Image source: Getty Images.

What happened

Less than a week after it updated investors on its third-quarter progress, Ionis Pharmaceuticals (NASDAQ:IONS) shares jumped 11.7% higher Monday.

So what

Last week, Ionis Pharma reported that Q3 revenue totaled $110.9 million, up 126% year over year, and that net income improved to a $7.4 million profit from a loss of $35.8 million in Q3 2015.

The vast majority of the company's the quarter success stemmed from Biogen's decision to license nusinersen, a drug under development for spinal muscular atrophy, a rare muscle-wasting disease that can cause infant mortality.

Biogen paid Ionis $96.9 million to gain global commercialization rights to nusinersen, and shortly thereafter, Biogen filed an application for FDA approval of the drug. If approved, the drug will be sold under the brand name Spinraza. Industry analysts think Spinraza may have peak sales potential in excess of $1 billion because there's a significant need for new SMA treatments. The FDA has accepted the application under an accelerated pathway that could lead to a decision within six months, rather than the standard 10 month timeline.

Now what

Spinraza targets a small patient population, but treatments for rare conditions can carry six-figure annual price tags, and as a result, this drug could meaningfully contribute to Ionis Pharma's financial performance next year. Biogen will get the biggest benefit from the sales, but Ionis Pharma could collect up to $150 million in milestone payments, plus tiered royalties on sales up to the mid-teen percentages.