Health Check: How Prudently Does Ionis Pharmaceuticals (NASDAQ:IONS) Use Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Ionis Pharmaceuticals, Inc. (NASDAQ:IONS) makes use of debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Ionis Pharmaceuticals

What Is Ionis Pharmaceuticals's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2024 Ionis Pharmaceuticals had debt of US$1.81b, up from US$1.70b in one year. However, it does have US$2.21b in cash offsetting this, leading to net cash of US$404.3m.

How Strong Is Ionis Pharmaceuticals' Balance Sheet?

We can see from the most recent balance sheet that Ionis Pharmaceuticals had liabilities of US$327.6m falling due within a year, and liabilities of US$2.14b due beyond that. On the other hand, it had cash of US$2.21b and US$5.14m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$247.6m.

Of course, Ionis Pharmaceuticals has a market capitalization of US$7.50b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Ionis Pharmaceuticals also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Ionis Pharmaceuticals can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Ionis Pharmaceuticals reported revenue of US$777m, which is a gain of 35%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is Ionis Pharmaceuticals?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Ionis Pharmaceuticals had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$345m of cash and made a loss of US$385m. While this does make the company a bit risky, it's important to remember it has net cash of US$404.3m. That kitty means the company can keep spending for growth for at least two years, at current rates. With very solid revenue growth in the last year, Ionis Pharmaceuticals may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Ionis Pharmaceuticals you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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