Ionis Pharmaceuticals (NASDAQ:IONS) Has Debt But No Earnings; Should You Worry?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Ionis Pharmaceuticals, Inc. (NASDAQ:IONS) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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.

See our latest analysis for Ionis Pharmaceuticals

What Is Ionis Pharmaceuticals's Net Debt?

The chart below, which you can click on for greater detail, shows that Ionis Pharmaceuticals had US$1.18b in debt in March 2023; about the same as the year before. But it also has US$2.35b in cash to offset that, meaning it has US$1.17b net cash.

A Look At Ionis Pharmaceuticals' Liabilities

According to the last reported balance sheet, Ionis Pharmaceuticals had liabilities of US$259.2m due within 12 months, and liabilities of US$2.14b due beyond 12 months. Offsetting these obligations, it had cash of US$2.35b as well as receivables valued at US$13.9m due within 12 months. So these liquid assets roughly match the total liabilities.

Having regard to Ionis Pharmaceuticals' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$5.78b company is struggling for cash, we still think it's worth monitoring its balance sheet. 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. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Ionis Pharmaceuticals can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Ionis Pharmaceuticals had a loss before interest and tax, and actually shrunk its revenue by 31%, to US$576m. To be frank that doesn't bode well.

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. And over the same period it saw negative free cash outflow of US$405m and booked a US$329m accounting loss. With only US$1.17b on the balance sheet, it would appear that its going to need to raise capital again soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 1 warning sign we've spotted with Ionis Pharmaceuticals .

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.