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

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Ionis Pharmaceuticals, Inc. (NASDAQ:IONS) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Ionis Pharmaceuticals

What Is Ionis Pharmaceuticals's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2023 Ionis Pharmaceuticals had US$1.28b of debt, an increase on US$1.23b, over one year. But on the other hand it also has US$2.24b in cash, leading to a US$962.9m net cash position.

A Look At Ionis Pharmaceuticals' Liabilities

We can see from the most recent balance sheet that Ionis Pharmaceuticals had liabilities of US$404.2m falling due within a year, and liabilities of US$2.21b due beyond that. Offsetting these obligations, it had cash of US$2.24b as well as receivables valued at US$142.4m due within 12 months. So its liabilities total US$234.0m more than the combination of its cash and short-term receivables.

Since publicly traded Ionis Pharmaceuticals shares are worth a total of US$7.16b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. 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 it is future earnings, more than anything, that will determine Ionis Pharmaceuticals's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Ionis Pharmaceuticals had a loss before interest and tax, and actually shrunk its revenue by 30%, to US$615m. To be frank that doesn't bode well.

So How Risky Is Ionis Pharmaceuticals?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Ionis Pharmaceuticals lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$574m and booked a US$409m accounting loss. With only US$962.9m 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. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. 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.