Is Ionis Pharmaceuticals (NASDAQ:IONS) Using Debt Sensibly?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth 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.

Check out 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 on the other hand it also has US$2.35b in cash, leading to a US$1.16b net cash position.

How Strong Is Ionis Pharmaceuticals' Balance Sheet?

According to the last reported balance sheet, Ionis Pharmaceuticals had liabilities of US$259.0m due within 12 months, and liabilities of US$2.14b due beyond 12 months. Offsetting this, it had US$2.35b in cash and US$14.0m in receivables that were due within 12 months. So these liquid assets roughly match the total liabilities.

This state of affairs indicates that Ionis Pharmaceuticals' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$5.15b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Ionis Pharmaceuticals boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. 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.

Over 12 months, Ionis Pharmaceuticals made a loss at the EBIT level, and saw its revenue drop to US$576m, which is a fall of 31%. To be frank that doesn't bode well.

So How Risky Is Ionis Pharmaceuticals?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Ionis Pharmaceuticals lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$294m of cash and made a loss of US$329m. With only US$1.16b 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. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for Ionis Pharmaceuticals you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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