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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2020

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-38137

Akcea Therapeutics, Inc.

(Exact name of Registrant as specified in its charter)

Delaware

47-2608175

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

22 Boston Wharf Road, 9^th Floor, Boston, MA 02210

(Address of principal executive offices, including zip code)

617-207-0202

(Registrant’s telephone number, including area code)

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

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock

AKCA

The Nasdaq Stock Market, LLC

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No☐

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

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☒

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

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

The number of shares of common stock outstanding as of July 29, 2020 was 101,598,619.

AKCEA THERAPEUTICS, INC.

FORM 10-Q

INDEX

PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited):

	Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019	3

	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019	4

	Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2020 and 2019	5

	Condensed Consolidated Statements of Stockholders' Equity for the three and six months ended June 30, 2020 and 2019	6

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019	8

	Notes to Condensed Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations:	27

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	40

Item 4.	Controls and Procedures	41

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	42

Item 1A	Risk Factors	42

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	75

Item 3.	Defaults Upon Senior Securities	75

Item 4.	Mine Safety Disclosures	75

Item 5.	Other Information	75

Item 6.	Exhibits	76

Signatures		77

TRADEMARKS

"Akcea," the Akcea logo, and other trademarks or service marks of Akcea Therapeutics, Inc. appearing in this Report are the property of Akcea Therapeutics, Inc. This Report contains additional trade names, trademarks and service marks of others, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this Report may appear without the ® or TM symbols.

AKCEA THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

	June 30,			December 31,
	2020			2019
ASSETS
Current assets:
Cash and cash equivalents	$	135,744		$	306,866
Short-term investments		254,144			156,806
Accounts receivable		14,049			10,496
Receivable from Ionis Pharmaceuticals, Inc.		—			3,231
Inventories		13,756			8,817
Other current assets		10,480			10,689
Total current assets		428,173			496,905
Property, plant and equipment, net		5,895			5,261
Operating lease right-of-use assets		10,646			11,094
Intangible assets, net		80,127			83,051
Deposits and other assets		3,096			2,939
Total assets	$	527,937		$	599,250

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	4,253		$	10,216
Payable to Ionis Pharmaceuticals, Inc.		5,320			—
Accrued compensation		8,313			12,793
Accrued liabilities		12,316			14,191
Deferred revenue		263			2,165
Other current liabilities		4,716			2,633
Total current liabilities		35,181			41,998
Long-term portion of lease liabilities		13,545			14,248
Other long-term liabilities		183			—
Total liabilities		48,909			56,246
Stockholders’ equity:
Common stock, $0.001 par value; 125,000,000 shares authorized at June 30, 2020 and December 31, 2019; 101,509,223 and 100,993,173 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively.		102			101
Additional paid-in capital		1,051,142			1,024,168
Accumulated other comprehensive income		1,481			5
Accumulated deficit		(573,697	)		(481,270	)
Total stockholders’ equity		479,028			543,004
Total liabilities and stockholders’ equity	$	527,937		$	599,250

See accompanying notes.

AKCEA THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Revenue:
Product revenue, net	$	16,364		$	9,865		$	31,523		$	16,619
Licensing revenue		—			6,036			—			6,036
Research and development and license revenue under collaborative agreements		6,013			10,722			6,928			167,784
Total revenue		22,377			26,623			38,451			190,439

Expenses:
Cost of sales - product		3,628			1,364			6,992			2,405
Cost of sales - intangible asset amortization		1,418			1,419			2,837			2,822
Cost of license		—			3,000			—			3,000
Research and development		29,731			20,271			47,086			119,890
Selling, general and administrative		42,139			50,740			88,385			95,342
Net loss share from commercial activities under arrangement with Ionis Pharmaceuticals, Inc.		(3,448	)		(11,465	)		(10,499	)		(20,521	)
Total expenses		73,468			65,329			134,801			202,938

Loss from operations		(51,091	)		(38,706	)		(96,350	)		(12,499	)

Other income (expense):
Investment income		1,055			1,571			2,826			2,795
Other expense		(146	)		(28	)		(276	)		(140	)

Loss before income tax expense		(50,182	)		(37,163	)		(93,800	)		(9,844	)

Income tax benefit (expense)		605			(160	)		1,373			(292	)

Net loss	$	(49,577	)	$	(37,323	)	$	(92,427	)	$	(10,136	)

Net loss per share of common stock owned by Ionis, basic and diluted	$	(0.49	)	$	(0.40	)	$	(0.91	)	$	(0.06	)
Weighted-average shares of common stock outstanding owned by Ionis, basic and diluted		77,094,682			70,221,338			77,094,682			69,406,181
Net loss per share of common stock owned by others, basic and diluted	$	(0.49	)	$	(0.40	)	$	(0.91	)	$	(0.26	)
Weighted-average shares of common stock outstanding owned by others, basic and diluted		24,381,592			22,573,900			24,195,990			22,351,368

See accompanying notes.

AKCEA THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Net loss	$	(49,577	)	$	(37,323	)	$	(92,427	)	$	(10,136	)
Unrealized gains on investments, net of tax		1,016			10			1,393			222
Currency translation adjustment		74			(93	)		83			(8	)
Comprehensive loss	$	(48,487	)	$	(37,406	)	$	(90,951	)	$	(9,922	)

See accompanying notes.

AKCEA THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Three Months Ended June 30, 2019 and 2020

(In thousands)

(Unaudited)

	For the Three Months Ended June 30, 2019
	Common Stock				Additional Paid In		Accumulated Other Comprehensive			Accumulated			Total Stockholders'
Description	Shares		Amount		Capital		Income (Loss)			Deficit			Equity
Balance at March 31, 2019		92,635	$	93	$	883,653	$	(27	)	$	(494,855	)	$	388,864
Net loss		—		—		—		—			(37,323	)		(37,323	)
Change in unrealized gains, net of tax		—		—		—		10			—			10
Currency translation adjustment		—		—		—		(93	)		—			(93	)
Issuance of common stock in connection with employee stock plans		286		—		2,821		—			—			2,821
Stock-based compensation expense		—		—		14,363		—			—			14,363
Balance at June 30, 2019		92,921		93		900,837		(110	)		(532,178	)		368,642

	For the Three Months Ended June 30, 2020
	Common Stock				Additional Paid In		Accumulated Other Comprehensive		Accumulated			Total Stockholders'
Description	Shares		Amount		Capital		Income (Loss)		Deficit			Equity
Balance at March 31, 2020		101,349	$	101	$	1,033,319	$	391	$	(524,120	)	$	509,691
Net loss		—		—		—		—		(49,577	)		(49,577	)
Change in unrealized gains, net of tax		—		—		—		1,016		—			1,016
Currency translation adjustment		—		—		—		74		—			74
Issuance of common stock in connection with employee stock plans		160		1		1,702		—		—			1,703
Stock-based compensation expense		—		—		16,121		—		—			16,121
Balance at June 30, 2020		101,509	$	102	$	1,051,142	$	1,481	$	(573,697	)	$	479,028

See accompanying notes.

AKCEA THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Six Months Ended June 30, 2019 and 2020

(In thousands)

(Unaudited)

	For the Six Months Ended June 30, 2019
	Common Stock				Additional Paid In			Accumulated Other Comprehensive			Accumulated			Total Stockholders'
Description	Shares		Amount		Capital			Income (Loss)			Deficit			Equity
Balance at December 31, 2018		89,346	$	89	$	799,001		$	(324	)	$	(522,042	)	$	276,724
Net loss		—		—		—			—			(10,136	)		(10,136	)
Change in unrealized gains, net of tax		—		—		—			222			—			222
Currency translation adjustment		—		—		—			(8	)		—			(8	)
Issuance of common stock in connection with employee stock plans		738		1		7,408			—			—			7,409
Issuance of common stock in connection with Ionis sublicense fee		2,837		3		74,997			—			—			75,000
Distribution to Ionis		—		—		(13,492	)		—			—			(13,492	)
Stock-based compensation expense		—		—		32,923			—			—			32,923
Balance at June 30, 2019		92,921	$	93	$	900,837		$	(110	)	$	(532,178	)	$	368,642

	For the Six Months Ended June 30, 2020
	Common Stock					Additional Paid In			Accumulated Other Comprehensive		Accumulated			Total Stockholders'
Description	Shares			Amount		Capital			Income (Loss)		Deficit			Equity
Balance at December 31, 2019		100,993		$	101	$	1,024,168		$	5	$	(481,270	)	$	543,004
Net loss		—			—		—			—		(92,427	)		(92,427	)
Change in unrealized gains, net of tax		—			—		—			1,393		—			1,393
Currency translation adjustment		—			—		—			83		—			83
Issuance of common stock in connection with employee stock plans		520			1		3,648			—		—			3,649
Stock-based compensation expense		—			—		23,402			—		—			23,402
Payments of tax withholdings related to exercise of employee stock options		(4	)		—		(76	)		—		—			(76	)
Balance at June 30, 2020		101,509		$	102	$	1,051,142		$	1,481	$	(573,697	)	$	479,028

See accompanying notes.

AKCEA THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Six Months Ended June 30,
	2020			2019
Operating activities:
Net loss	$	(92,427	)	$	(10,136	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation		424			400
Amortization of right-of-use operating lease assets		448			501
Amortization of intangibles		2,924			2,908
Amortization of premium/discount on investment securities, net		747			(434	)
Non-cash sublicensing expense		—			75,000
Stock-based compensation expense		23,402			32,923
Changes in operating assets and liabilities:
Accounts receivable		(3,553	)		(4,596	)
Other current and long-term assets		(2,026	)		(966	)
Inventories		(2,415	)		(4,014	)
Accounts payable		(6,001	)		(2,890	)
Payable/receivable from Ionis Pharmaceuticals, Inc.		8,089			(26,812	)
Income tax receivable		(446	)		—
Accrued compensation		(4,480	)		(1,062	)
Accrued liabilities		576			2,128
Income taxes payable		(888	)		(169	)
Deferred revenue		(1,902	)		(12,958	)
Net cash (used in) provided by operating activities		(77,528	)		49,823

Investing activities:
Purchases of short-term investments		(215,329	)		(78,606	)
Proceeds from maturity of short-term investments		118,637			100,043
Purchases of property, plant and equipment		(558	)		(1,389	)
Net cash (used in) provided by investing activities		(97,250	)		20,048

Financing activities:
Proceeds from issuance of equity		3,649			7,409
Distribution to Ionis Pharmaceuticals, Inc.		—			(13,492	)
Payments of tax withholdings related to exercise of employee stock awards		(76	)		—
Net cash provided by (used in) financing activities		3,573			(6,083	)
Effect of exchange rates on cash		83			(8	)

Net (decrease) increase in cash and cash equivalents		(171,122	)		63,780
Cash, cash equivalents and restricted cash at beginning of period		309,250			88,838
Cash, cash equivalents and restricted cash at end of period	$	138,128		$	152,618

Supplemental disclosures of non-cash financing activities:

Purchase of property, plant and equipment included in accounts payable	$	38		$	—
Purchases of property, plant and equipment included in payable to Ionis Pharmaceuticals, Inc.	$	462		$	—
Right-of-use assets obtained in exchange for lease liabilities	$	—		$	363

See accompanying notes.

The following table presents the line items and amounts of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets:

	June 30,		June 30,
	2020		2019
Cash and cash equivalents	$	135,744	$	150,234
Restricted cash included in deposits and other assets		2,384		2,384
Total cash, cash equivalents and restricted cash	$	138,128	$	152,618

See accompanying notes.

AKCEA THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

1.	Organization and Basis of Presentation

We were incorporated in Delaware in December 2014. We were organized by Ionis Pharmaceuticals, Inc., or Ionis, to focus on developing and commercializing medicines to treat patients with serious and rare diseases. On July 19, 2017, we completed our initial public offering, or IPO. As of June 30, 2020, Ionis owned approximately 76% of our common stock and is our majority shareholder. Prior to our IPO, we were wholly owned by Ionis.

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, or U.S. GAAP.

The condensed consolidated financial statements include the accounts of Akcea Therapeutics, Inc. and our wholly owned subsidiaries ("we," "our," and "us"). All intercompany transactions and balances were eliminated in consolidation. We included all normal recurring adjustments in the financial statements that we considered necessary for a fair presentation of our financial position and our operating results and cash flows for the interim periods ended June 30, 2020 and 2019. Results for the interim periods are not necessarily indicative of the results for the entire year. For more complete financial information, these financial statements, and notes thereto, should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019.

In accordance with Accounting Standards Codification, or ASC, 205-40, Going Concern, we evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the condensed consolidated financial statements are issued. We believe that our currently available funds of $389.9 million as of June 30, 2020 will be sufficient to fund our operations through at least the next 12 months from the issuance of this Quarterly Report on Form 10-Q. We have generally incurred losses since our inception and have funded our cash flow deficits primarily through the issuance of capital stock and proceeds from license and collaboration agreements. As of June 30, 2020, we had an accumulated deficit of $573.7 million. During the three and six months ended June 30, 2020, we generated losses of $49.6 million and $92.4 million, respectively, and we used $77.5 million of cash for our operating activities during the six months ended June 30, 2020. We expect to generate operating losses and negative operating cash flows for the foreseeable future; however, we may generate positive cash flows from significant upfront payments associated with out-licensing transactions. The transition to sustained profitability is dependent upon the successful development, approval, and commercialization of our products and product candidates and the achievement of a level of revenue adequate to support our cost structure. Management’s belief with respect to our ability to fund operations is based on estimates that are subject to risks and uncertainties on our future results. If actual results are different from management’s estimates, we may need to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and commercialize our medicines even if we would otherwise prefer to develop and commercialize the medicines ourselves.

2.	Summary of Significant Accounting Policies

The accounting policies followed in the preparation of these interim condensed consolidated financial statements are consistent in all material respects with those presented in Note 2 to our financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, revenue recognition, the accrual for research and development expenses, stock-based compensation and income taxes. Estimates are periodically reviewed in light of changes in facts, circumstances and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.

Concentration of Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash, cash equivalents, short-term investments and accounts receivable. We place our cash, cash equivalents and short-term investments with reputable financial institutions. We primarily invest our excess cash in commercial paper and 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 Standard & Poor's, or S&P, Moody's, 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.

New Accounting Pronouncements – Recently Issued

In June 2016, the Financial Accounting Standards Board, or FASB, issued guidance that changes the measurement of credit losses for most financial assets and certain other instruments. This standard requires us to estimate the expected credit loss of an instrument over its lifetime using an expected credit loss model, which represents the portion of the amortized cost basis we do not expect to collect. The new guidance requires us to remeasure our allowance in each reporting period we have credit losses. We adopted this guidance on January 1, 2020 and it did not have a significant impact on our condensed consolidated financial statements and disclosures.

In August 2018, the FASB issued clarifying guidance on how to account for implementation costs related to cloud-servicing arrangements. The guidance states that if these fees qualify to be capitalized and amortized over the service period, they need to 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. We adopted this guidance on January 1, 2020 on a prospective basis and it did not have a significant impact on our condensed consolidated financial statements and disclosures.

In November 2018, the FASB issued clarifying guidance on 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 implemented it (in italics):

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

•

We 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 use the “unit of account” concept when we receive consideration under a collaboration agreement 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 sales to third parties, we do not recognize revenue for the transaction.

We adopted this guidance on January 1, 2020 and it did not have a significant impact on our condensed consolidated financial statements and disclosures.

3.	Net Product Revenue

Net product revenue consists of sales of TEGSEDI and WAYLIVRA. TEGSEDI is sold in the U.S. and the European Union, or E.U. On May 7, 2019, we obtained regulatory approval of WAYLIVRA in Europe, following which we began to commercialize WAYLIVRA in the E.U.

During the three and six months ended June 30, 2020 we recorded product revenue, net, of $16.4 million and $31.5 million, respectively. We recorded product revenue, net, of $9.9 million and $16.6 million for the same periods in 2019. The following table summarizes balances and activity in each of our product revenue allowance and reserve categories (in thousands):

	Chargebacks, discounts and fees			Government and other rebates			Returns		Total
Balance at December 31, 2019	$	270		$	1,353		$	197	$	1,820
Provision related to current period sales		1,044			4,830			58		5,932
Adjustment related to prior period sales		(66	)		83			—		17
Credits or payments made during the period		(1,093	)		(1,790	)		—		(2,883	)
Balance at June 30, 2020	$	155		$	4,476		$	255	$	4,886

Balance at December 31, 2018	$	50		$	293		$	5	$	348
Provision related to current period sales		438			774			138		1,350
Adjustment related to prior period sales		(4	)		(25	)		—		(29	)
Credits or payments made during the period		(311	)		(210	)		—		(521	)
Balance at June 30, 2019	$	173		$	832		$	143	$	1,148

The following table presents the balance of our receivables and contract liabilities related to net product revenue (in thousands):

June 30,

2020

December 31,

2019

Receivables included in "Accounts receivable"

13,536

6,946

Contract liabilities included in "Accrued liabilities"

4,632

1,550

4.	Revenue from Collaboration and License Agreements

Net revenue from our partners in connection with our collaboration and license agreements consisted of the following (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
License Agreement with Pfizer	$	5,735	$	—	$	6,339	$	—
Strategic Collaboration with Novartis		278		10,722		589		167,784
Collaboration and License Agreement with PTC Therapeutics		—		6,036		—		6,036
Total net revenue from partners	$	6,013	$	16,758	$	6,928	$	173,820

The following table presents the balance of our receivables and contract liabilities related to our collaboration and license agreements associated with our partners (in thousands):

	June 30, 2020		December 31, 2019
Receivables included in "Accounts receivable"	$	513	$	3,550
Contract liabilities included in "Deferred revenue"		263		1,322

During the three and six months ended June 30, 2020, we recognized the following revenue as a result of the change in the contract liability balances related to our collaboration and license agreements associated with our partners (in thousands):

Three Months Ended

June 30, 2020

Six Months Ended

June 30, 2020

Revenue recognized in current period from:

Amounts included in deferred revenue at the beginning

of the period

455

1,059

License Agreement with Pfizer

In October 2019, we entered into a license agreement with Pfizer, or the Pfizer License Agreement, for the development and commercialization of vupanorsen (previously referred to as AKCEA-ANGPTL3-L_Rx). Under the terms of the Pfizer License Agreement, we granted Pfizer an exclusive license to further develop, manufacture and commercialize vupanorsen worldwide, subject to our potential participation in co-commercialization. We are responsible for completing a Phase 2 clinical trial and providing limited quantities of active pharmaceutical ingredient, or API, for vupanorsen.

We received a $250.0 million upfront payment in the fourth quarter of 2019 from Pfizer. We issued 6,873,344 shares of our common stock to Ionis as payment of the $125.0 million sublicense fee due under our development, commercialization and license agreement related to our cardiometabolic franchise, or Cardiometabolic License Agreement, with Ionis and recorded it as a research and development expense in our condensed consolidated statement of operations.

At commencement of the Pfizer License Agreement, we identified the following three distinct performance obligations:

•

A license to develop and commercialize vupanorsen and the related know-how;

•

Activities to develop vupanorsen; and

•

The existing supply of vupanorsen API.

We concluded that the three performance obligations were distinct because Pfizer has full use of the obligations without any continuing involvement from us. Further, Pfizer, or another third party, could provide these obligations without our assistance.

We determined the transaction price for the Pfizer License Agreement to be the $250.0 million upfront payment we received from Pfizer. None of the development or regulatory milestone payments under this agreement were included in the upfront transaction price. We concluded that such future payments pursuant to the Pfizer License Agreement will be recognized when it is probable that Pfizer will achieve the related development or regulatory milestones.

Based on the distinct performance obligations under the Pfizer License Agreement, we allocated the $250.0 million transaction price based on the relative stand-alone selling prices of each of our performance obligations as follows:

•

$245.6 million for the transfer of the license of vupanorsenand the related know-how;

•

$2.2 million for the conduct of activities to develop vupanorsen; and

•

$2.2 million for the delivery of the existing vupanorsen API.

We are recognizing revenue related to each of our performance obligations as follows:

•

We recognized the full amount related to the license and related know-how in the fourth quarter of 2019 because Pfizer, upon the date of closing, had full use of the license and related know-how without any continuing involvement from us. Additionally, we did not have any further performance obligations related to the license after the license was transferred to Pfizer;

•

We are recognizing revenue relating to development activities performed using an input method by calculating costs incurred to date at each period end relative to total costs expected to be incurred. We are completing the Phase 2 clinical trial for vupanorsen and expect to complete our activities in the third quarter of 2020. Pfizer is responsible for conducting and funding all future development, regulatory and commercialization activities for vupanorsen; and

•

We recognized the amount attributed to the vupanorsen API supply when we delivered the API to Pfizer in the fourth quarter of 2019.

During the second quarter of 2020, Pfizer exercised its option to purchase additional vupanorsen API in accordance with the Pfizer License Agreement. We concluded that the option to purchase additional API did not constitute a material right as the API is being sold at its stand-alone selling price, and thus is not offered at a discount. Accordingly, we recognized $5.3 million of revenue relating to this option upon the delivery of vupanorsen API in the second quarter of 2020. Pfizer has the option to purchase additional vupanorsen API in the future at agreed upon terms and conditions pursuant to the Pfizer License Agreement.

We are eligible to receive up to $1.3 billion in milestone payments, including up to $205.0 million for the achievement of development milestones, up to $250.0 million for the achievement of regulatory milestones and up to $850.0 million for the achievement of commercialization milestones. We will achieve the next milestone payment of $75.0 million when Pfizer advances vupanorsen_. We are also eligible to receive tiered royalties in the mid-teens to low twenty percent range on net sales of vupanorsen. Pfizer will reduce these royalties upon the expiration of certain patents or if a generic competitor negatively impacts the product in a specific country. We will share any milestone payments and royalties equally with Ionis.

During the three and six months ended June 30, 2020, we recognized $0.5 million and $1.1 million, respectively, of revenue related to our Pfizer License Agreement that was in our beginning deferred revenue balance. Our condensed consolidated balance sheets at June 30, 2020 and December 31, 2019 included deferred revenue of $0.3 million and $1.3 million, respectively, related to our development activities obligation under the Pfizer License Agreement.

Strategic collaboration with Novartis

In January 2017, we initiated a strategic collaboration with Novartis Pharma AG, or Novartis, for the development and commercialization of AKCEA-APO(a)-L_Rx and AKCEA-APOCIII-L_Rx. Under the terms of the Novartis collaboration, we agreed to complete a Phase 2 clinical trial, conduct an end-of-Phase 2 meeting with the U.S. Food and Drug Administration, or FDA, and provide initial quantities of API for each medicine.

AKCEA-APO(a)-L_Rx

In February 2019, Novartis exercised its exclusive option to license 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. Novartis has full use of the license without any continuing involvement from us, therefore making the license distinct from other performance obligations. Accordingly, we recognized the related license fee of $150.0 million in full in February 2019 upon exercise. We issued 2,837,373 shares of our common stock to Ionis to satisfy the $75.0 million sublicense fee due to Ionis for Novartis’ option exercise under our Cardiometabolic License Agreement with Ionis.

In the second quarter of 2019, we completed the development services performance obligation for AKCEA-APO(a)-L_Rx and all revenue allocated to this revenue stream was fully recognized as of June 30, 2019.

We are eligible to receive up to $675.0 million in additional milestone payments, including $25.0 million for the achievement of a development milestone, up to $290.0 million for the achievement of regulatory milestones and up to $360.0 million for the achievement of commercialization milestones. In connection with Novartis’ exercise of its option to exclusively license AKCEA-APO(a)-L_Rx, we and Novartis established a more definitive co-commercialization framework under which we and Novartis may negotiate the co-commercialization of AKCEA-APO(a)-L_Rx in select markets. Included in this framework is an option by which Novartis could solely commercialize AKCEA-APO(a)-L_Rx in exchange for Novartis paying us increased commercial milestone payments based on sales of AKCEA-APO(a)-L_Rx.

We will earn the next milestone payment of $25.0 million under this collaboration if Novartis reaches a specific level of enrollment related to the Phase 3 clinical trial for AKCEA-APO(a)-L_Rx. We are also eligible to receive tiered royalties in the mid-teens to low twenty percent range on net sales of AKCEA-APO(a)-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. We will share any milestone payments and royalties equally with Ionis. AKCEA-APO(a)-L_Rx was recently granted Fast Track Designation by the FDA as a potential treatment for people at significant risk for cardiovascular disease due to elevated levels of lipoprotein(a), or Lp(a).

AKCEA-APOCIII-L_Rx

In December 2019, Novartis elected not to exercise its option to license AKCEA-APOCIII-L_Rx and terminated the strategic collaboration solely in relation to AKCEA-APOCIII-L_Rx.As a result, the development services performance obligation relating to AKCEA-APOCIII-L_Rx was satisfied and all revenue allocated to the development services revenue stream was fully recognized as of December 31, 2019.

As a result of Novartis’ election not to exercise its option, we retain the rights to further develop and commercialize AKCEA-APOCIII-L_Rx. We are no longer entitled to any future license fees, milestone payments or royalties from Novartis relating to AKCEA-APOCIII-L_Rx. In the second quarter of 2020, we repurchased $2.3 million of AKCEA-APOCIII-L_Rx API from Novartis to be used to further develop AKCEA-APOCIII-L_RX. This amount is included in research and development expense on our condensed consolidated statement of operations.

Collaboration and License Agreement with PTC Therapeutics

In August 2018, we entered into a collaboration and license agreement with PTC Therapeutics International Limited, or the PTC License Agreement, to commercialize TEGSEDI and WAYLIVRA in Latin America and certain Caribbean countries, or the PTC Territory. In addition, in April 2019, we entered into a supply agreement with PTC Therapeutics International Limited, or PTC Therapeutics, providing them the option to purchase product from us subject to terms as described in the agreement. During the three and six months ended June 30, 2020, we did not recognize any revenue from our collaboration with PTC Therapeutics.

In May 2019, we received a $6.0 million milestone payment from PTC Therapeutics as a result of regulatory approval of WAYLIVRA in Europe. We paid Ionis a $3.0 million sublicense fee under our Cardiometabolic License Agreement and recorded it as a cost of license in our condensed consolidated statement of operations. In October 2019, we received a $4.0 million milestone payment from PTC Therapeutics as a result of regulatory approval of TEGSEDI in Brazil. We paid Ionis a $2.4 million sublicense fee under our development, commercialization, collaboration and license agreement with Ionis dated March 2018, or the TTR License Agreement, and recorded it as a cost of license in our condensed consolidated statement of operations. We did not include these milestone payments in the upfront transaction price as we concluded that such future payments pursuant to the PTC License Agreement will be recognized when it is probable that PTC Therapeutics will achieve the related regulatory milestones. After receiving regulatory approval for WAYLIVRA and TEGSEDI, we deemed the milestones probable and recognized $6.0 million and $4.0 million as license revenue during the second and fourth quarter of 2019, respectively.

We are eligible to receive an additional $4.0 million milestone payment upon receiving regulatory approval of WAYLIVRA in Brazil and royalties in the mid-twenty percent range on net sales of TEGSEDI and WAYLIVRA in the PTC Territory.

PTC Therapeutics’ obligation to pay royalties to us begins on the earlier of 12 months after the first commercial sale of TEGSEDI or WAYLIVRA in Brazil or the date that PTC Therapeutics recognizes revenue of at least $10.0 million in cumulative net sales of TEGSEDI or WAYLIVRA in the PTC Territory. PTC Therapeutics will reduce these royalties upon the expiration of certain patents or if a generic competitor negatively impacts the market share of TEGSEDI or WAYLIVRA in the PTC Territory. Milestone payments and royalties that we are eligible to receive from PTC Therapeutics for TEGSEDI are split 60% to Ionis and 40% to Akcea in accordance with our TTR License Agreement. All WAYLIVRA milestone payments and royalties that we are eligible to receive from PTC Therapeutics are split equally with Ionis in accordance with our Cardiometabolic License Agreement. PTC Therapeutics is solely responsible for the commercialization of the products in the PTC Territory at its sole cost and expense, including the pursuit and maintenance of applicable regulatory approvals. Unless earlier terminated, the PTC License Agreement will continue in effect until the date on which the royalty term and all payment obligations with respect to all products in all countries in the PTC Territory have expired.

5.	Investments and Fair Value Measurements

Investments

As of June 30, 2020 and December 31, 2019, we primarily invested our excess cash in money market funds and 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 S&P, Moody’s 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 is a summary of our investments at June 30, 2020 and December 31, 2019 (in thousands):

			Gross Unrealized					Estimated
June 30, 2020	Cost		Gains		Losses			Fair Value
Available-for-sale securities:
Corporate debt securities	$	81,143	$	374	$	(1	)	$	81,516
Debt securities issued by U.S. government agencies		118,414		489		(5	)		118,898
Total securities with a maturity of one year or less	$	199,557	$	863	$	(6	)	$	200,414


Corporate debt securities	$	30,878	$	354	$	-		$	31,232
Debt securities issued by U.S. government agencies		22,272		230		(4	)		22,498
Total securities with a maturity of one to two years		53,150		584		(4	)		53,730
Total available-for-sale securities	$	252,707	$	1,447	$	(10	)	$	254,144

			Gross Unrealized					Estimated
December 31, 2019	Cost		Gains		Losses			Fair Value
Available-for-sale securities:
Corporate debt securities	$	105,679	$	40	$	(23	)	$	105,696
Debt securities issued by U.S. government agencies		38,970		30		(6	)		38,994
Total securities with a maturity of one year or less	$	144,649	$	70	$	(29	)	$	144,690

Corporate debt securities	$	2,033	$	5	$	—		$	2,038
Debt securities issued by U.S. government agencies		14,079		—		(3	)		14,076
Total securities with a maturity of one to two years		16,112		5		(3	)		16,114
Total available-for-sale securities	$	160,761	$	75	$	(32	)	$	160,804

We recorded unrealized gains and losses related to the securities listed above as of June 30, 2020 and December 31, 2019. We believe that the decline in value of certain of these securities is temporary and 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 these securities to maturity. Therefore, we anticipate a full recovery of the amortized cost basis of these securities at maturity.

All of our available-for-sale securities are available to us for use in our current operations. As a result, we categorized 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.

Fair Value Measurements

The following tables present the investments we held at June 30, 2020 and December 31, 2019 that are regularly measured and carried at fair value. The table segregates our investments by level within the fair value hierarchy of valuation techniques used to determine their fair value (in thousands):

	At June 30, 2020		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)
Money market funds (1)	$	105,972	$	105,972	$	—
Corporate debt securities (3)		112,749		—		112,749
Debt securities issued by U.S. government agencies (3)		141,395		—		141,395
Total	$	360,116	$	105,972	$	254,144

	At December 31, 2019		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)
Money market funds (1)	$	285,510	$	285,510	$	—
Corporate debt securities (2)		107,735		—		107,735
Debt securities issued by U.S. government agencies (3)		53,069		—		53,069
Total	$	446,314	$	285,510	$	160,804

(1)

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

(2)

At December 31, 2019, $4.0 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)

Included in short-term investments on our condensed consolidated balance sheet.

6.	Property, Plant and Equipment

The following table presents property and equipment, at cost, and related accumulated depreciation (in thousands):

	June 30,			December 31,
	2020			2019
Furniture and fixtures	$	1,819		$	1,611
Computer equipment and software		459			289
Manufacturing equipment		454			416
Leasehold improvements		4,597			3,955
Total property and equipment, at cost		7,329			6,271
Less accumulated depreciation and amortization		(1,434	)		(1,010	)
Total property and equipment, net	$	5,895		$	5,261

We recorded depreciation expense of $0.2 million and $0.4 million for the three and six months ended June 30, 2020, respectively. We recorded depreciation expense of $0.2 million and $0.4 million for the same periods in 2019.

7.	Inventories

Prior to the regulatory approval of our medicines, we incur expenses for the manufacturing of drug product that could potentially be available to support the commercialization of our products. We record all such costs as research and development expenses until the first reporting period when regulatory approval has been received or is otherwise considered probable.

WAYLIVRA inventory-related costs incurred subsequent to April 1, 2019 and TEGSEDI inventory-related costs incurred subsequent to July 1, 2018 are reflected as inventories on our condensed consolidated balance sheet at the lower of cost or net realizable value under the first-in, first-out, or FIFO, basis. At June 30, 2020, a majority of our physical inventory for WAYLIVRA and a portion of our physical inventory for TEGSEDI included API that we produced prior to regulatory approval. As such, there is no cost basis for this API as we previously expensed the related costs as research and development expenses.

We periodically analyze our inventory levels and write down inventory that has become obsolete, inventory that has a cost basis in excess of its estimated realizable value and inventory in excess of expected sales requirements as cost of product sales. The determination of whether inventory costs will be realizable requires estimates by our management and if actual market conditions are less favorable than projected by our management, additional write-downs of inventory may be required which would be recorded as a cost of product sales in the condensed consolidated statement of operations.

The following table presents inventories (in thousands):

	June 30,		December 31,
	2020		2019
Raw materials	$	9,544	$	6,520
Work in process		3,471		2,039
Finished goods		741		258
Total inventories	$	13,756	$	8,817

8.	Intangible Assets, net

The following table presents intangible assets (in thousands):

	June 30,			December 31,			Estimated
	2020			2019			useful life
Acquired and in-licensed rights	$	2,262		$	2,262		7 - 21 Years
Capitalized regulatory approval milestones		90,000			90,000		16 Years
Less accumulated amortization		(12,135	)		(9,211	)
Total intangible assets, net	$	80,127		$	83,051

We recorded $1.4 million and $2.9 million, respectively, in amortization expense related to intangible assets during the three and six months ended June 30, 2020. For the same periods in 2019, we recorded $1.5 million and $2.9 million, respectively. Estimated future amortization expense for intangible assets as of June 30, 2020 is as follows (in thousands):

AKCEA THERAPEUTICS, INC. 10-Q