Business context and reporting period
Ligand Pharmaceuticals Incorporated filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2021. Ligand is a biopharmaceutical company whose revenues primarily come from partner-product royalties, Captisol material sales, and contract revenue from services, licenses, and milestones. Its portfolio includes more than 130 partners and over 300 programs.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $84.7 million | $41.4 million | $139.8 million | $74.6 million |
| Operating income | $45.7 million | $7.1 million | $50.5 million | $10.9 million |
| Net income (loss) | $30.7 million | $22.1 million | $48.8 million | $(2.0) million |
| Diluted EPS | $1.79 | $1.32 | $2.84 | $(0.13) |
| Operating cash flow | Not separately provided | Not separately provided | $31.1 million | $41.3 million |
Q2 operating and net margins were approximately 54% and 36%, respectively; both include the benefit of a $34.1 million non-cash reduction in the Pfenex contingent-value-right (CVR) liability. Q2 cost of Captisol was 49% of Captisol revenue, versus 31% a year earlier; for the first half, it was 41%, versus 27%.
Q2 revenue comprised $62.5 million of Captisol, $13.6 million of contract revenue, and $8.6 million of royalties. Captisol revenue increased 155% year over year, largely due to remdesivir-related demand. Royalties rose 20% in Q2; Kyprolis royalties were $5.4 million and Evomela royalties were $2.2 million. First-half revenue increased 87% year over year.
At June 30, 2021, cash and cash equivalents were $21.9 million and short-term investments were $280.0 million, totaling $301.8 million. Total current assets were $410.9 million and current liabilities were $52.5 million. Operating cash flow was $31.1 million for the first half. Investing cash flow was $84.5 million, largely reflecting investment maturities and sales; financing cash flow was $(141.5) million, chiefly from convertible-note repurchases.
Ligand had $345.7 million principal amount of 0.75% convertible notes due 2023 outstanding ($315.3 million net carrying value). It repurchased $149.6 million principal for $153.7 million cash during the first half, recording a $7.2 million extinguishment loss. Management said available funds, operating cash flow, and financing access should be adequate for planned operating needs, R&D, capital expenditures, debt service, and strategic initiatives. Cash and short-term investments declined $109.4 million from year-end 2020.
Material changes versus comparable periods
- Revenue growth was driven primarily by Captisol sales for remdesivir manufacturing. Higher Captisol sales also raised cost of Captisol, with lower pricing on sales to Gilead consortium partners in India affecting the cost ratio.
- Contract revenue increased with milestone timing and contributions from acquired businesses, including Pfenex and Icagen. Amortization, R&D, and G&A also increased, primarily reflecting acquisitions and higher share-based compensation.
- Q2 net income rose despite a $6.9 million investment loss, compared with a $23.5 million gain in Q2 2020. The change primarily reflected fluctuations in the fair value of Ligand’s Viking securities. First-half results also benefited from a $9.8 million income-tax benefit.
- The Pfenex CVR fair-value liability fell from $37.6 million at December 31, 2020 to $3.8 million at June 30, 2021, primarily because Ligand assessed the relevant milestone as less likely to be achieved by the deadline.
Outlook, commentary, risks, and contingencies
Ligand gave no numerical revenue or earnings guidance in the supplied filing text. Management reported positive partner-program developments, including FDA approvals for Jazz’s Rylaze and Merck’s VAXNEUVANCE, and stated that it expected the first regulatory approvals for OmniAb-derived antibodies in 2021. Such partner outcomes and expectations are not assured.
Key risks include reliance on Captisol sales, particularly remdesivir-related demand; possible alternative remdesivir formulations using less Captisol; partner termination or commercial setbacks; and Captisol manufacturing, supply, capacity, and customer-concentration risks. COVID-19 could disrupt supply chains, partner operations, clinical trials, product launches, and royalty-generating sales. The filing also highlights uncertainty around intellectual-property challenges and competition for the OmniAb platform; no OmniAb-derived product had yet been approved by the FDA or a similar regulator.
Ligand disclosed ongoing arbitration with Baxter over Captisol-related Nexterone royalties; the proceeding was in its early stages. Several other matters, including patent disputes involving generic Evomela applicants and an Abvivo arbitration, had been settled and dismissed. The filing also reported approximately $22 million of additional undiscounted operating lease obligations from a new Emeryville office lease with a ten-year term. No material changes to other contractual obligations or market-risk disclosures were reported.
Important facts for investors to verify
- How much of Captisol demand and revenue depends on remdesivir, and whether demand persists as COVID-19 conditions and competing formulations evolve.
- Whether the $34.1 million Pfenex CVR revaluation is understood as a non-cash, one-time operating-income benefit, and whether the underlying milestone is ultimately achieved.
- Captisol supply capacity, supplier concentration, customer payment exposure, and the effect of lower-priced consortium sales on product margins.
- Progress and regulatory outcomes for OmniAb and other partner programs, including the timing and commercial significance of anticipated approvals.
- Terms and potential financial effects of the Baxter arbitration, remaining contingent liabilities, and future convertible-note repurchases.