Ligand Pharmaceuticals Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023, compared with Q1 2022. Ligand’s antibody-discovery business, OmniAb, was spun off in November 2022; its historical results are presented as discontinued operations. Ligand now focuses on developing or acquiring technologies and assets and licensing them to pharmaceutical partners.
Financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $44.0 million | $36.5 million |
| Operating income from continuing operations | $14.2 million | $2.1 million |
| Net income (loss) from continuing operations | $43.6 million | $(12.9) million |
| Net income (loss), including discontinued operations | $41.9 million | $(15.4) million |
| Cash provided by operating activities | $33.9 million | $52.0 million |
Revenue grew 20%. Royalties were $17.2 million, Captisol revenue $10.6 million, and contract revenue $16.2 million. Operating expenses fell 13% to $29.8 million. Operating margin was approximately 32% versus 6% in the prior-year quarter.
Q1 2023 net income was substantially affected by $39.5 million of gains from short-term investments, including $20.5 million of realized gains from selling Viking shares and approximately $19.0 million of unrealized gains. Accordingly, reported net income was not solely driven by operating performance. The company also recorded a $1.7 million tax provision adjustment related to discontinued operations.
Liquidity, debt and balance sheet
- Cash, cash equivalents and short-term investments totaled $282.7 million at March 31, 2023, up $70.8 million from year-end 2022. Cash and cash equivalents alone were $88.7 million.
- Total assets were $811.1 million; total liabilities were $164.8 million.
- $76.9 million principal amount of 0.75% convertible notes remained outstanding, classified as current. The notes matured May 15, 2023; management said it planned to use existing cash to repay them. No notes were repurchased in Q1.
- The company reported $33.9 million in operating cash flow, $10.5 million in investing cash flow and $0.8 million in cash used in financing activities. Operating cash flow was lower year over year despite positive net income, in part because reported earnings included investment gains and cash-flow adjustments.
Material changes and business updates
- Contract revenue increased $5.2 million, primarily from a milestone tied to FDA approval of Travere’s FILSPARI (sparsentan) for IgA nephropathy.
- Royalty revenue rose 28%, primarily reflecting higher Kyprolis sales and sales of products using the Pelican platform. Kyprolis royalties increased to $6.2 million from $4.6 million.
- Core Captisol revenue rose 71% to $10.6 million, attributed mainly to customer-order timing. COVID-related Captisol revenue was zero, compared with $5.9 million in Q1 2022.
- Ligand sold 3.2 million Viking shares during the quarter and held 3.6 million shares at March 31, 2023. The company noted it has no direct economic interest in Viking’s VK2735 program.
- R&D expense declined to $6.7 million from $9.2 million, and general and administrative expense declined to $10.9 million from $11.9 million. Management attributed the latter mainly to lower legal costs associated with the OmniAb separation.
Outlook, risks and contingencies
The filing provides no quantitative revenue or earnings guidance. Management said existing funds, operating cash generation and financing access should be adequate for working capital, debt service, R&D and strategic initiatives, including acquisitions and investments. It cautioned that partner product sales, milestones, development progress, regulatory outcomes and commercialization may differ from expectations.
After quarter-end, Travere reported that sparsentan’s Phase 3 DUPLEX study in FSGS did not meet its primary eGFR-slope endpoint; it planned to discuss a potential path forward with regulators. Ligand’s potential royalties and milestone receipts depend on partner program outcomes. The filing also describes opioid-related multi-district litigation involving claims that it intends to defend; management did not believe pending claims were likely to have a material adverse effect, while noting litigation outcomes are unpredictable. No material changes to previously disclosed risk factors or market risks were reported.
The company reported effective disclosure controls and procedures and no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Repayment of the $76.9 million convertible notes at their May 15, 2023 maturity and the effect on subsequent liquidity.
- How much future revenue growth is supported by recurring royalties versus milestones and timing-sensitive Captisol orders.
- Viking investment valuation, remaining shareholding and the effect of further share-price changes on reported earnings and liquidity.
- Partner updates and regulatory outcomes for key royalty or milestone programs, including sparsentan, VK2809, berdazimer and other disclosed programs.
- Potential developments in the opioid litigation and any other legal or contingent liabilities.