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Organization and Significant Accounting Policies | 12 Months Ended
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Dec. 31, 2021
Organization and Significant Accounting Policies [Abstract] |
Organization and Significant Accounting Policies | 1. Organization and Significant Accounting Policies Basis of Presentation In our consolidated financial statements we included the accounts of Ionis Pharmaceuticals, Inc. and the consolidated results of our subsidiary, Akcea Therapeutics, Inc. and its wholly owned subsidiaries (“we”, “us” or “our”). We formed Akcea in December 2014. In July 2017, Akcea completed an initial public offering, or IPO, which reduced our ownership of Akcea’s common stock below 100 percent. In October 2020, we completed a merger transaction with Akcea such that following the completion of the merger, Akcea became our wholly owned subsidiary. We will refer to this transaction as the Akcea Merger throughout the remainder of this document. We reflected changes in our ownership percentage in our financial statements as an adjustment to noncontrolling interest in the period the changes occurred. Organization and Business Activity We incorporated in California on January 10, 1989. In conjunction with our IPO, we reorganized as a Delaware corporation in April 1991. We were organized principally to develop human therapeutic medicines using antisense technology. In December 2015, we changed our name from Isis Pharmaceuticals, Inc. to Ionis Pharmaceuticals, Inc. 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. For the year ended December 31, 2021, we did not have to consider Akcea results separately in our calculation because we owned 100 percent of Akcea for the entire period. Our basic net loss per share for the year ended December 31, 2021 was $0.20. For the years ended December 31, 2020 and 2019, we calculated total net income (loss) attributable to our common stockholders for each year using our net income (loss) for Ionis on a stand-alone basis plus our share of Akcea’s net income (loss) for the period. To calculate the portion of Akcea’s net income (loss) attributable to our ownership for each year, we multiplied Akcea’s income (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 our consolidated statements of operations for each year. We calculated our basic net loss per share for the year ended December 31, 2020 as follows (in thousands, except per share amounts):
Year Ended December 31, 2020 |  | Weighted Average Shares Owned in Akcea |  |  | Akcea’s Net Loss Per Share |  |  | Basic Net Loss Per Share Calculation |
Akcea’s net loss in the pre-merger period attributable to our ownership |  |  | 77,095 |  |  | $ | (1.45 | ) |  | $ | (111,775 | )
Akcea’s net loss in the post-merger period attributable to our ownership |  |  |  |  |  |  |  |  |  |  | (85,987 | )
Akcea’s total net loss attributable to our ownership |  |  |  |  |  |  |  |  |  | $ | (197,762 | )
Ionis’ stand-alone net loss |  |  |  |  |  |  |  |  |  |  | (246,702 | )
Net loss available to Ionis common stockholders |  |  |  |  |  |  |  |  |  | $ | (444,464 | )
Weighted average shares outstanding |  |  |  |  |  |  |  |  |  |  | 139,612 |
Basic net loss per share |  |  |  |  |  |  |  |  |  | $ | (3.18 | )
We calculated our basic net income per share for the year ended December 31, 2019 as follows (in thousands, except per share amounts):
Year Ended December 31, 2019 |  | Weighted Average Shares Owned in Akcea |  |  | Akcea’s Net Income Per Share |  |  | Basic Net Income Per Share Calculation |
Common shares |  |  | 70,100 |  |  | $ | 0.49 |  |  | $ | 34,073 |
Akcea’s net income attributable to our ownership |  |  |  |  |  |  |  |  |  | $ | 34,073 |
Ionis’ stand-alone net income |  |  |  |  |  |  |  |  |  |  | 246,487 |
Net income available to Ionis common stockholders |  |  |  |  |  |  |  |  |  | $ | 280,560 |
Weighted average shares outstanding |  |  |  |  |  |  |  |  |  |  | 139,998 |
Basic net income per share |  |  |  |  |  |  |  |  |  | $ | 2.00 |
Diluted net income (loss) per share For the years ended December 31, 2021 and 2020, 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 underlying the following would have had an anti-dilutive effect on net loss per share:
| ● | 0.125 percent convertible senior notes, or 0.125% Notes;
| ● | Note hedges related to the 0.125% Notes;
| ● | 1 percent convertible senior notes, or 1% Notes;
| ● | Dilutive stock options;
| ● | Unvested restricted stock units, or RSUs;
| ● | Unvested performance restricted stock units, or PRSUs; and
| ● | Employee Stock Purchase Plan, or ESPP.
For the year ended December 31, 2021, common stock underlying the following would also have had an anti-dilutive effect on net loss per share:
| ● | 0 percent convertible senior notes, or 0% Notes; and
| ● | Note hedges related to the 0% Notes.
Additionally as of December 31, 2021, we had warrants related to our 0 percent and 0.125 percent Notes outstanding. We will include the shares issuable under these warrants in our calculation of diluted earnings per share when the average market price per share of our common stock for the reporting period exceeds the strike price of the warrants. For the year ended December 31, 2019, we reported 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 each period. We calculated our diluted net income per share as follows (in thousands except per share amounts):
Year Ended December 31, 2019 |  | Net Income Available to Ionis Common Stockholders (Numerator) |  |  | Shares (Denominator) |  |  | Per-Share Amount |
Net income available to Ionis common stockholders |  | $ | 280,560 |  |  |  | 139,998 |  |  | $ | 2.00 |
Effect of dilutive securities: |  |  |  |  |  |  |  |  |  |  |  |
Shares issuable upon exercise of stock options |  |  | — |  |  |  | 2,090 |  |  |  |  |
Shares issuable upon restricted stock award issuance |  |  | — |  |  |  | 766 |  |  |  |  |
Shares issuable related to our ESPP |  |  | — |  |  |  | 18 |  |  |  |  |
Shares issuable related to our 0.125 percent convertible notes |  |  | 860 |  |  |  | 217 |  |  |  |  |
Shares issuable related to our 1 percent convertible notes |  |  | 9,527 |  |  |  | 10,075 |  |  |  |  |
|  | $ | 290,947 |  |  |  | 153,164 |  |  | $ | 1.90 |
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. At contract inception, we analyze our collaboration arrangements to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities and therefore within the scope of ASC Topic 808, Collaborative Arrangements (ASC 808). For collaboration arrangements within the scope of ASC 808 that contain multiple elements, we first determine which elements of the collaboration reflect a vendor-customer relationship and therefore within the scope of ASC 606. When we determine elements of a collaboration do not reflect a vendor-customer relationship, we consistently apply the reasonable and rational policy election we made by analogizing to authoritative accounting literature. We evaluate the income statement classification for presentation of amounts due from or owed to other participants associated with multiple activities in a collaboration arrangement based on the nature of each separate activity. For example, in our eplontersen collaboration with AstraZeneca, we recognize funding received from AstraZeneca for co-development activities as revenue. While, we recognize cost sharing payments to and from AstraZeneca associated with co-commercialization activities and co-medical affairs activities as SG&A expense and research and development expense, respectively. 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 sales milestone payments and royalties we earn under our other partnerships. Commercial Revenue: TEGSEDI and WAYLIVRA revenue, net We began commercializing TEGSEDI and WAYLIVRA in Europe in January 2021 and TEGSEDI in North America in April 2021 through distribution agreements with Swedish Orphan Biovitrum AB, or Sobi. Under our agreements, we are responsible for supplying finished goods inventory to Sobi and Sobi is responsible for selling each medicine to the end customer. As a result of these agreements, we earn a distribution fee on net sales from Sobi for each medicine. Prior to the second quarter of 2021 in North America, we sold TEGSEDI through exclusive distribution agreements with third-party logistics companies, or 3PLs, that took title to TEGSEDI. The 3PLs then distributed TEGSEDI to a specialty pharmacy and a specialty distributor, which we collectively refer to as wholesalers, who then distributed TEGSEDI to health care providers and patients. In the United States, or U.S., we had a single 3PL as our sole customer and in Canada we also had a single 3PL as our sole customer. Prior to 2021 in Europe, we sold TEGSEDI and WAYLIVRA to hospitals and pharmacies, which were our customers, using 3PLs as distributors. Under our collaboration agreement with PTC Therapeutics International Limited, or PTC, PTC is responsible for commercializing TEGSEDI and WAYLIVRA in Latin America and Caribbean countries. In the third quarter of 2021, we earned a $4 million milestone payment from PTC when WAYLIVRA was approved in Brazil, which we included in TEGSEDI and WAYLIVRA revenue in our consolidated statement of operations. Under our agreement, we started receiving royalties from PTC for TEGSEDI sales beginning in December 2021. 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 6, Collaborative Arrangements and Licensing Agreements. For each collaboration, 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 of the consideration is probable.
| 2. | Identify the performance obligations
We next identify our performance obligations, which represent the distinct goods and services we are required to provide under the contract. Often 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 because these items are contingent upon future events that may not occur and are not priced at a significant discount. 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 material performance obligations related to the license after delivery, then we consider the license to be a separate performance obligation. For example, in the fourth quarter of 2021, we received a $200 million upfront payment when we entered into an agreement with AstraZeneca to jointly develop and commercialize eplontersen. We recognized the upfront payment in full in the fourth quarter of 2021 because we did not have any remaining performance obligations after we delivered the license to AstraZeneca.
| 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 future 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/ or are usually based on scientific progress which is inherently uncertain. For example, in the fourth quarter of 2021, we earned a $10 million milestone payment from AstraZeneca when AstraZeneca advanced a target for a metabolic disease. We did not consider the milestone payment probable until AstraZeneca achieved the milestone event because advancing the target was contingent on AstraZeneca initiating a Phase 1 study and was not within our control. We recognized the milestone payment in full in the period the milestone event was achieved because we did not have any remaining performance obligations related to the milestone payment.
| 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 do not reallocate the transaction price after the start of an agreement to reflect subsequent changes in stand-alone selling prices. 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 we may receive from future product sales;
| ● | Estimated contractual milestone payments we may receive;
| ● | Expenses we expect to incur;
| ● | Estimated 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.
| 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. Refer to Note 6, Collaborative Arrangements and Licensing Agreements, for further discussion of the cumulative catch up adjustment we made. 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, including royalties from SPINRAZA sales, in the period in which the counterparty sells the related product and recognizes the related revenue, which in certain cases may require us to estimate our royalty revenue. Commercial Revenue: TEGSEDI and WAYLIVRA revenue, net Under our distribution agreements with Sobi we concluded that our performance obligation is to provide services to Sobi over the term of the agreement, which includes supplying finished goods inventory to Sobi and because we retained the marketing authorization for TEGSEDI and WAYLIVRA we are responsible for leading the global commercial strategy for each medicine. We view this performance obligation as a series of distinct activities that are substantially the same. Therefore, we recognize as revenue the price Sobi pays us for the inventory when we deliver the finished goods inventory to Sobi. We also recognize distribution fee revenue based on Sobi’s net sales of TEGSEDI and WAYLIVRA in the period in which the sales occurred. Under our agreements with Sobi, Sobi does not generally have a right of return. Prior to our distribution agreements with Sobi, we recognized TEGSEDI and WAYLIVRA commercial revenue in the period when our customer obtained control of our products, which occurred at a point in time upon transfer of title to the customer. We classified payments to customers or other parties in the distribution channel for services that were distinct and priced at fair value as selling, general and administrative, or SG&A, expenses in our consolidated statements of operations. We classified payments to customers or other parties in the distribution channel that did not meet those criteria as a reduction of revenue, as discussed further below. We excluded from revenues taxes collected from customers relating to TEGSEDI and WAYLIVRA commercial revenue and remitted these amounts to governmental authorities. Reserves for TEGSEDI and WAYLIVRA commercial revenue Prior to our distribution agreements with Sobi, we recorded TEGSEDI and WAYLIVRA commercial revenue at our net sales price, or transaction price. We included in our transaction price estimated reserves for discounts, returns, chargebacks, rebates and other allowances that we offered within contracts between us and our customers, wholesalers, distributors, health care providers and other indirect customers. We estimated our reserves using the amounts we have earned or we could claim on the associated sales. We classified our reserves as a reduction of accounts receivable when we were not required to make a payment or as a current liability when we were required to make a payment. In certain cases, our estimates included a range of possible outcomes that were 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 reflected our best estimates under the terms of our respective contracts. When calculating our reserves and related TEGSEDI and WAYLIVRA commercial revenue, we only recognized amounts to the extent that we considered it probable that we would not have to reverse a significant amount of the cumulative sales we previously recognized in a future period. Under our agreements with Sobi, we transferred all reserves to Sobi. The following were the components of variable consideration related to TEGSEDI and WAYLIVRA product sales prior to our agreements with Sobi: Chargebacks: In the U.S., we estimated 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 charged us for the difference between what it paid for the product and the selling price to the qualified healthcare providers. We also estimated the amount of chargebacks related to our estimated product remaining in the distribution channel at the end of the reporting period that we expected our customer to sell to healthcare providers in future periods. We recorded these reserves as a reduction to contracts receivable on our consolidated balance sheet. Government rebates: We were subject to discount obligations under government programs, including Medicaid and Medicare programs in the U.S. and we recorded reserves for government rebates based on statutory discount rates and estimated utilization. We estimated Medicaid and Medicare rebates based on a range of possible outcomes that were probability weighted for the estimated payer mix. We recorded these reserves as an accrued liability on our consolidated balance sheet with a corresponding offset reducing our product sales in the same period we recognized the related sale. For Medicare, we also estimated the number of patients in the prescription drug coverage gap for whom we would owe an additional liability under the Medicare Part D program. On a quarterly basis, we updated our estimates and recorded any adjustments in the period that we identified the adjustments. Managed care rebates: We were subject to rebates in connection with agreements with certain contracted commercial payers. We recorded these rebates as a liability on our consolidated balance sheet in the same period we recognized the related revenue. We estimated our managed care rebates based on our estimated payer mix and the applicable contractual rebate rate. Trade discounts: We provided customary invoice discounts on product sales to our U.S. customer for prompt payment. We recorded this discount as a reduction of product sales in the period in which we recognized the related product revenue. Distribution services: We received and paid for various distribution services from our U.S. and European customers (prior to our agreement with Sobi) and wholesalers in the U.S. We classified the costs for services we received that are either not distinct from the sale of the product or for which we could not reasonably estimate the fair value as a reduction of product sales. To the extent that the services we received are distinct from the sale of the product, we classified the costs for such services as SG&A expenses. Product returns: Our U.S. customer had return rights and the wholesalers had limited return rights primarily related to the product’s expiration date. We estimated the amount of product sales that our customer may return. We recorded our return estimate as an accrued refund liability on our consolidated balance sheet with a corresponding offset reducing our product sales in the same period we recognized the related sale. Based on our distribution model for product sales, contractual inventory limits with our customer and wholesalers and the price of the product, we had minimal returns. Our European customers generally only took title to the product after they received an order and therefore they did not maintain excess inventory levels of our products. Accordingly, we had limited return risk in Europe and we did not estimate returns in Europe. 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 typically there is considerable uncertainty in the research and development processes that trigger these payments. 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 in which 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 fourth quarter of 2021, we achieved a $7.5 million milestone payment from Biogen when we advanced a target under our 2018 strategic collaboration. We added this payment to the transaction price and allocated it to our R&D services performance obligation. We are recognizing revenue related to 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 fourth quarter of 2021, we recognized $15 million in milestone payments when Biogen advanced two targets under our 2018 strategic collaboration. We concluded that the milestone payments were not related to our R&D services performance obligation. Therefore, we recognized the milestone payments in full in the fourth quarter of 2021. License fees We generally recognize as revenue the total amount we determine to be the relative 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 fourth quarter of 2021, we earned a $60 million license fee from Biogen when Biogen licensed ION306, an investigational medicine in development to treat SMA. Sublicense fees We recognize sublicense fee revenue in the period in which a party, who has already licensed our technology, further licenses the technology to another party because we do not have any performance obligations related to the sublicense. For example, in the fourth quarter of 2020, we earned a $41.2 million sublicense fee from Alnylam Pharmaceuticals for its sublicense of our technology to Sanofi Genzyme. 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 are sold at a 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 fesomersen, 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 fesomersen. Under the 2017 amendment, we concluded we had a new agreement with three performance obligations. These performance obligations were to deliver the license of fesomersen, to provide R&D services and to deliver API. We allocated the $75 million transaction price to these performance obligations. Refer to Note 6, Collaborative Arrangements and Licensing Agreements, for further discussion of the 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 contracts receivable to be unconditional. We typically receive payment within one quarter of billing our partner or customer. As of December 31, 2021, approximately 93.8 percent of our contracts receivables were from two significant customers. As of December 31, 2020, approximately 99.5 percent of our contracts receivables were from two significant customers. 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 consolidated balance sheet. Deferred Revenue We are often entitled to bill our customers and receive payment from our customers in advance of our obligation to provide services or transfer goods to our partners. In these instances, we include the amounts in deferred revenue on our consolidated balance sheet. During the years ended December 31, 2021 and 2020, we recognized $98.1 million and $100.4 million of revenue from amounts that were in our beginning deferred revenue balance for each respective period. For further discussion, refer to our revenue recognition policy above. Cost of Sales Our cost of sales includes manufacturing costs, transportation and freight costs and indirect overhead costs associated with the manufacturing and distribution of our products. We also may include certain period costs related to manufacturing services and inventory adjustments in cost of sales. We also may include certain period costs related to manufacturing services and inventory adjustments in cost of sales. 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 consolidated balance sheet and we expense them as the services are provided. For the years ended December 31, 2021, 2020 and 2019, research and development expenses were $638.2 million, $531.0 million and $461.5 million, respectively. A portion of the costs included in research and development expenses are costs associated with our partner agreements. 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 U.S. Patent and Trademark Office, or foreign equivalent, issues the patent. The weighted average remaining amortizable life of our issued patents was 10.2 years at December 31, 2021. The cost of our patents capitalized on our consolidated balance sheet at December 31, 2021 and 2020 was $38.4 million and $37.0 million, respectively. Accumulated amortization related to patents was $9.4 million and $9.1 million at December 31, 2021 and 2020, respectively. Based on our existing patents, we estimate amortization expense related to patents in each of the next five years to be the following:
Year Ending December 31, |  | Amortization (in millions) |
2022 |  | $ | 2.2 |
2023 |  | $ | 2.1 |
2024 |  | $ | 1.9 |
2025 |  | $ | 1.8 |
2026 |  | $ | 1.8 |
We review our capitalized patent costs regularly to ensure that they include costs for patents and patent applications that have future value. When we identify patents and patent applications that we are not actively pursuing, we write off any associated costs. In 2021, 2020 and 2019, patent expenses were $5.3 million, $4.1 million and $4.2 million, respectively, and included non-cash charges related to the write-down of our patent costs to their estimated net realizable values of $2.7 million, $1.9 million and $2.2 million, respectively. Accrued Liabilities Our accrued liabilities consisted of the following (in thousands):
|  | December 31, |
|  | 2021 |  |  | 2020 |
Clinical expenses |  | $ | 65,730 |  |  | $ | 39,477 |
In-licensing expenses |  |  | 8,044 |  |  |  | 8,264 |
Commercial expenses |  |  | 2,471 |  |  |  | 11,559 |
Other miscellaneous expenses |  |  | 12,315 |  |  |  | 30,861 |
Total accrued liabilities |  | $ | 88,560 |  |  | $ | 90,161 |
Estimated Liability for Clinical Development Costs We have numerous medicines in preclinical studies and/or clinical trials at clinical sites throughout the world. On at least a quarterly basis, we estimate our liability for preclinical and clinical development costs we have incurred and services that we have received but for which we have not yet been billed and maintain an accrual to cover these costs. These costs primarily relate to third-party clinical management costs, laboratory and analysis costs, toxicology studies and investigator grants. We estimate our liability using assumptions about study and patient activities and the related expected expenses for those activities determined based on the contracted fees with our service providers. The assumptions we use represent our best estimates of the activity and expenses at the time of our accrual and involve inherent uncertainties and the application of our judgment. Upon settlement, these costs may differ materially from the amounts accrued in our consolidated financial statements. Our historical accrual estimates have not been materially different from our actual amounts. Noncontrolling Interest in Akcea Therapeutics, Inc. Since Akcea’s IPO in July 2017 and prior to the Akcea Merger in October 2020, the shares of Akcea’s common stock third parties owned represented an interest in Akcea’s equity that we did not control. During this period our ownership ranged from 68 percent to 77 percent. However, as we maintained overall control of Akcea through our voting interest, we reflected the assets, liabilities and results of operations of Akcea in our consolidated financial statements. Since Akcea’s IPO in July 2017 and through the closing of the Akcea Merger, we reflected the noncontrolling interest attributable to other owners of Akcea’s common stock on a separate line on our statement of operations and a separate line within stockholders’ equity in our consolidated balance sheet. In addition, through the closing of the Akcea Merger, we recorded a noncontrolling interest adjustment to account for the stock options Akcea granted, which if exercised, would have diluted our ownership in Akcea. This adjustment was 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. Additionally, we reflected changes in our ownership percentage in our financial statements as an adjustment to noncontrolling interest in the period the change occurred. Concentration of Credit Risk Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash equivalents, short-term investments and receivables. We place our 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 Moody’s, Standard & Poor’s, or S&P, or Fitch, respectively. We have established guidelines relative to diversification and maturities that maintain safety and liquidity. We periodically review and modify these guidelines to maximize trends in yields and interest rates without compromising safety and liquidity. 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 in our consolidated statement of operations. 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 December 31, 2021, we held equity investments in three publicly held companies, Antisense Therapeutics Limited, or ATL, Bicycle Therapeutics plc, or Bicycle, and ProQR Therapeutics N.V., or ProQR. We also held equity investments in seven privately-held companies, Aro Biotherapeutics, Atlantic Pharmaceuticals Limited, Dynacure SAS, Empirico, Inc., Flamingo Therapeutics BV, YourBio Health, Inc. (formerly Seventh Sense Biosystems) and Suzhou-Ribo Life Science Co, Ltd. We are required to measure and record our equity investments at fair value and to recognize the changes in fair value in our consolidated statement of operations. We account for our equity investments in privately held companies at their cost minus impairments, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. For example, during 2020, we revalued our investments in three privately held companies, Dynacure, Suzhou-Ribo and Aro Biotherapeutics because the companies sold additional equity securities that were similar to the equity we own. As a result of these observable price changes, we recognized a $6.3 million gain on our investment in Dynacure, a $3.0 million gain on our investment in Suzhou-Ribo and a $5.5 million gain on our investment in Aro Biotherapeutics in our consolidated statement of operations during 2020 because the sales were at higher prices compared to our recorded value. Inventory Valuation We reflect our inventory on our consolidated balance sheet at the lower of cost or net realizable 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, which we refer to as clinical raw materials. 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. Our raw materials- commercial inventory includes API for our commercial medicines. We capitalize material, labor and overhead costs as part of our raw materials- commercial inventory. 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 recorded an insignificant amount of inventory write-offs during the years ended December 31, 2021 and 2020. Our inventory consisted of the following (in thousands):
|  | December 31, |
|  | 2021 |  |  | 2020 |
Raw materials: |  |  |  |  |  |
Raw materials- clinical |  | $ | 14,507 |  |  | $ | 9,206 |
Raw materials- commercial |  |  | 4,139 |  |  |  | 7,502 |
Total raw materials |  |  | 18,646 |  |  |  | 16,708 |
Work in process |  |  | 5,770 |  |  |  | 2,252 |
Finished goods |  |  | 390 |  |  |  | 3,005 |
Total inventory |  | $ | 24,806 |  |  | $ | 21,965 |
Property, Plant and Equipment We carry our property, plant and equipment at cost and depreciate it on the straight-line method over its estimated useful life, which consists of the following (in thousands):
|  | Estimated Useful |  |  | December 31, |
|  | Lives (in years) |  |  | 2021 |  |  | 2020 |
Computer software, laboratory, manufacturing and other equipment |  | 3 to 10 |  |  | $ | 72,802 |  |  | $ | 68,990 |
Building, building improvements and building systems |  | 15 to 40 |  |  |  | 144,046 |  |  |  | 137,879 |
Land improvements |  | 20 |  |  |  | 10,077 |  |  |  | 8,391 |
Leasehold improvements |  | 5 to 15 |  |  |  | 20,144 |  |  |  | 17,263 |
Furniture and fixtures |  | 5 to 10 |  |  |  | 10,591 |  |  |  | 12,871 |
|  |  |  |  |  |  | 257,660 |  |  |  | 245,394 |
Less accumulated depreciation |  |  |  |  |  |  | (102,653 | ) |  |  | (87,379 | )
|  |  |  |  |  |  | 155,007 |  |  |  | 158,015 |
Land |  |  |  |  |  |  | 23,062 |  |  |  | 23,062 |
Total |  |  |  |  |  | $ | 178,069 |  |  | $ | 181,077 |
We depreciate our leasehold improvements using the shorter of the estimated useful life or remaining lease term. Fair Value of Financial Instruments We have estimated the fair value of our financial instruments. The amounts reported for cash, accounts receivable, accounts payable and accrued expenses approximate the fair value because of their short maturities. We report our investment securities at their estimated fair value based on quoted market prices for identical or similar instruments. 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 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 determine the lease term at the inception of each 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. When we exercise a lease option that was not previously included in the initial lease term, we reassess our right-of-use asset and lease liabilities for the new lease term. As our leases do not provide an interest rate implicit in the lease, we used our incremental borrowing rate, based on the information available on the date we adopted Topic 842 (January 2019), as of the lease inception date or at the lease option extension date in determining the present value of future payments. 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. Long-Lived Assets We evaluate long-lived assets, which include property, plant and equipment and patent costs, 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. We recorded charges of $2.7 million, $1.9 million and $2.2 million for the years ended December 31, 2021, 2020 and 2019, respectively, related to the write-down of patents. Use of Estimates We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the U.S. that require us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. Actual results could differ from our estimates. Stock-Based Compensation Expense We measure stock-based compensation expense for equity-classified awards, principally related to stock options, RSUs, PRSUs 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 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. On the grant date, we use our stock price and assumptions regarding a number of variables to determine the estimated fair value of stock-based payment awards. These variables include, but are not limited to, our expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. 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. We recognize compensation expense for stock options granted, RSUs, PRSUs and stock purchase rights under the ESPP using the accelerated multiple-option approach. Under the accelerated multiple-option approach (also known as the graded-vesting method), we recognize compensation expense over the requisite service period for each separately vesting tranche of the award as though the award were in substance multiple awards, which results in the expense being front-loaded over the vesting period. In December 2020, we amended and restated the Akcea 2015 equity plan, including renaming the plan as the Ionis Pharmaceuticals, Inc. 2020 Equity Incentive Plan, or 2020 Plan. As a result, all employees are now under an Ionis stock plan and subject to the same Black-Scholes assumptions. RSU’s: The fair value of RSUs is based on the market price of our common stock on the date of grant. The RSUs we have granted to employees vest annually over a four-year period. The RSUs we granted to our board of directors prior to June 2020 vest annually over a four-year period. RSUs granted to our board of directors after June 2020 fully vest after one year. PRSU’s: Beginning in 2020, we added PRSU awards to the compensation for our Chief Executive Officer, Dr. Brett Monia. Under the terms of the grants, one third of the PRSUs may vest at the end of three separate performance periods spread over the three years following the date of grant (i.e., the one-year period commencing on the date of grant and ending on the first anniversary of the date of grant; the two-year period commencing on the date of grant and ending on the second anniversary of the date of grant; and the three-year period commencing on the date of grant and ending on the third anniversary of the date of grant) based on our relative total shareholder return, or TSR, as compared to a peer group of companies, and as measured, in each case, at the end of the applicable performance period. Under the terms of the grants no number of PRSUs is guaranteed to vest and the actual number of PRSUs that will vest at the end of each performance period may be anywhere from zero to 150 percent of the target number depending on our relative TSR. We determined the fair value of Dr. Monia’s PRSUs using a Monte Carlo model because the performance target is based on our relative TSR, which represents a market condition. We are recognizing the grant date fair value of these awards as stock-based compensation expense using the accelerated multiple-option approach over the vesting period. The weighted-average grant date fair value of PRSUs granted to Dr. Monia for the years ended December 31, 2021 and 2020 were $77.17 and $93.09 per share, respectively. See Note 4, Stockholders’ Equity, for additional information regarding our stock-based compensation plans. Accumulated Other Comprehensive Loss Accumulated other comprehensive loss is comprised of unrealized gains and losses on investments, net of taxes and currency translation adjustments. The following table summarizes changes in accumulated other comprehensive loss for the years ended December 31, 2021, 2020 and 2019 (in thousands):
|  | Year Ended December 31, |
|  | 2021 |  |  | 2020 |  |  | 2019 |
Beginning balance accumulated other comprehensive loss |  | $ | (21,071 | ) |  | $ | (25,290 | ) |  | $ | (32,016 | )
Unrealized gains (losses) on securities, net of tax (1) |  |  | (11,486 | ) |  |  | 3,729 |  |  |  | 6,633 |
Currency translation adjustment |  |  | (111 | ) |  |  | 617 |  |  |  | 93 |
Adjustments to other comprehensive loss from purchase of noncontrolling interest of Akcea Therapeutics, Inc. |  |  | — |  |  |  | (127 | ) |  |  | — |
Net other comprehensive loss for the period |  |  | (11,597 | ) |  |  | 4,219 |  |  |  | 6,726 |
Ending balance accumulated other comprehensive loss |  | $ | (32,668 | ) |  | $ | (21,071 | ) |  | $ | (25,290 | )
________________
(1) | We did not have tax expense included in our other comprehensive loss for the years ended December 31, 2021 and 2020. For the year ended December 31, 2019, we had a tax benefit of $1.4 million included in other comprehensive loss.
Convertible Debt Adoption of ASU 2020-06 In August 2020, the FASB issued ASU 2020-06, which simplifies the accounting for convertible debt instruments, amends the guidance on derivative scope exceptions for contracts in an entity’s own equity, and modifies the guidance on diluted earnings per share calculations. We adopted ASU 2020-06 on January 1, 2021 under the full retrospective approach, which required us to revise our prior period financial statements. This guidance impacted our accounting for outstanding convertible debt. At January 1, 2021, we had two outstanding convertible notes, our 0.125% Notes, which mature in December 2024, and our 1% Notes, which matured in November 2021. In April 2021, we completed a $632.5 million offering of 0% Notes primarily to repurchase a majority of our 1% Notes. We accounted for our 0% Notes under ASU 2020-06 at issuance. Refer to Note 3, Long-Term Obligations and Commitments, for further information. The updated guidance eliminates the cash conversion accounting model we previously followed in Accounting Standard Codification, or ASC, 470-20, which required us to separate each of our convertible debt instruments at issuance into two units of accounting, a liability component, based on our nonconvertible debt borrowing rate at issuance, and an equity component. Under ASU 2020-06, we now account for each of our convertible debt instruments as a single unit of accounting, a liability, because we concluded that the conversion features do not require bifurcation as a derivative under ASC 815-15 and we did not issue our convertible debt instruments at a substantial premium. Since we adopted ASU 2020-06 using the full retrospective approach, we were required to apply the guidance to all convertible debt instruments we had outstanding as of January 1, 2019. We recomputed the basis of each convertible debt instrument as if we accounted for each as a single unit of accounting at issuance. This update included recalculating the amortization of debt issuance costs using an updated effective interest rate. As a result of adopting ASU 2020-06, we recorded a cumulative adjustment to decrease our additional paid in capital and our accumulated deficit at January 1, 2019. We have updated these financial statements to reflect the cumulative adjustment for the periods presented. We have labeled our prior period financial statements “as revised” to indicate the change required under the new accounting guidance. Below is a summary of the change in our balance sheet at December 31, 2020 and statement of operations from the years ended December 31, 2020 and 2019 under the ASC 470-20 legacy guidance compared to the new ASU 2020-06 guidance we adopted: The following table summarizes the adjustments we made to the consolidated balance sheet we originally reported at December 31, 2020 to adopt ASU 2020-06 (in thousands):
|  | December 31, 2020 |
|  | As Previously Reported |  |  | ASU 2020-06 Adjustment |  |  | As Revised |
1 percent convertible senior notes |  | $ | 293,161 |  |  | $ | 15,648 |  |  | $ | 308,809 |
0.125 percent convertible senior notes |  | $ | 455,719 |  |  | $ | 84,417 |  |  | $ | 540,136 |
Additional paid-in-capital |  | $ | 2,113,646 |  |  | $ | (218,127 | ) |  | $ | 1,895,519 |
Accumulated deficit |  | $ | (1,249,368 | ) |  | $ | 118,062 |  |  | $ | (1,131,306 | )
Under ASU 2020-06, our revised ending balances for our 1% Notes and 0.125% Notes as of December 31, 2020 represent the principal balance of each convertible debt instrument less debt issuance costs. Additionally, because we have deferred tax assets related to our convertible debt instruments, we also adjusted these amounts as part of our adoption of ASU 2020-06. However, because we have a full valuation allowance on our deferred tax assets, there was no impact to our consolidated balance sheet related to our deferred tax assets. The following tables summarize the adjustments we made to the consolidated statement of operations we originally reported for the years ended December 31, 2020 and 2019 to adopt ASU 2020-06 (in thousands):
|  | Year Ended December 31, 2020 |
|  | As Previously Reported |  |  | ASU 2020-06 Adjustment |  |  | As Revised |
Interest expense |  | $ | (44,990 | ) |  | $ | 35,480 |  |  | $ | (9,510 | )
Loss before income tax expense |  | $ | (170,032 | ) |  | $ | 35,480 |  |  | $ | (134,552 | )
Income tax expense |  | $ | (316,734 | ) |  | $ | (28,457 | ) |  | $ | (345,191 | )
Net loss |  | $ | (486,766 | ) |  | $ | 7,023 |  |  | $ | (479,743 | )
Net loss attributable to Ionis Pharmaceuticals, Inc. common stockholders |  | $ | (451,286 | ) |  | $ | 7,023 |  |  | $ | (444,263 | )
Basic and diluted net loss per share |  | $ | (3.23 | ) |  | $ | 0.05 |  |  | $ | (3.18 | )
|  | Year Ended December 31, 2019 |
|  | As Previously Reported |  |  | ASU 2020-06 Adjustment |  |  | As Revised |
Interest expense |  | $ | (48,768 | ) |  | $ | 36,328 |  |  | $ | (12,440 | )
Loss on early retirement of debt |  |  | (21,865 | ) |  |  | (44,331 | ) |  |  | (66,196 | )
Income before income tax benefit (expense) |  | $ | 346,769 |  |  | $ | (8,003 | ) |  | $ | 338,766 |
Income tax expense |  | $ | (43,507 | ) |  | $ | (8,000 | ) |  | $ | (51,507 | )
Net income |  | $ | 303,262 |  |  | $ | (16,003 | ) |  | $ | 287,259 |
Net income attributable to Ionis Pharmaceuticals, Inc. common stockholders |  | $ | 294,146 |  |  | $ | (16,003 | ) |  | $ | 278,143 |
Basic net income per share |  |  | 2.12 |  |  |  | (0.12 | ) |  |  | 2.00 |
Diluted net income per share |  | $ | 2.08 |  |  | $ | (0.18 | ) |  | $ | 1.90 |
Under ASU 2020-06, our revised interest expense is lower because we are no longer recording non-cash interest expense related to a debt discount. This decrease was partially offset by the increase in interest expense related to the amortization of debt issuance costs because we no longer allocate a portion of our debt issuance costs to stockholders’ equity at issuance. Instead, the entire debt issuance costs were recorded as a contra-liability on our consolidated balance sheet at issuance and we are amortizing them over the contractual term using an updated effective interest rate. Our updated effective interest rates for our 1% Notes and 0.125% Notes were 1.4 percent and 0.5 percent, respectively. The following tables summarize the adjustments we made to our consolidated statements of stockholders’ equity we originally reported at December 31, 2020 and 2019 to adopt ASU 2020-06 (in thousands):
|  | December 31, 2020 |
|  | As Previously Reported |  |  | ASU 2020-06 Adjustment |  |  | As Revised |
Additional paid-in-capital |  | $ | 2,113,646 |  |  | $ | (218,127 | ) |  | $ | 1,895,519 |
Accumulated deficit |  | $ | (1,249,368 | ) |  | $ | 118,062 |  |  | $ | (1,131,306 | )
Total stockholders’ equity |  | $ | 843,347 |  |  | $ | (100,065 | ) |  | $ | 743,282 |
|  | December 31, 2019 |
|  | As Previously Reported |  |  | ASU 2020-06 Adjustment |  |  | As Revised |
Additional paid-in-capital |  | $ | 2,203,778 |  |  | $ | (218,128 | ) |  | $ | 1,985,650 |
Accumulated deficit |  | $ | (707,534 | ) |  | $ | 111,039 |  |  | $ | (596,495 | )
Total stockholders’ equity |  | $ | 1,684,547 |  |  | $ | (107,088 | ) |  | $ | 1,577,459 |
Call Spread In conjunction with the issuance of our 0% Notes and 0.125% Notes in April 2021 and December 2019, respectively, we entered into call spread transactions, which were comprised of purchasing note hedges and selling warrants. We account for the note hedges and warrants as separate freestanding financial instruments and treat each instrument as a separate unit of accounting. We determined that the note hedges and warrants do not meet the definition of a liability using the guidance contained in ASC Topic 480; therefore, we account for the note hedges and warrants using the Derivatives and Hedging – Contracts in Entity’s Own Equity accounting guidance contained in ASC Topic 815. We determined that the note hedges and warrants meet the definition of a derivative, are indexed to our stock and meet the criteria to be classified in shareholders’ equity. We recorded the aggregate amount paid for the note hedges and the aggregate amount received for the warrants as additional paid-in capital in our consolidated balance sheet. We reassess our ability to continue to classify the note hedges and warrants in shareholders’ equity at each reporting period. Segment Information In 2021, we began operating as a single segment, Ionis operations, because our chief decision maker reviews operating results on an aggregate basis and manages our operations as a single operating segment. Previously, we had operated as two operating segments, Ionis Core and Akcea Therapeutics. We completed the Akcea Merger in October 2020 and fully integrated Akcea’s operations into ours as of January 1, 2021. Fair Value Measurements We use a three-tier fair value hierarchy to prioritize the inputs used in our fair value measurements. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets, which includes our money market funds and treasury securities classified as available-for-sale securities and our investment in equity securities in publicly held biotechnology companies; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable, which includes our fixed income securities and commercial paper classified as available-for-sale securities; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring us to develop our own assumptions. We classify most of our securities as Level 2. We obtain the fair value of our Level 2 investments from our custodian bank or from a professional pricing service. We validate the fair value of our Level 2 investments by understanding the pricing model used by the custodian banks or professional pricing service provider and comparing that fair value to the fair value based on observable market prices. The following tables present the major security types we held at December 31, 2021 and 2020 that we regularly measure and carry at fair value. As of December 31, 2021, our Bicycle investment was subject to trading restrictions that extend to the third quarter of 2022; as a result, we included a lack of marketability discount in valuing this investment, which is a Level 3 input. As of December 31, 2020, we did not have any investments that we valued using Level 3 inputs. The following tables segregate each security type by the level within the fair value hierarchy of the valuation techniques we utilized to determine the respective securities’ fair value (in thousands):
|  | At December 31, 2021 |  |  | Quoted Prices in Active Markets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Cash equivalents (1) |  | $ | 541,199 |  |  | $ | 541,199 |  |  | $ | — |  |  | $ | — |
Corporate debt securities (2) |  |  | 764,059 |  |  |  | — |  |  |  | 764,059 |  |  |  | — |
Debt securities issued by U.S. government agencies (2) |  |  | 120,868 |  |  |  | — |  |  |  | 120,868 |  |  |  | — |
Debt securities issued by the U.S. Treasury (2) |  |  | 182,634 |  |  |  | 182,634 |  |  |  | — |  |  |  | — |
Debt securities issued by states of the U.S. and political subdivisions of the states (3) |  |  | 174,464 |  |  |  | — |  |  |  | 174,464 |  |  |  | — |
Other municipal debt securities (2) |  |  | 6,099 |  |  |  | — |  |  |  | 6,099 |  |  |  | — |
Investment in Bicycle Therapeutics plc (4) |  |  | 14,330 |  |  |  | — |  |  |  | — |  |  |  | 14,330 |
Investment in ProQR Therapeutics N.V. (4) |  |  | 3,875 |  |  |  | 3,875 |  |  |  | — |  |  |  | — |
Total |  | $ | 1,807,528 |  |  | $ | 727,708 |  |  | $ | 1,065,490 |  |  | $ | 14,330 |
|  | At December 31, 2020 |  |  | Quoted Prices in Active Markets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |
Cash equivalents (1) |  | $ | 221,125 |  |  | $ | 221,125 |  |  | $ | — |
Corporate debt securities (5) |  |  | 846,315 |  |  |  | — |  |  |  | 846,315 |
Debt securities issued by U.S. government agencies (2) |  |  | 174,861 |  |  |  | — |  |  |  | 174,861 |
Debt securities issued by the U.S. Treasury (6) |  |  | 358,497 |  |  |  | 358,497 |  |  |  | — |
Debt securities issued by states of the U.S. and political subdivisions of the states (2) |  |  | 136,309 |  |  |  | — |  |  |  | 136,309 |
Other municipal debt securities (2) |  |  | 6,225 |  |  |  | — |  |  |  | 6,225 |
Investment in ProQR Therapeutics N.V. (4) |  |  | 2,031 |  |  |  | 2,031 |  |  |  | — |
Total |  | $ | 1,745,363 |  |  | $ | 581,653 |  |  | $ | 1,163,710 |
________________
(1) | Included in cash and cash equivalents on our consolidated balance sheet.
(2) | Included in short-term investments.
(3) | $2.3 million included in cash and cash equivalents on our consolidated balance sheet, with the difference included in short-term investments on our consolidated balance sheet.
(4) | Included in other current assets on our consolidated balance sheet.
(5) | $10.0 million included in cash and cash equivalents on our consolidated balance sheet, with the difference included in short-term investments on our consolidated balance sheet.
(6) | $17.5 million included in cash and cash equivalents on our consolidated balance sheet, with the difference included in short-term investments on our consolidated balance sheet.
Convertible Notes Our 0.125% Notes and 0% Notes had a fair value of $495.4 million and $559.2 million at December 31, 2021, respectively. We determine the fair value of our notes based on quoted market prices for these notes, which are Level 2 measurements because the notes do not trade regularly. 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. We apply the authoritative accounting guidance prescribing a threshold and measurement attribute for the financial recognition and measurement of a tax position taken or expected to be taken in a tax return. We recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50 percent likely to be realized upon ultimate settlement. We are required to use significant judgment in evaluating our uncertain tax positions and determining our provision for income taxes. Although we believe our reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in our historical income tax provisions and accruals. We adjust these reserves for changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences may impact the provision for income taxes in the period in which such determination is made. We are also required to use significant judgment in determining any valuation allowance recorded against our deferred tax assets. In assessing the need for a valuation allowance, we consider all available evidence, including scheduled reversal of deferred tax liabilities, past operating results, the feasibility of tax planning strategies and estimates of future taxable income. We base our estimates of future taxable income on assumptions that are consistent with our plans. The assumptions we use represent our best estimates and involve inherent uncertainties and the application of our judgment. Should actual amounts differ from our estimates, the amount of our tax expense and liabilities we recognize could be materially impacted. We record a valuation allowance to reduce the balance of our net deferred tax assets to the amount we believe is more-likely-than-not to be realized. We do not provide for a U.S. income tax liability and foreign withholding taxes on undistributed foreign earnings of our foreign subsidiaries. Impact of Recently Issued Accounting Standards As disclosed in the “Convertible Debt” policy above within this footnote, we adopted the simplified accounting for convertible debt instrument guidance (ASU 2020-06) on January 1, 2021. Refer to the section above for the impact of adoption. We do not expect any other recently issued accounting standards to have a material impact to our financial results.

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