-cash compensation expense related to equity awards		$	12,309		$	8,805	$	10,154	$	12,309
Non-cash compensation expense related to equity awards			2,402			1,705		2,057		2,402
Total manufacturing and operations expenses		$	14,711		$	10,510	$	12,211	$	14,711

Manufacturing and operations expenses were ~~$12.3~~$10.2 million for the three months ended March 31, ~~2018~~2019 and decreased compared to ~~$8.8~~$12.3 million for the same period in ~~2017.~~2018. Manufacturing and operations expenses ~~increased~~decreased primarily related to manufacturing costs we expensed for TEGSEDI ~~for~~in the ~~planned launch this year.~~first quarter of 2018 that did not recur in the first quarter of 2019 because upon approval in mid-2018, we now capitalize all TEGSEDI manufacturing costs into inventory and recognize these expenses into cost of products sold as we sell TEGSEDI. All amounts exclude non-cash compensation expense related to equity awards.

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

	Three Months Ended March 31,						Three Months Ended March 31,
	2018			2017			2019		2018
Ionis Core	$	11,642		$	8,104		$	8,799	$	11,642
Akcea Therapeutics		5,896			3,784			1,355		5,896
Elimination of intercompany activity		(5,229	)		(3,083	)		—		(5,229	)
Subtotal		12,309			8,805			10,154		12,309
Non-cash compensation expense related to equity awards		2,402			1,705			2,057		2,402
Total manufacturing and operations expenses	$	14,711		$	10,510		$	12,211	$	14,711

R&D Support

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):

	Three Months Ended March 31,				Three Months Ended March 31,
	2018		2017		2019		2018
Personnel costs	$	3,103	$	2,852	$	3,910	$	3,103
Occupancy		1,759		1,878		2,177		1,759
Patent expenses		701		499		523		701
Depreciation and amortization		101		67		121		101
Insurance		470		346		411		470
Other		2,038		1,158		2,138		2,038
Total R&D support expenses, excluding non-cash compensation expense related to equity awards		8,172		6,800		9,280		8,172
Non-cash compensation expense related to equity awards		4,046		3,442		4,651		4,046
Total R&D support expenses	$	12,218	$	10,242	$	13,931	$	12,218

R&D support expenses for the three months ended March 31, ~~2018~~2019 were ~~$8.2~~$9.3 million, and increased slightly compared to ~~$6.8~~$8.2 million for the same period in ~~2017. R&D support expenses increased primarily related to costs associated with the expansion of our business.~~2018. All amounts exclude non-cash compensation expense related to equity awards.

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

Three Months Ended March 31,
2018 2017
Ionis Core $ 7,470 $ 6,416
Akcea Therapeutics 732 414
Elimination of intercompany activity (30 ) (30 )
Subtotal 8,172 6,800
Non-cash compensation expense related to equity awards 4,046 3,442
Total R&D support expenses $ 12,218 $ 10,242

	Three Months Ended March 31,
	2019			2018
Ionis Core	$	8,826		$	7,470
Akcea Therapeutics		497			732
Elimination of intercompany activity		(43	)		(30	)
Subtotal		9,280			8,172
Non-cash compensation expense related to equity awards		4,651			4,046
Total R&D support expenses	$	13,931		$	12,218

Selling, General and Administrative Expenses

Selling, general and administrative expenses include personnel and outside costs associated with the pre-commercialization and commercialization activities for our ~~drugs~~medicines and costs to support our company, our employees and our ~~stockholders. These costs include personnel and outside costs in the areas of pre-commercialization,~~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 ~~owed~~owe under our in-licensing agreements related to ~~SPINRAZA in our SG&A expenses.~~SPINRAZA.

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

	Three Months Ended March 31,						Three Months Ended March 31,
	2018			2017			2019		2018
Selling, general and administrative expenses, excluding non-cash compensation expense related to equity awards		$	34,884		$	8,887	$	47,269	$	34,884
Non-cash compensation expense related to equity awards			8,769			4,790		20,952		8,769
Total selling, general and administrative expenses		$	43,653		$	13,677	$	68,221	$	43,653

Selling, general and administrative expenses were ~~$34.9~~$47.3 million for the three months ended March 31, ~~2018,~~2019, and increased ~~significantly~~ compared to ~~$8.9~~$34.9 million for the same period in ~~2017.~~2018. The increase in SG&A expenses was principally due to the cost of preparing to commercialize WAYLIVRA and TEGSEDI this year, assuming approval, and from fees we owed under our in-licensing agreements related to SPINRAZA. We project our expenses will increase as we continue to prepare to launch TEGSEDI and WAYLIVRA.commercializing TEGSEDI. All amounts exclude non-cash compensation expense related to equity awards.

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

	Three Months Ended March 31,				Three Months Ended March 31,
	2018		2017		2019		2018
Ionis Core	$	19,488	$	5,791	$	17,187	$	19,488
Akcea Therapeutics		15,396		3,096		30,082		15,396
Subtotal						47,269		34,884
Non-cash compensation expense related to equity awards		8,769		4,790		20,952		8,769
Total selling, general and administrative expenses	$	43,653	$	13,677	$	68,221	$	43,653

Akcea Therapeutics, Inc.

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

	Three Months Ended March 31,				Three Months Ended March 31,
	2018		2017		2019			2018
Cost of products sold					$	2,326		$	—
Development and patent expenses	$	25,656	$	63,194		95,698			25,656
General and administrative expenses		15,396		3,096
Selling, general and administrative expenses						30,082			15,396
Profit/loss share for TEGSEDI commercialization activities						(9,056	)		—
Total operating expenses, excluding non-cash compensation expense related to equity awards		41,052		66,290		119,050			41,052
Non-cash compensation expense related to equity awards		6,383		3,180		18,560			6,383
Total Akcea Therapeutics operating expenses	$	47,435	$	69,470	$	137,610		$	47,435

Operating expenses for Akcea were ~~$41.1~~$119.1 million for the three months ended March 31, ~~2018,~~2019, and ~~decreased~~increased compared to ~~$66.3~~$41.1 million for the same period in ~~2017.~~2018.

In the ~~first~~third quarter of ~~2017, $48.4 million~~2018, Akcea began recognizing cost of ~~development and patent~~products sold expenses ~~was for one-time sublicensing expenses related to~~after the ~~Novartis collaboration recorded in the first quarter~~approval of ~~2017. $33.4 million of these expenses were non-cash and the remaining $15 million was paid to us. Excluding the $48.4 million of one-time expenses,~~ TEGSEDI.

Akcea’s development and patent expenses increased ~~$10.9 million in~~for the ~~first quarter of 2018~~three months ended March 31, 2019, compared to the same period in ~~2017~~2018 as a result of the one-time $75 million sublicense fee it paid to Ionis in Akcea ~~made investments~~common stock for Ionis' portion of the license fee Akcea received from Novartis in ~~advancing its pipeline, including AKCEA-APO(a)-L~~_Rx ~~and AKCEA-APOCIII-L~~_Rx.the first quarter of 2019.

Akcea’s SG&A expenses increased in the three months ended March 31, 2019 compared to the same period in 2018, primarily because Akcea was continuing to build its commercial infrastructure and advance commercialization activities necessary to successfully launch TEGSEDI and WAYLIVRA. For each period presented, we allocated a portion of Ionis’ ~~R&D support expenses, which are included in development and patent expenses in the table above, to Akcea for work we performed on behalf of Akcea.~~

~~Akcea’s G~~SG&A expenses increased in the first quarter of 2018 compared to the same period in 2017, primarily due to Akcea continuing to build its commercial infrastructure and advance the pre-commercialization activities necessary to successfully launch WAYLIVRA this year, assuming approval. Akcea’s G&A expenses also include costs related to the TEGSEDI licensing agreement with us. For each period presented, we allocated a portion of Ionis' G&A expenses, which were included in Akcea’s G&A expenses in the table above, to Akcea for work we performed on Akcea’s behalf. We include these allocated expenses in Akcea’s SG&A expenses in the table above. All amounts exclude non-cash compensation expense related to equity awards.

In the first quarter of 2019, we began sharing profits and losses for TEGSEDI with Akcea under our TTR licensing agreement. As Akcea is the principal for all commercial activities related to the TTR License Agreement, Akcea records all activities related to TEGSEDI on a gross basis in its statement of operations based on the nature of the activity, including revenues, cost of products sold and sales and marketing expenses. Ionis’ share of the net profit/loss from commercializing TEGSEDI is separately presented on Akcea’s statement of operations on the line titled “Profit/loss share for TEGSEDI commercialization activities”. This represents the amount Ionis owes Akcea under the licensing agreement for its share of the net profit/loss of TEGSEDI commercialization activities during the period. For the three months ended March 31, 2019, profit/loss share for TEGSEDI commercialization activities was $9.1 million. We ~~anticipate Akcea’s operating expenses to continue to increase~~eliminate this amount in ~~2018, as they prepare to launch TEGSEDI and WAYLIVRA.~~our consolidated results.

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

Investment Income

Investment income for the three months ended March 31, ~~2018~~2019 was ~~$3.6~~$12.1 million compared to ~~$2.3~~$3.6 million for ~~2017.~~2018. The increase in investment income was primarily due to a higher average cash balance and an improvement in the market conditions during the three months ended March 31, ~~2018~~2019 compared to the same period in ~~2017. We expect our investment income to increase in 2018 with the addition of $1 billion from our expanded strategic collaboration with Biogen.~~2018.

Interest Expense

Interest expense for the three months ended March 31, ~~2018~~2019 was ~~$10.9~~$11.6 million and ~~decreased~~increased slightly compared to ~~$11.4~~$10.9 million for the same period in ~~2017.~~

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, which was replaced by mortgage debt for our primarily R&D and manufacturing facilities beginning in July 2017 and other miscellaneous debt.

~~In July 2017,~~ we purchased the building that houses our primary R&D facility and the building that houses our manufacturing facility for $79.4 million and $14.0 million, respectively. As a result of the purchase of our primary R&D facility, we ~~extinguished the financing liability we had previously recorded on our balance sheet.~~ We financed the purchase of the buildings with mortgage debt of $51.3 million with an interest rate of 3.88 percent for our primary R&D facility and mortgage debt of $9.1 million with an interest rate of 4.2 percent for our manufacturing facility. Both mortgages mature in August 2027. The non-cash interest expense for our long-term financing liability was replaced with lower mortgage interest expense.2018.

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

	Three Months Ended March 31,				Three Months Ended March 31,
	2018		2017		2019		2018
Convertible notes:
Non-cash amortization of the debt discount and debt issuance costs	$	8,524	$	7,902	$	9,200	$	8,524
Interest expense payable in cash		1,714		1,715		1,714		1,714
Non-cash interest expense for long-term financing liability		—		1,675
Interest on mortgage for primary R&D and manufacturing facilities		594		—		582		594
Other		106		71		103		106
Total interest expense	$	10,938	$	11,363	$	11,599	$	10,938

Income Tax Expense

We recorded income tax expense of $31 million for the three months ended March 31, 2019, compared to $15,000 for the same period in 2018. The increase in our income tax expense was primarily due to our expectation that we will generate U.S. federal and state taxable income in 2019. Our 2019 income tax expense has two components. The first component relates to federal income taxes. We expect to utilize our deferred tax assets to offset our U.S. federal taxable income. We are recording non-cash income tax expense as we utilize our federal deferred tax assets. The other component of our income tax expense relates to the estimated cash taxes we will pay for our state income taxes. Although we are recording the expense for our state income taxes in 2019, we will not have to make the majority of the payment for this liability until the first quarter of 2020.

Net Income (Loss)

We ~~had~~reported net income of $90.9 million for the three months ended March 31, 2019, compared to a net loss of $10.8 million for the ~~three months ended March 31, 2018, compared to net income of $9.0 million for the~~ same period in ~~2017.~~2018. Our net ~~loss increased~~income was primarily due to increased ~~operating expenses as we prepare to commercialize TEGSEDI and WAYLIVRA, assuming approval.~~revenue year-over-year.

Net (Income) Loss Attributable to Noncontrolling Interest in Akcea Therapeutics, Inc.

~~Prior to Akcea’s IPO in July 2017,~~At March 31, 2019, we owned ~~100~~approximately 76 percent of Akcea. ~~From the closing~~The shares of ~~Akcea’s IPO on July 19, 2017~~Akcea third parties own represent an interest in Akcea's equity that we do not control. However, because we continue to maintain overall control of Akcea through ~~the end of the first quarter of 2018,~~our voting interest, we ~~owned approximately 68 percent of Akcea. As a result, we adjusted our financial statements to~~ reflect the ~~portion~~assets, liabilities and results of operations of Akcea ~~we no longer own, which was 32 percent at March 31, 2018. Accordingly,~~in our consolidated ~~statement~~financial statements. We reflect the noncontrolling interest attributable to other owners of ~~operations now includes~~Akcea's common stock in a ~~new~~separate line called “Net loss attributable to noncontrolling ~~interests~~interest in Akcea”, on our statement of operations. Our noncontrolling interest in Akcea on our statement of operations for the three months ended March 31, ~~2018~~2019, was income of $6.4 million, compared to a loss of $9.4 ~~million. We also added a corresponding account to our consolidated balance sheet called “Noncontrolling interest~~million for same period in ~~Akcea Therapeutics, Inc.”~~2018.

~~In April 2018, we received 8 million shares of Akcea’s stock for the license of TEGSEDI and AKCEA-TTR-L~~_Rx to Akcea and purchased an additional 10.7 million shares of Akcea’s stock for $200 million, increasing our ownership percentage to approximately 75 percent. We will reflect this increase in our ownership percentage in the second quarter of 2018.

Net Income (Loss) Attributable to Ionis Pharmaceuticals, Inc. Common Stockholders and Net Income (Loss) per Share

We had a net ~~loss~~income attributable to our common stockholders’ of ~~$1.4~~$84.4 million for the three months ended March 31, ~~2018~~2019, compared to a net ~~income~~loss of ~~$9.0~~$1.4 million for the same period in ~~2017.~~2018. Basic ~~and diluted net loss per share for three months ended March 31, 2018 was $0.01. Our basic~~ and diluted net income per share for the three months ended March 31, ~~2017~~2019 was ~~$0.07.~~$0.63 and $0.62, respectively. Our basic and diluted net loss per share for the three months ended March 31, 2018 were both $0.01.

Liquidity and Capital Resources

We have financed our operations ~~with revenue~~ primarily from research and development collaborative agreements. Beginning in December 2016 we added commercial revenue from SPINRAZA ~~royalties.~~royalties and in the third quarter of 2018 we added product sales from TEGSEDI. From our inception through March 31, ~~2018,~~2019, we have earned approximately ~~$2.7~~$3.5 billion in revenue. We also financed our operations through the sale of our equity securities and the issuance of long-term debt. From the time we were founded through March 31, ~~2018,~~2019, we have raised net proceeds of approximately ~~$1.2~~$1.8 billion from the sale of our equity securities, not including the $182.4 million Akcea received in net proceeds from its IPO in July 2017. Additionally, we have borrowed approximately $1.4 billion under long-term debt arrangements to finance a portion of our operations over the same time period.

At March 31, ~~2018,~~2019, we had cash, cash equivalents and short-term investments of ~~$1.04~~$2.3 billion and stockholders’ equity of ~~$387.1 million.~~$1.4 billion. In comparison, we had cash, cash equivalents and short-term investments of ~~$1.02~~$2.1 billion and stockholders’ equity of ~~$365.3 million~~$1.2 billion at December 31, ~~2017.~~2018. Our cash, cash equivalents and short-term investments increased in the first quarter of ~~2018~~2019 primarily from payments we received from ~~Biogen, Roche~~Novartis and ~~AstraZeneca.Our first quarter of 2018 cash balance did not include the $1 billion we expect to receive in the second quarter of 2018 from Biogen for our new strategic neurology collaboration.~~Roche.

At March 31, ~~2018,~~2019, we had consolidated working capital of ~~$930.6 million~~$2.1 billion compared to ~~$925.1 million~~$1.9 billion at December 31, ~~2017.~~2018. As of March 31, ~~2018,~~2019, our debt and other obligations totaled ~~$758.4~~$776.1 million compared to ~~$759.9~~$763.9 million at December 31, ~~2017.~~2018. The increase in our debt and other obligations is from the operating lease liability we added to our balance sheet when we adopted the new accounting guidance for leases on January 1, 2019.

The following table summarizes our contractual obligations as of March 31, ~~2018.~~2019. 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:

	Payments Due by Period (in millions)										Payments Due by Period (in millions)
Contractual Obligations (selected balances described below)	Total		Less than 1 year		1-3 years		3-5 years		After 5 years		Total		Less than 1 year		1-3 years		3-5 years		After 5 years
Convertible senior notes (principal and interest payable)	$	712.9	$	6.9	$	13.7	$	692.3	$	—	$	706.0	$	6.9	$	699.1	$	—	$	—
Building mortgage payments		82.6		2.4		4.8		5.4		70.0		80.2		2.4		4.8		6.4		66.6
Financing arrangements (principal and interest payable)		13.0		0.3		12.7		—		—		12.7		12.7		—		—		—
Other obligations (principal and interest payable)		1.1		0.1		0.1		0.1		0.8		1.0		0.1		0.1		0.1		0.7
Operating leases		3.1		0.9		1.5		0.6		0.1		25.3		3.2		5.8		5.1		11.2
Total	$	812.7	$	10.6	$	32.8	$	698.4	$	70.9	$	825.2	$	25.3	$	709.8	$	11.6	$	78.5

Our contractual obligations consist primarily of our convertible debt. In addition, we also have facility mortgages, facility leases, 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.

1 Percent Convertible Senior Notes

In November 2014, we completed a $500 million offering of convertible senior notes, which mature in 2021 and bear interest at 1 percent. We used a substantial portion of the net proceeds from the issuance of the 1 percent convertible senior notes to repurchase $140 million in principal of our 2¾ percent convertible senior notes. As a result, the principal balance of the 2¾ percent notes following the repurchase in November 2014 was $61.2 million.

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. At March 31, ~~2018,~~2019, we had a nominal amount of our 2¾ percent convertible senior notes outstanding. At March 31, ~~2017,~~2019, we had the following 1 percent convertible senior notes outstanding (amounts in millions except price per share and interest rate data):

	1 Percent Convertible Senior Notes		1 Percent Convertible Senior Notes
Outstanding principal balance	$	685.5	$	685.5
Original issue date ($500 million of principal)	November 2014		November 2014
Additional issue date ($185.5 million of principal)	December 2016		December 2016
Maturity date	November 2021		November 2021
Interest rate	1 percent		1 percent
Conversion price per share	$	66.81	$	66.81
Total shares of common stock subject to conversion		10.3		10.3

Interest is payable ~~semi-annually for the 1 percent notes.~~semi-annually. The notes are convertible under certain conditions, at the option of the note holders. We 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 1 percent notes prior to maturity, and no sinking fund is provided for them. Holders of the 1 percent notes may require us to purchase some or all of their notes upon the occurrence of certain fundamental changes, as set forth in the indenture governing the 1 percent notes, at a purchase price equal to 100 percent of the principal amount of the notes to be purchased, plus accrued and unpaid interest.

Financing Arrangements

In June 2015, we entered into a five-year revolving line of credit agreement with Morgan Stanley Private Bank, National Association, or Morgan Stanley. We amended the credit agreement in February 2016 to increase the amount available for us to borrow. Under the amended credit agreement, Morgan Stanley will provide a maximum of $30 million of revolving credit for general working capital purposes. Any loans under the credit agreement have interest payable monthly in arrears at a borrowing rate based on our option of:

(i)	a floating rate equal to the one-month London Interbank Offered Rate, or LIBOR, in effect plus 1.25 percent per annum;

(ii)	a fixed rate equal to LIBOR plus 1.25 percent for a period of one, two, three, four, six, or twelve months as elected by us; or

(iii)

a fixed rate equal to the LIBOR swap rate during the period of the loan.

Additionally, we pay 0.25 percent per annum, payable quarterly in arrears, for any amount unused under the credit facility. As of March 31, ~~2018~~2019, we had $12.5 million in outstanding borrowings under the credit facility with a 2.31 percent fixed interest rate and a maturity date of September 2019, which we used to fund our capital equipment needs consistent with our historical practice to finance these costs.

The credit agreement includes customary affirmative and negative covenants and restrictions. We are in compliance with all covenants of the credit agreement.

Research and Development and Manufacturing Facilities

In July 2017, we purchased the building that houses our primary R&D facility for $79.4 million. We purchased our manufacturing facility in July 2017 for $14.0 million. We financed the purchase of our primary R&D facility and manufacturing facility, with mortgage debt of $51.3 million and $9.1 million, respectively. Our primary R&D facility mortgage has 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 are only required to make interest payments. Both mortgages mature in August 2027.

Other Obligations

In addition to contractual obligations, we had outstanding purchase orders as of March 31, ~~2018~~2019 for the purchase of services, capital equipment and materials as part of our normal course of business.

We plan to continue to enter into collaborations with partners to 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.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to changes in interest rates primarily from our long-term debt arrangements and, secondarily, 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 consolidated financial statements. Our business strategy incorporates potentially significant international expansion, particularly related to TEGSEDI and WAYLIVRA, therefore we expect that the impact of foreign currency exchange rate fluctuations may become more substantial in the future.

ITEM 4.

CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information we are required to disclose in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. We design and evaluate our disclosure controls and procedures recognizing that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance and not absolute assurance of achieving the desired control objectives.

As of our most recently completed fiscal year and as of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based on our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, ~~2018.~~2019. There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to March 31, ~~2018.~~

2019.

We also performed an evaluation of any ~~change~~changes in our internal ~~control~~controls over financial reporting that occurred during our last fiscal quarter and that ~~has~~have materially affected, or isare reasonably likely to materially affect, our internal ~~control~~controls over financial reporting. We implemented internal controls to ensure we adequately evaluated our contracts and properly assessed the impact of the of new revenue recognition accounting guidance we adopted on January 1, 2018 reflected in our financial statements. We conducted this evaluation under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. That evaluation did not identify any ~~significant~~ changes in our internal ~~control~~controls over financial reporting that occurred during our latest fiscal quarter and that ~~has~~have materially affected, or isare reasonably likely to materially affect, our internal ~~control~~controls over financial reporting.

PART II — OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

~~Gilead Litigation~~Not applicable.

In August 2013, Gilead Sciences Inc. filed a suit in the United States District Court of Northern District of California related to United States Patent Nos. 7,105,499 and 8,481,712, which are jointly owned by Merck Sharp & Dohme Corp. and Ionis Pharmaceuticals, Inc. In the suit Gilead asked the court to determine that Gilead's activities do not infringe any valid claim of the named patents and that the patents are not valid. We and Merck Sharp & Dohme Corp. filed our answer denying Gilead's noninfringement and invalidity contentions, contending that Gilead's commercial sale and offer for sale of sofosbuvir prior to the expiration of the '499 and '712 patents infringes those patents, and requesting monetary damages to compensate for such infringement. In the trial for this case held in March 2016, the jury upheld all ten of the asserted claims of the patents-in-suit. The jury then decided that we and Merck are entitled to four percent of $5 billion in past sales of sofosbuvir. Gilead stated it would appeal the jury’s finding of validity. In the meantime, Gilead asserted two additional non-jury defenses: waiver and unclean hands. Although the judge rejected the waiver defense, she granted Gilead’s motion claiming that the patents are unenforceable against it under the doctrine of unclean hands. We believe this ruling is contrary to the relevant law and the facts of the case. Accordingly, in July 2016, together with Merck we appealed the decision to the Court of Appeals for the Federal Circuit. Gilead cross-appealed on the issue of validity. In April 2018, the Court of Appeals issued its ruling affirming the District Court’s finding of unenforceability based on unclean hands. Having upheld the ruling that the patents are unenforceable against Gilead, the court did not reach the question of validity. Under our agreement with Merck, Merck is responsible for the costs of this suit.

ITEM 1A.~~RISK FACTORS~~

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. We have marked with an asterisk those risk factors that reflect substantive changes from the risk factors included in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

Risks Associated with our Ionis Core and Akcea Therapeutics Businesses

If the market does not accept our ~~drugs,~~medicines, including SPINRAZA, ~~WAYLIVRA~~TEGSEDI and ~~TEGSEDI,~~WAYLIVRA, we are not likely to generate revenues or become consistently profitable.

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

Additionally, in many of the markets where we may sell our ~~drugs~~medicines in the future, if we cannot agree with the government regarding the price we can charge for our ~~drugs,~~medicines, then we may not be able to sell our ~~drugs~~medicines in that market. Similarly, cost control initiatives by governments or ~~third party~~third-party payors could decrease the price received for our ~~drugs~~medicines or increase patient coinsurance to a level that makes our ~~drugs,~~medicines, including SPINRAZA, ~~WAYLIVRA~~TEGSEDI and ~~TEGSEDI,~~WAYLIVRA, unaffordable.

The degree of market acceptance for our ~~drugs,~~medicines, including SPINRAZA, ~~WAYLIVRA~~TEGSEDI and ~~TEGSEDI,~~WAYLIVRA, depends upon a number of factors, including the:

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receipt and scope of marketing authorizations;

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

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

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patient convenience of the dosing regimen for our ~~drugs;~~medicines; and

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reimbursement policies of government and third-party payors.

Based on the profile of our ~~drugs,~~medicines, physicians, patients, patient advocates, payors or the medical community in general may not accept and/or use any ~~drugs~~medicines that we may develop.

For example, the product label for TEGSEDI in the U.S. has a boxed warning for thrombocytopenia and glomerulonephritis, requires periodic blood and urine monitoring, and TEGSEDI has a Risk Evaluation and Mitigation Strategy, or REMS, program. Our main competition in the U.S. market for TEGSEDI is ONPATTRO (patisiran), marketed by Alnylam Pharmaceuticals, Inc. Although ONPATTRO requires intravenous administration and pre-treatment with steroids, it does not have a boxed warning or REMS. Additionally, in the clinical studies with WAYLIVRA, ~~and TEGSEDI,~~ declines in platelet counts were observed in many patients and some patients discontinued the studies because of platelet declines. ~~In addition, in the TEGSEDI NEURO-TTR study, safety signals related to renal function were observed. Therefore, we expect the~~The product label for WAYLIVRA ~~and TEGSEDI will require~~requires periodic ~~platelet monitoring and the product~~blood monitoring. In each case, these label ~~for TEGSEDI will require periodic renal monitoring, which~~requirements could negatively affect our ability to attract and retain patients for these ~~drugs.~~medicines. We believe that the enhanced monitoring we have implemented to support early detection and management of these issues can help manage these safety issues so that patients can continue treatment. Since implementation of the enhanced monitoring, serious platelet events have been infrequent. While we believe we and Akcea can better maintain patients on TEGSEDI and WAYLIVRA through patient-centric commercial approaches where we ~~and Akcea~~ plan to have greater involvement with physicians and patients, if we ~~and Akcea~~ cannot effectively maintain patients on TEGSEDI or WAYLIVRA, we may not be able to generate substantial revenue from TEGSEDI or WAYLIVRA sales.

If we or our partners fail to compete effectively, our ~~drugs,~~medicines, including SPINRAZA, ~~WAYLIVRA~~TEGSEDI and ~~TEGSEDI,~~WAYLIVRA, 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~~medicines that are:

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priced lower than our ~~drugs;~~medicines;

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

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safer than our ~~drugs;~~medicines;

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more effective than our ~~drugs;~~medicines; or

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more convenient to use than our ~~drugs.~~medicines.

These competitive developments could make our ~~drugs,~~medicines, including SPINRAZA, ~~WAYLIVRA~~TEGSEDI and ~~TEGSEDI,~~WAYLIVRA, obsolete or non-competitive.

Certain of our partners are pursuing other technologies or developing other ~~drugs~~medicines 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~~partner’s focus on and commitment to our ~~drugs~~medicines and, as a result, could delay or otherwise negatively affect the commercialization of our ~~drugs,~~medicines, including SPINRAZA, ~~WAYLIVRA~~TEGSEDI and ~~TEGSEDI.~~WAYLIVRA.

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, in obtaining FDA and other regulatory authorizations of such products and in commercializing 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,~~medicines, and we will primarily 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, RG7916,~~Zolgensma (AVXS-101), Risdiplam (RG7916), reldesemtiv and ~~LMI070~~firdapse could compete with SPINRAZA, and ~~metreleptin~~ONPATTRO (approved in the U.S. and ~~Gemcabene~~Europe for a similar indication as TEGSEDI), Tafamadis, AG10, CRX-1008 and vutrisiran could compete with ~~WAYLIVRA; patisiran, tafamadis, diflunisal, tolcapone, PRX004~~TEGSEDI. Also, metreleptin and ~~ALN-TTRsc02~~gemcabene could compete with ~~TEGSEDI.~~WAYLIVRA, while laquinimod, OMS823, selistat, VX15, WVE-120101 and WVE-120102 could compete with IONIS-HTT_Rx. Furthermore, arimoclomol could potentially compete with tofersen.

Following approval, our ~~drugs,~~medicines, including SPINRAZA, ~~WAYLIVRA~~TEGSEDI and ~~TEGSEDI~~WAYLIVRA could be subject to regulatory limitations. *

Following approval of a ~~drug,~~medicine, 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, ~~WAYLIVRA~~TEGSEDI and ~~TEGSEDI.~~WAYLIVRA.

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:

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In the U.S., TEGSEDI’s label contains a boxed warning for thrombocytopenia and glomerulonephritis;

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TEGSEDI requires periodic blood and urine monitoring; and

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in the U.S. TEGSEDI is available only through a Risk Evaluation and Mitigation Strategy, or REMS, program.

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. For example, in connection with the conditional marketing approval for WAYLIVRA in the EU, we are required to conduct a post-authorization safety study to evaluate the safety of WAYLIVRA on thrombocytopenia and bleeding in FCS patients taking WAYLIVRA. 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, ~~WAYLIVRA~~TEGSEDI and ~~TEGSEDI.~~

43WAYLIVRA.

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:

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fund our development activities for SPINRAZA;

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seek and obtain regulatory approvals for SPINRAZA; and

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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 or spend additional funding, and ~~SPINRAZA's~~SPINRAZA’s commercialization may be harmed or delayed.

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

If Akcea cannot ~~establish~~optimize and maintain effective marketing and sales capabilities or enter into agreements with third parties to market and sell TEGSEDI and WAYLIVRA, we may not generate significant product revenue from ~~TEGSEDI.~~TEGSEDI or WAYLIVRA.*

~~We plan to commercialize TEGSEDI through Akcea, if approved.~~ To successfully commercialize TEGSEDI Akcea must successfully manage its marketing, sales and distribution capabilities or make arrangements with third parties to perform these services. Akcea may not be successful in doing so. To commercialize TEGSEDI and WAYLIVRA in the initial indications Akcea ~~plans to pursue,~~is pursuing, Akcea will need to optimize and maintain a specialty sales force in each global region it expects to market TEGSEDI and WAYLIVRA, supported by case managers, reimbursement specialists, partnerships with specialty pharmacies, injection training, routine ~~platelet~~blood and ~~renal~~urine monitoring and a medical affairs team. Akcea may seek to further penetrate markets by expanding its sales force or through strategic partnerships with other pharmaceutical or biotechnology companies or third-party sales organizations.

Even though certain members of Akcea’s management team and other employees have experience commercializing drug products, Akcea has no prior experience marketing, selling or distributing drug products, and there are significant risks involved in building and managing a commercial infrastructure. It will be expensive and time consuming for Akcea to maintain its own sales force and related compliance protocols to market TEGSEDI. Akcea may never successfully optimize or manage this capability and any failure could ~~delay or~~ preclude ~~TEGSEDI’s launch.~~the successful commercialization of TEGSEDI. Akcea and its partners, if any, will have to compete with other companies to recruit, hire, train, manage and retain marketing and sales personnel.

Akcea ~~will incur~~incurred expenses prior to the launch of TEGSEDI and WAYLIVRA to integrate and manage the associated marketing and sales infrastructure. If regulatory requirements or other factors cause ~~a delay in~~ the commercial launch of TEGSEDI or WAYLIVRA to be less successful than expected, Akcea ~~would incur additional~~will have incurred expenses for having invested in these capabilities ~~earlier than required and~~ prior to realizing any significant revenue from sales of ~~TEGSEDI.~~TEGSEDI or WAYLIVRA. Akcea’s sales force and marketing teams may not successfully commercialize ~~TEGSEDI.~~TEGSEDI or WAYLIVRA.

To the extent we and Akcea decide to rely on third parties to commercialize TEGSEDI or WAYLIVRA in a particular geographic market, wesuch as the collaboration Akcea has with PTC Therapeutics to commercialize TEGSEDI and ~~Akcea~~WAYLIVRA in Latin America, we may receive less revenue than if it Akcea commercialized TEGSEDI or WAYLIVRA by itself. Further we would have less control over the sales efforts of any other third parties involved in commercializing ~~TEGSEDI.~~TEGSEDI or WAYLIVRA.

If Akcea cannot effectively build and manage its distribution, medical affairs, market access, marketing and sales infrastructure, or find a suitable third party to perform such functions, the commercial launch and sales of TEGSEDI may be delayed, less successful or precluded. Such events may result in decreased sales and lower revenue, which could have a material adverse effect on our business, prospects, financial condition and results of operations.

If government or other third-party payors fail to provide adequate coverage and payment rates for our ~~drugs,~~medicines, including SPINRAZA, TEGSEDI and WAYLIVRA, 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 people in the ~~United States~~U.S. who would fit within our target patient populations for our ~~drugs~~medicines 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~~medicines affordable.

4437

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,~~U.S., 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~~U.S. and in international markets. For example, in the ~~United States,~~U.S., recent health reform measures have resulted in reductions in Medicare and other healthcare funding, and there have been several 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~~medicines may not be available or adequate in either the ~~United States~~U.S. 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~~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~~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 WAYLIVRA~~_,~~TEGSEDI,~~medicines and additional approvals for SPINRAZA, TEGSEDI and WAYLIVRA, we or our partners cannot sell them in the applicable markets.*

We cannot guarantee that any of our ~~drugs, including WAYLIVRA and TEGSEDI,~~medicines will be considered safe and effective, or will be approved for commercialization. In addition, we cannot guarantee that SPINRAZA, TEGSEDI and WAYLIVRA will be approved in additional markets 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~~medicines 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.~~medicines. It is possible that regulatory agencies will not approve our ~~drugs including, WAYLIVRA and TEGSEDI~~medicines for marketing or additional marketing authorizations for ~~SPINRAZA.~~SPINRAZA, TEGSEDI or WAYLIVRA. 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,~~medicines, including SPINRAZA, ~~WAYLIVRA~~TEGSEDI and ~~TEGSEDI,~~WAYLIVRA, the agency will not approve the specific ~~drug~~medicine or will require additional studies, which can be time consuming and expensive and which will delay or harm commercialization of the ~~drug.~~medicine. For example, Akcea received a CRL from the FDA ~~or foreign regulatory authorities could claim that we have not tested WAYLIVRA in~~and a ~~sufficient number~~preliminary notice of ~~patients to demonstrate WAYLIVRA is safe and effective in patients with FCS or FPL to support an application~~noncompliance withdrawal letter from Health Canada 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, weWAYLIVRA. As result, Akcea may need to submit additional data to the FDA and Health Canada or conduct additional clinical studies before obtaining marketing authorization, which would be expensive and cause delays.

The FDA’s Division of Metabolism and Endocrinology Products advisory committee is scheduled to discuss and advise the FDA on the risk-benefit profile of WAYLIVRA for the treatment of FCS on May 10, 2018. In advance of this advisory committee meeting, we, Akcea and the FDA will submit briefing documents for the committee’s review, and these briefing documents will be made available to the public and may include information from the WAYLIVRA development program that have not previously been disclosed. Historically, for some companies, disclosure of information in this manner has led to increased volatility in their stock price. The advisory committee and FDA may interpret nonclinical and clinical data differently than we and our experts have. Press coverage and public scrutiny of the materials that will be discussed at the advisory committee meeting may negatively affect the potential for the NDA for WAYLIVRA to receive approval or the trading price of our securities. Even if we and Akcea ultimately obtain approval for WAYLIVRA, the matters discussed at the advisory committee meeting could limit Akcea’s ability to successfully commercialize WAYLIVRA.

Failure to receive marketing authorization for our ~~drugs, WAYLIVRA and~~medicines, or failure to receive additional marketing authorizations for SPINRAZA, TEGSEDI or ~~additional authorizations for SPINRAZA,~~WAYLIVRA, or delays in these authorizations could prevent or delay commercial introduction of the ~~drug,~~medicine, 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~~medicines 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~~medicines are a relatively new approach to therapeutics. If we cannot demonstrate that our ~~drugs~~medicines 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~~medicines that have not met the primary clinical end points in their Phase 3 studies. Similar results could occur in clinical studies for our ~~drugs,~~medicines, including the study of WAYLIVRA in patients with ~~FPL.~~FPL, the study of IONIS-HTT_Rx in patients with Huntington’s disease and the study of tofersen in adults with SOD1-ALS. If any of our ~~drugs~~medicines in clinical studies, including WAYLIVRA, IONIS-HTT_Rx and tofersen do not show sufficient efficacy in patients with the targeted indication, it could negatively impact our development and commercialization goals for ~~the drug~~these medicines and our stock price could decline.

Even if our ~~drugs~~medicines are successful in preclinical and human clinical studies, the ~~drugs~~medicines 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~~medicines in development, may not predict the results of subsequent clinical studies, including the Phase 3 study of WAYLIVRA in patients with ~~FPL.~~FPL, the study of IONIS-HTT_Rx in patients with Huntington’s disease and the study of tofersen in adults with SOD1-ALS. There are a number of factors that could cause a clinical study to fail or be delayed, including:

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the clinical study may produce negative or inconclusive results;

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

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

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

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

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people 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;

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

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

In addition, our current ~~drugs,~~medicines, including SPINRAZA, ~~WAYLIVRA~~TEGSEDI and ~~TEGSEDI,~~WAYLIVRA, are chemically similar to each other. As a result, a safety observation we encounter with one of our ~~drugs~~medicines could have, or be perceived by a regulatory authority to have, an impact on a different ~~drug~~medicine 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~~medicines 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:~~medicines: 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. Similarly, we have an ongoing Phase 3 study of WAYLIVRA in patients with FPL, an ongoing ~~open label~~open-label extension study of WAYLIVRA in patients with FCS, an ongoing ~~open label~~open-label extension study of TEGSEDI and expanded access programs for each ~~drug.~~medicine. Adverse events or results from these studies could negatively impact our current or planned marketing approval applications for WAYLIVRA in patients with FCS ~~for TEGSEDI~~ or the commercial opportunity for each product.

Any failure or delay in the clinical studies, including the Phase 3 study for WAYLIVRA in patients with FPL, the study of IONIS-HTT_Rx in patients with Huntington’s disease and the study of tofersen in adults with SOD1-ALS, could reduce the commercial potential or viability of our ~~drugs.~~medicines.

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

To successfully commercialize any of our ~~drugs,~~medicines, we or our partner would need to establish large-scale commercial manufacturing capabilities either on our own or through a ~~third party~~third-party manufacturer. We and Akcea will rely on ~~third party~~third-party manufacturers to supply the drug substance and drug product for TEGSEDI and WAYLIVRA. 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,~~medicines, called oligonucleotides, on a commercial scale for the systemic administration of a ~~drug.~~medicine. There are a small number of suppliers for certain capital equipment and raw materials that we use to manufacture our ~~drugs,~~medicines, 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~~medicines at a cost or in quantities necessary to make commercially successful products.

Also, manufacturers, including us, must adhere to the ~~FDA's~~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,~~medicines, including authorizations for SPINRAZA, ~~WAYLIVRA~~TEGSEDI and ~~TEGSEDI,~~WAYLIVRA, or result in enforcement action after authorization that could limit the commercial success of our ~~drugs,~~medicines, including SPINRAZA, ~~WAYLIVRA~~TEGSEDI and ~~TEGSEDI.~~WAYLIVRA.

We depend on third parties to conduct our clinical studies for our ~~drugs~~medicines 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~~medicines 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,~~medicines, including ~~WAYLIVRA~~TEGSEDI and ~~TEGSEDI.~~WAYLIVRA. 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 WAYLIVRA and TEGSEDI~~medicines or additional authorizations for ~~SPINRAZA.~~

SPINRAZA, TEGSEDI and WAYLIVRA.

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 March 31, ~~2018,~~2019, we had an accumulated deficit of approximately ~~$1.2~~$0.9 billion and stockholders’ equity of approximately ~~$387.1 million.~~$1.4 billion. Most of ~~the~~our historical losses resulted from costs incurred in connection with our research and development programs and from selling, general and administrative costs associated with our operations. Most of our income has come from collaborative arrangements, including commercial revenue from royalties and R&D revenue, with additional income from research grants and the sale or licensing of our patents, as well as interest income. WeIf we do not continue to earn substantial revenue, we may incur additional operating losses ~~over~~in the ~~next several years, and these losses may increase if we cannot increase or sustain revenue.~~future. We may not successfully develop any additional products or achieve or sustain future profitability.

Our ability to use our net operating loss carryovers and certain other tax attributes may be limited.

~~As described above, we have incurred net losses.~~ Under the Internal Revenue Code of 1986, as amended, or the Code, a corporation is generally allowed a deduction for net operating losses, or NOLs, carried over from a prior taxable year. Under that provision, we can carryforward our NOLs to offset our future taxable income, if any, until such NOLs are used or expire. The same is true of other unused tax attributes, such as tax credits.

As of December 31, 2017, we had federal and California net operating loss carryforwards of approximately $561.1 million and $887.1 million, respectively. The federal net operating loss carryforwards will begin to expire, if not utilized, beginning in 2024. These net operating loss carryforwards could expire unused and be unavailable to offset future income tax liabilities. Under the Tax Cut and Jobs Act of 2017, or the Tax Act, federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such federal net operating losses is limited. It is uncertain if and to what extent various states will conform to the newly enacted federal tax law.

In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50 percent change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income or taxes may be limited. ~~It is possible that we have experienced an ownership change limitation.~~ We may experience ownership changes in the future as a result of subsequent shifts in our stock ownership, some of which may be outside of our control. If an ownership change occurs and our ability to use our net operating loss carryforwards or other tax attributes is materially limited, it would harm our future operating results by effectively increasing our future tax obligations.

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.~~medicines. 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~~medicines could suffer.

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

Our collaborators can terminate their relationships with us under certain circumstances, many of which are outside of our control. For example, as part of a reprioritization of its pipeline and strategic review of its rare disease business, GSK declined its option on TEGSEDI and IONIS-FB-L_Rx.

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 and commercial 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.~~medicines.

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, Janssen, Novartis and Roche, these collaborations may not continue or result in commercialized ~~drugs,~~medicines, or may not progress as quickly as we first anticipated.

For example, a collaborator such as AstraZeneca, Bayer, Biogen, GSK, Janssen, 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~~medicine 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~~medicines than it does for its own ~~drugs.~~medicines.

If any of these occur, it could affect our ~~partner's~~partner’s commitment to the collaboration with us and could delay or otherwise negatively affect the commercialization of our ~~drugs,~~medicines, including SPINRAZA.

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~~medicine will enter the clinic, when we anticipate completing a clinical study, or when we anticipate filing an application for, or obtaining, 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'~~investors’ expectations, including milestones related to SPINRAZA, ~~WAYLIVRA~~TEGSEDI and ~~TEGSEDI,~~WAYLIVRA, 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~~U.S. 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~~parties 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~~U.S. 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 for 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~~medicines 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~~U.S. 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~~medicines are undergoing clinical studies or are in the early stages of research and development. ~~All~~Most 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 March 31, ~~2018,~~2019, we had cash, cash equivalents and short-term investments equal to ~~$1.0~~approximately $2.3 billion. If we do not meet our goals to successfully commercialize our ~~drugs,~~medicines, including SPINRAZA, ~~WAYLIVRA~~TEGSEDI and ~~TEGSEDI,~~WAYLIVRA, or to license our ~~drugs~~medicines and proprietary technologies, we will need additional funding in the future. Our future capital requirements will depend on many factors, such as the following:

●

successful commercialization for ~~SPINRAZA;~~SPINRAZA, TEGSEDI and WAYLIVRA;

●

additional marketing approvals for WAYLIVRA and TEGSEDI;

●

the profile and launch timing of our ~~drugs,~~medicines, including ~~WAYLIVRA~~TEGSEDI and ~~TEGSEDI;~~WAYLIVRA;

●

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; and

●

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

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.~~medicines.

48If our planned management transition is not successful our business could suffer.

In January 2020, Dr. Crooke, our founder and Chief Executive Officer, plans to transition from Chief Executive Officer to Executive Chairman of our Board of Directors. As Executive Chairman, Dr. Crooke will continue to be responsible for the activities of the board and will remain active in the company, providing strategic advice and continuing to participate in the scientific activities. Our board has selected Dr. Monia, who has been our Chief Operating Officer for the last year and a member of our team since our founding nearly 30 years ago, to serve as our Chief Executive Officer starting in January 2020. If this transition is not successful, our business could suffer.

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 March 31, ~~2018,~~2019, the market price of our common stock ranged from ~~$37.26~~$39.07 to ~~$65.51~~$81.59 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'~~payors’ reimbursement policies, developments in patent or other proprietary rights, public concern regarding the safety of our ~~drugs~~medicines 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, ~~WAYLIVRA~~TEGSEDI and ~~TEGSEDI.~~WAYLIVRA. 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, product 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 most of 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 affected. ~~We manufacture the finished drug product for WAYLIVRA and TEGSEDI at third party contract manufacturers.~~

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.~~medicines.

We manufacture our research and clinical supplies in a manufacturing facility located in Carlsbad, California. We manufacture the finished drug product for TEGSEDI and WAYLIVRA at third-party contract manufacturers. The facilities and the equipment we and our contract manufacturers use to research, develop and manufacture our ~~drugs~~medicines would be costly to replace and could require substantial lead time to repair or replace. Our facilities or our contract manufacturers 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, WAYLIVRA and TEGSEDI 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'~~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~~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~~“say on ~~pay"~~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.

Changes in tax laws, regulations and treaties could affect our future taxable income.

~~The recently passed comprehensive~~A change in tax ~~reform bill~~laws, treaties or regulations, or their interpretation, of any country in which we operate could ~~adversely~~materially affect ~~our business and financial condition.~~

~~The~~us. For example, the Tax Act ~~significantly revises the Internal Revenue Code of 1986, as amended. The Tax Act, among other things, contains significant changes~~represented a substantial change to ~~corporate taxation, including reduction of the corporate~~ tax rate from a top marginal rate of 35 percent to a flat rate of 21 percent, limitation of the tax deduction for interest expense to 30 percent of adjusted earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80 percent of current year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits. Notwithstanding the reductionlaws in the ~~corporate income tax rate, the overall~~U.S. and although it did not have a material impact ~~of the new federal tax law is uncertain and~~on our ~~business and~~ financial condition could be adversely affected. In addition, it is uncertain if and to what extent various states will conform to the newly enacted federal tax law. The impact of this tax reform on holders of our common stock is also uncertain and could be adverse. We urge our stockholders to consult with their legal and tax advisors with respectstatements any future changes or interpretation to this ~~legislation and the potential~~or any other tax ~~consequences of investing in or holding~~laws could have a material effect on our ~~common stock.~~business.

We could be subject to additional tax liabilities.

We are subject to U.S. federal, state, local and sales taxes in the U.S. and foreign income taxes, withholding taxes and transaction taxes in foreign jurisdictions. Significant judgment is required in evaluating our tax positions and our worldwide provision for taxes. During the ordinary course of business, there are many activities and transactions for which the ultimate tax determination is uncertain. In addition, our tax obligations and effective tax rates could be adversely affected by changes in the relevant tax, accounting and other laws, regulations, principles and interpretations, including those relating to income tax nexus, by recognizing tax losses or lower than anticipated earnings in jurisdictions where we have lower statutory rates and higher than anticipated earnings in jurisdictions where we have higher statutory rates, by changes in foreign currency exchange rates, or by changes in the valuation of our deferred tax assets and liabilities. We may be audited in various jurisdictions, and such jurisdictions may assess additional taxes, sales taxes and value-added taxes against us. Although we believe our tax estimates are reasonable, the final determination of any tax audits or litigation could be materially different from our historical tax provisions and accruals, which could have a material adverse effect on our operating results or cash flows in the period for which a determination is made.

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.

We are dependent on information technology systems, infrastructure and data, which exposes us to data security risks.

We are dependent upon our own or third-party information technology systems, infrastructure and data, including mobile technologies, to operate our business. The multitude and complexity of our computer systems may make them vulnerable to service interruption or destruction, disruption of data integrity, malicious intrusion, or random attacks. Likewise, data privacy or security incidents or breaches by employees or others may pose a risk that sensitive data, including our intellectual property, trade secrets or personal information of our employees, patients, customers or other business partners may be exposed to unauthorized persons or to the public. Cyber-attacks are increasing in their frequency, sophistication and intensity. Cyber-attacks could include the deployment of harmful malware, denial-of-service, social engineering and other means to affect service reliability and threaten data confidentiality, integrity and availability. Our business partners face similar risks and any security breach of their systems could adversely affect our security posture. A security breach or privacy violation that leads to disclosure or modification of or prevents access to patient information, including personally identifiable information or protected health information, could harm our reputation, compel us to comply with federal and/or state breach notification laws and foreign law equivalents, subject us to mandatory corrective action, require us to verify the correctness of database contents and otherwise subject us to litigation or other liability under laws and regulations that protect personal data, any of which could disrupt our business and/or result in increased costs or loss of revenue. Moreover, the prevalent use of mobile devices that access confidential information increases the risk of data security breaches, which could lead to the loss of confidential information, trade secrets or other intellectual property. While we have invested, and continue to invest, in the protection of our data and information technology infrastructure, there can be no assurance that our efforts will prevent service interruptions, or identify breaches in our systems, that could adversely affect our business and operations and/or result in the loss of critical or sensitive information, which could result in financial, legal, business or reputational harm to us. In addition, our liability insurance may not be sufficient in type or amount to cover us against claims related to security breaches, cyber-attacks and other related breaches.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3.

DEFAULT UPON SENIOR SECURITIES

Not applicable.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.

OTHER INFORMATION

Not applicable.

ITEM 6.

EXHIBITS

Exhibits

5144

Exhibit Number		Description of Document

10.1		Amended and Restated Strategic Advisory Services Agreement ~~dated as of January 15, 2018,~~ by and between the Registrant and B. Lynne Parshall, dated March 22, 2019. – Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed March 26, 2019 and ~~Ionis Pharmaceuticals, Inc.~~incorporated herein by reference.

10.2		~~Development, Commercialization, Collaboration, and License Agreement, dated as of March 14, 2018, by and between Ionis Pharmaceuticals, Inc. and Akcea Therapeutics, Inc.~~
~~10.3~~		Registrant’s Amended and Restated ~~Services Agreement, dated~~2000 Employee Stock Purchase Plan. – Filed as ofan exhibit to the Registrant’s Current Report on Form 8-K filed March ~~14, 2018,~~26, 2019 and incorporated herein by ~~and between Ionis Pharmaceuticals, Inc. and Akcea Therapeutics, Inc.~~reference.

31.1		Certification by Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended.

31.2		Certification by Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended.

32.1*		Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		The following financial statements from the Ionis Pharmaceuticals, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, ~~2018,~~2019, formatted in Extensive Business Reporting Language (XBRL): (i) condensed consolidated balance sheets, (ii) condensed consolidated statements of operations, (iii) condensed consolidated statements of comprehensive income (loss), (iv) condensed consolidated statements of stockholders' equity, (v) condensed consolidated statements of cash flows and ~~(v)~~(vi) notes to condensed consolidated financial statements (detail tagged).

This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

5245

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signatures	Title	Date

/s/ STANLEY T. CROOKE	Chairman of the Board, President, and Chief Executive Officer
Stanley T. Crooke, M.D., Ph.D.	(Principal executive officer)	May ~~4, 2018~~9, 2019

/s/ ELIZABETH L. HOUGEN	Senior Vice President, Finance and Chief Financial Officer
Elizabeth L. Hougen	(Principal financial and accounting officer)	May ~~4, 2018~~9, 2019

5346

Delaware		33-~~0336973~~ 33-0336973
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

2855 Gazelle Court, Carlsbad, CA		92010
(Address of Principal Executive Offices)		(Zip Code)

Title of each class		Name of each exchange on which registered		Trading symbol
Common Stock, $.001 Par Value		The Nasdaq Stock Market, LLC		“IONS”

Large accelerated filer 	Accelerated filer 

Non-accelerated filer 	Smaller reporting company 
~~(Do not check if a smaller reporting company)~~
	Emerging growth company 

PART I	FINANCIAL INFORMATION

ITEM 1:	Financial Statements:

	Condensed Consolidated Balance Sheets as of March 31, ~~2018~~2019 (unaudited) and December 31, ~~2017 (unaudited) (as revised)~~2018	3

	Condensed Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018 ~~and 2017~~ (unaudited) ~~(as revised)~~	4

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2019 and 2018 ~~and 2017~~ (unaudited) ~~(as revised)~~	5

	Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2019 and 2018 (unaudited)	6

	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018 ~~and 2017~~ (unaudited) ~~(as revised)~~	67

	Notes to Condensed Consolidated Financial Statements (unaudited)	78

ITEM 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations:

	Overview	2625

	Results of Operations	3427

	Liquidity and Capital Resources	4033

ITEM 3:	Quantitative and Qualitative Disclosures about Market Risk	4134

ITEM 4:	Controls and Procedures	4135

PART II	OTHER INFORMATION	4235

ITEM 1:	Legal Proceedings	4235
ITEM 1A:	Risk Factors	4235
ITEM 2:	Unregistered Sales of Equity Securities and Use of Proceeds	5144

ITEM 3:	Default upon Senior Securities	5144

ITEM 4:	Mine Safety Disclosures	5139

ITEM 5:	Other Information	5144

ITEM 6:	Exhibits	5144

SIGNATURES			5346

	March 31, 2019			December 31, 2018
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	375,811		$	278,820
Short-term investments		1,877,943			1,805,252
Contracts receivable		10,452			12,759
Inventories		11,057			8,582
Other current assets		98,686			102,473
Total current assets		2,373,949			2,207,886
Property, plant and equipment, net		133,519			132,160
Patents, net		25,220			24,032
Long-term deferred tax assets		277,247			290,796
Deposits and other assets		25,954			12,910
Total assets	$	2,835,889		$	2,667,784

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	13,332		$	28,660
Accrued compensation		16,264			29,268
Accrued liabilities		45,130			47,503
Income taxes payable		18,401			858
Current portion of long-term obligations		14,500			13,749
Current portion of deferred contract revenue		144,846			160,256
Total current liabilities		252,473			280,294
Long-term deferred contract revenue		542,416			567,359
1 percent convertible senior notes		577,415			568,215
Long-term obligations, less current portion		16,305			4,914
Long-term mortgage debt		59,860			59,842
Total liabilities		1,448,469			1,480,624
Stockholders’ equity:
Common stock, $0.001 par value; 300,000,000 shares authorized, 139,623,937 and 137,928,828 shares issued and outstanding at March 31, 2019 (unaudited) and December 31, 2018, respectively		140			138
Additional paid-in capital		2,117,969			2,047,250
Accumulated other comprehensive loss		(27,608	)		(32,016	)
Accumulated deficit		(882,850	)		(967,293	)
Total Ionis stockholders’ equity		1,207,651			1,048,079
Noncontrolling interest in Akcea Therapeutics, Inc.		179,769			139,081
Total stockholders’ equity		1,387,420			1,187,160
Total liabilities and stockholders’ equity	$	2,835,889		$	2,667,784

	March 31, 2018			December 31, 2017
				(as revised*)
ASSETS
Current assets:
Cash and cash equivalents	$	227,505		$	129,630
Short-term investments		807,796			893,085
Contracts receivable		36,858			62,955
Inventories		9,060			9,982
Other current assets		62,064			73,082
Total current assets		1,143,283			1,168,734
Property, plant and equipment, net		123,188			121,907
Patents, net		22,914			22,004
Deposits and other assets		10,175			10,129
Total assets	$	1,299,560		$	1,322,774

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	13,833		$	24,886
Accrued compensation		12,166			25,151
Accrued liabilities		66,470			66,618
Current portion of long-term obligations		47			1,621
Current portion of deferred contract revenue		120,127			125,336
Total current liabilities		212,643			243,612
Long-term deferred contract revenue		85,446			108,026
1 percent convertible senior notes		541,635			533,111
Long-term obligations, less current portion		12,946			12,974
Long-term mortgage debt		59,789			59,771
Total liabilities		912,459			957,494
Stockholders’ equity:
Common stock, $0.001 par value; 300,000,000 shares authorized, 125,448,746 and 124,976,373 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively		125			125
Additional paid-in capital		1,576,954			1,553,681
Accumulated other comprehensive loss		(33,234	)		(31,759	)
Accumulated deficit		(1,242,454	)		(1,241,034	)
Total Ionis stockholders’ equity		301,391			281,013
Noncontrolling interest in Akcea Therapeutics, Inc.		85,710			84,267
Total stockholders’ equity		387,101			365,280
Total liabilities and stockholders’ equity	$	1,299,560		$	1,322,774

	Common Stock					Additional Paid in			Accumulated Other Comprehensive			Accumulated			Total Ionis Stockholders’			Noncontrolling Interest in Akcea		Total Stockholders’
Description	Shares			Amount		Capital			Loss			Deficit			Equity			Therapeutics, Inc.		Equity
Balance at December 31, 2017		124,976		$	125	$	1,553,681		$	(31,759	)	$	(1,241,034	)	$	281,013		$	84,267	$	365,280
Net loss		—			—		—			—			(1,420	)		(1,420	)		—		(1,420	)
Change in unrealized gains (losses), net of tax		—			—		—			(1,530	)		—			(1,530	)		—		(1,530	)
Foreign currency translation		—			—		—			55			—			55			—		55
Issuance of common stock in connection with employee stock plans		473			—		5,664			—			—			5,664			—		5,664
Stock-based compensation expense		—			—		28,451			—			—			28,451			—		28,451
Noncontrolling interest in Akcea Therapeutics, Inc		—			—		(10,842	)		—			—			(10,842	)		1,443		(9,399	)
Balance at March 31, 2018		125,449		$	125	$	1,576,954		$	(33,234	)	$	(1,242,454	)	$	301,391		$	85,710	$	387,101

Balance at December 31, 2018		137,929		$	138	$	2,047,250		$	(32,016	)	$	(967,293	)	$	1,048,079		$	139,081	$	1,187,160
Net income		—			—		—			—			84,443			84,443			—		84,443
Change in unrealized gains (losses), net of tax		—			—		—			4,324			—			4,324			—		4,324
Foreign currency translation		—			—		—			84			—			84			—		84
Issuance of common stock in connection with employee stock plans		1,825			2		67,057			—			—			67,059			—		67,059
Stock-based compensation expense		—			—		45,505			—			—			45,505			—		45,505
Payments of tax withholdings related to vesting of employee stock awards		(130	)		—		(7,597	)		—			—			(7,597	)		—		(7,597	)
Noncontrolling interest in Akcea Therapeutics, Inc.		—			—		(34,246	)		—			—			(34,246	)		40,688		6,442
Balance at March 31, 2019		139,624		$	140	$	2,117,969		$	(27,608	)	$	(882,850	)	$	1,207,651		$	179,769	$	1,387,420

	Three Months Ended March 31, 2017
	As Previously Reported under Topic 605		Topic 606 Adjustment			As Revised
Revenue:
Commercial revenue:
SPINRAZA royalties	$	5,211	$	—		$	5,211
Licensing and other royalty revenue		3,547		(957	)		2,590
Total commercial revenue		8,758		(957	)		7,801
Research and development revenue under collaborative agreements		101,546		6,453			107,999
Total revenue	$	110,304	$	5,496		$	115,800

	At December 31, 2017
	As Previously Reported under Topic 605			Topic 606 Adjustment			As Revised
Current portion of deferred revenue		$	106,465		$	18,871		$	125,336
Long-term portion of deferred revenue			72,708			35,318			108,026
Total		$	179,173		$	54,189		$	233,362

			Gross Unrealized
March 31, 2018	Cost (1)		Gains		Losses			Estimated Fair Value
Available-for-sale securities:
Corporate debt securities (2)	$	433,297	$	1	$	(1,286	)	$	432,012
Debt securities issued by U.S. government agencies		129,235		—		(323	)		128,912
Debt securities issued by the U.S. Treasury (2)		54,076		1		(43	)		54,034
Debt securities issued by states of the U.S. and political subdivisions of the states (2)		31,624		1		(194	)		31,431
Total securities with a maturity of one year or less		648,232		3		(1,846	)		646,389
Corporate debt securities		126,128		5		(1,807	)		124,326
Debt securities issued by U.S. government agencies		21,547		—		(162	)		21,385
Debt securities issued by states of the U.S. and political subdivisions of the states		52,746		—		(785	)		51,961
Total securities with a maturity of more than one year		200,421		5		(2,754	)		197,672
Total available-for-sale securities	$	848,653	$	8	$	(4,600	)	$	844,061


Beginning balance of Level 3 instruments at January 1, 2017	$	—
Value of the potential premium we would have received from Novartis at inception of the SPA (January 2017)		5,035
Recurring fair value adjustment during the three months ended March 31, 2017		(1,438	)
Ending balance of Level 3 instruments at March 31, 2017	$	3,597

	Three Months Ended March 31,
	2018			��	2017
Medical affairs expenses, excluding non-cash compensation expense related to equity awards		$	5,132			$	901
Non-cash compensation expense related to equity awards			766				556
Total medical affairs expenses		$	5,898			$	1,457