XML 19 R9.htm IDEA: XBRL DOCUMENT
v3.19.1

Significant Accounting Policies | 3 Months Ended
--- | ---
Mar. 31, 2019
Significant Accounting Policies [Abstract] |
Significant Accounting Policies | 2. Significant Accounting Policies Revenue Recognition 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 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. 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 manufacturing services. We provide details about our collaboration agreements in Note 7, Collaborative Arrangements and Licensing 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 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
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 we enter into a collaboration agreement in which we provide our partner with an option to license a 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 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 medicine or requests additional goods or services, then we identify a new performance obligation for that item. 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 and royalties. At the start of an agreement, our transaction price usually 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 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. Milestone payments are our most common type of variable 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 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-HTTRx (RG6042) because we do not have any performance obligations related to these milestone payments as Roche is conducting the Phase 3 study of IONIS-HTTRx. 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.
| 4. | 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 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
| ● | 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. 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.
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.
| 5. | 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 recognize each period. This approach requires us to make numerous estimates and use significant 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. The following are examples of when we typically recognize revenue based on the types of payments we receive. Commercial 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 collaboration agreement with Roche to develop IONIS-FB-LRx for the treatment of complement-mediated diseases, we received a $75 million upfront payment in the fourth quarter of 2018. We allocated the upfront payment to our single performance obligation, R&D services. We are amortizing the $75 million upfront payment using an input method over the estimated period of time we are providing R&D services. Milestone Payments We are required to 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 development processes that trigger these payments under our collaboration agreements. Similarly, we include approval milestone payments in the transaction price once the medicine is approved by the applicable regulatory agency. We will recognize sales based milestone payments in the period we achieve the milestone under the sales-based royalty exception allowed under accounting rules. 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-MAPTRx in patients with mild Alzheimer’s disease. We earned a $10 million milestone payment from Biogen related to the initiation of this study. We added this payment to the transaction price and allocated it to our R&D services performance obligation. We are recognizing revenue from this milestone payment over our estimated period of performance. Conversely, we recognize in full those milestone payments that we earn based on our partners’ activities when our partner achieves the milestone event and we do not have a performance obligation. For example, in the first quarter of 2019, we recognized $35 million in milestone payments when Roche dosed the first patient in a Phase 3 study for IONIS-HTTRx. We concluded that the milestone payments were not related to our R&D services performance obligation. Therefore, we recognized these milestone payments in full in the first quarter of 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. 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. For example, in the first quarter of 2019, we earned a $150 million license fee when Novartis licensed AKCEA-APO(a)-LRx from us. Amendments to Agreements From time to time we amend our collaboration agreements. When this occurs, 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 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 and at their stand-alone selling price, we then assess whether the remaining goods or services are distinct from those already provided. If the goods and/or services are distinct 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 the goods and/or services are not distinct from 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-FXIRx 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-FXIRx 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-FXIRx and to initiate development of IONIS-FXI-LRx, 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-FXIRx and IONIS-FXI-LRx. 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-LRx, to provide R&D services and to deliver API. We allocated the $75 million transaction price to these performance obligations. Refer to Note 7, Collaborative Arrangements and Licensing Agreements, for further discussion of our accounting treatment for our Bayer collaboration. 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:
| ● | Whether the agreements were 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 accounting guidance requires us to account for them as a combined arrangement. For example, in the second quarter of 2018, we entered into two separate agreements with Biogen at the same time: a new strategic neurology collaboration agreement and a stock purchase agreement, or SPA. We evaluated the 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. 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. 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. 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. 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. From the closing of Akcea’s IPO in July 2017 through mid-April 2018, we owned approximately 68 percent of Akcea. In the second, third and fourth quarters of 2018, we received additional shares of Akcea’s stock related to our license of TEGSEDI and AKCEA-TTR-LRx to Akcea, 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)-LRx, increasing our ownership to approximately 76 percent at March 31, 2019. We reflected this increase in our ownership percentage in 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 on the last day of the fiscal 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, 2019, we held equity investments in two publicly held companies, ProQR Therapeutics N.V., or ProQR, and Antisense Therapeutics Limited, or ATL. We also held equity investments in four privately-held companies, Atlantic Pharmaceuticals Limited, Dynacure SAS, Seventh Sense Biosystems and Suzhou Ribo Life Science Co, Ltd. 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 medicines because until we use these raw materials they have alternative future uses. We include in inventory raw material costs for 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 medicine. For example, if one of our medicines failed, we could use the raw materials for that medicine to manufacture our other medicines. We expense these costs as R&D expenses when we begin to manufacture API for a particular medicine if the medicine has not been approved for marketing by a regulatory agency. We obtained the first regulatory approval for TEGSEDI in July 2018. At March 31, 2019 and December 31, 2018, our physical inventory for 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 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 based on forecasted demand compared to quantities on hand. We consider several factors in estimating the net realizable value, including shelf life of our inventory, alternative uses for our medicines in development and historical write-offs. We did not record any inventory write-offs for the three months ended March 31, 2019 and 2018. Total inventory was $11.1 million and $8.6 million as of March 31, 2019 and December 31, 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 us to make estimates and assumptions that affect the amounts reported in 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 Loss Per Share |  |  | Ionis’ Portion of Akcea’s Net Loss |
Common shares |  |  | 45,448 |  |  | $ | (0.44 | ) |  | $ | (19,997 | )
Akcea’s net loss attributable to our ownership |  |  |  |  |  |  |  |  |  | $ | (19,997 | )
Ionis’ stand-alone net income |  |  |  |  |  |  |  |  |  |  | 18,785 |
Net loss available to Ionis common stockholders |  |  |  |  |  |  |  |  |  | $ | (1,212 | )
Weighted average shares outstanding |  |  |  |  |  |  |  |  |  |  | 125,330 |
Basic net loss per share |  |  |  |  |  |  |  |  |  | $ | (0.01 | )
Dilutive net income (loss per share) For the three months ended March 31, 2019, we had net 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 the period. We calculated our diluted net income per share for the three months ended March 31, 2019 as follows (in thousands except per share amounts):
Three months ended March 31, 2019 |  | Income (Numerator) |  |  | Shares (Denominator) |  |  | Per-Share Amount |
Net income available to Ionis common stockholders |  | $ | 87,543 |  |  |  | 138,582 |  |  | $ | 0.63 |
Effect of dilutive securities: |  |  |  |  |  |  |  |  |  |  |  |
Shares issuable upon exercise of stock options |  |  | — |  |  |  | 2,252 |  |  |  |  |
Shares issuable upon restricted stock award issuance |  |  | — |  |  |  | 665 |  |  |  |  |
Shares issuable related to our ESPP |  |  | — |  |  |  | 38 |  |  |  |  |
Income available to Ionis common stockholders |  | $ | 87,543 |  |  |  | 141,537 |  |  | $ | 0.62 |
For the three months ended March 31, 2019, the calculation excluded the 1 percent notes because the effect on diluted earnings per share was anti-dilutive. For the three months ended March 31, 2018, 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:
| ● | 1 percent convertible senior notes;
| ● | Dilutive stock options;
| ● | Unvested restricted stock units; and
| ● | Employee Stock Purchase Plan, or ESPP.
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. To determine the fair value of the debt component we are required to use 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, our majority-owned affiliate. Akcea is a biopharmaceutical company focused on developing and commercializing 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 and general and administrative expenses to Akcea for work 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, 2019 and 2018, we used the following weighted-average assumptions in our Black-Scholes calculations: Ionis Employee Stock Options:
| Three Months Ended March 31,
| 2019 |  | 2018
Risk-free interest rate |  | 2.4% |  |  | 2.2%
Dividend yield |  | 0.0% |  |  | 0.0%
Volatility |  | 60.3% |  |  | 63.2%
Expected life |  | 4.6 years |  |  | 4.6 years
Ionis ESPP:
| Three Months Ended March 31,
| 2019 |  | 2018
Risk-free interest rate |  | 2.5% |  |  | 1.6%
Dividend yield |  | 0.0% |  |  | 0.0%
Volatility |  | 45.5% |  |  | 44.4%
Expected life |  | 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, 2019 was $58.26 per share. In addition to our 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, 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, 2019 and 2018 (in thousands). Our non-cash stock-based compensation expense includes $18.6 million and $6.4 million of stock-based compensation expense for Akcea employees for the three months ended March 31, 2019 and 2018, respectively.
|  | Three Months Ended March 31, |
|  | 2019 |  |  | 2018 |
Cost of products sold |  | $ | 118 |  |  | $ | — |
Research, development and patent |  |  | 24,435 |  |  |  | 19,682 |
Selling, general and administrative |  |  | 20,952 |  |  |  | 8,769 |
Total |  | $ | 45,505 |  |  | $ | 28,451 |
As of March 31, 2019, total unrecognized estimated non-cash stock-based compensation expense related to non-vested stock options and RSUs was $192.2 million and $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 1.4 years and 2.0 years, respectively. Impact of recently issued accounting standards 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. The new guidance requires us 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 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. The updated guidance is effective for fiscal years beginning after December 31, 2019, and interim periods within those fiscal years. Early adoption is permitted in any interim period. We are currently assessing the effects this updated guidance could have on our condensed consolidated financial statements and timing of 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):
| 1) | 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
| 2) | 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
| 3) | 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.

X
- References No definition available. + Details
Name: | us-gaap_AccountingPoliciesAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for all significant accounting policies of the reporting entity. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
Name: | us-gaap_SignificantAccountingPoliciesTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration