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

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.' 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. Importantly, Ionis Pharmaceuticals, Inc. (NASDAQ:IONS) does carry debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Ionis Pharmaceuticals

How Much Debt Does Ionis Pharmaceuticals Carry?

As you can see below, at the end of December 2023, Ionis Pharmaceuticals had US$1.27b of debt, up from US$1.18b a year ago. Click the image for more detail. But it also has US$2.34b in cash to offset that, meaning it has US$1.06b net cash.

A Look At Ionis Pharmaceuticals' Liabilities

According to the last reported balance sheet, Ionis Pharmaceuticals had liabilities of US$448.1m due within 12 months, and liabilities of US$2.16b due beyond 12 months. On the other hand, it had cash of US$2.34b and US$97.8m worth of receivables due within a year. So it has liabilities totalling US$168.1m more than its cash and near-term receivables, combined.

Given Ionis Pharmaceuticals has a market capitalization of US$6.20b, it's hard to believe these liabilities pose much 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 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 wasn't profitable at an EBIT level, but managed to grow its revenue by 34%, to US$788m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Ionis Pharmaceuticals?

Statistically speaking companies that lose money are riskier than those that make money. 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$336m and booked a US$366m accounting loss. But the saving grace is the US$1.06b on the balance sheet. That means it could keep spending at its current rate for more than two years. 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. 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. For instance, we've identified 2 warning signs for Ionis Pharmaceuticals that 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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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.