Ligand Pharmaceuticals Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Amounts are in U.S. dollars; financial statement amounts below are in millions unless noted. Ligand is a partner-focused biopharmaceutical company whose revenue comes primarily from royalties, Captisol sales, research and development services, and license and milestone payments.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 | Change / context |
|---|---|---|---|
| Total revenue | $33.2 | $43.5 | Down 24% |
| Operating income | $3.8 | $826.5 | Q1 2019 included an $812.8 gain from the Promacta license sale |
| Net income (loss) | $(24.1) | $666.3 | Q1 2020 included adverse fair-value movements in Viking securities and other investments |
| Operating cash flow | $16.9 | $45.3 | Lower year over year |
| Cash, cash equivalents and short-term investments | $738.8 | — | At March 31, 2020; Ligand separately reported a $32.9 investment in Viking |
| 2023 convertible notes | $515.6 principal; $444.4 carrying value | $750.0 principal at Dec. 31, 2019 | $234.4 principal repurchased in March |
Operating expenses were $29.4, approximately 89% of revenue, versus $29.7, approximately 68% of revenue, in Q1 2019. Operating margin was approximately 11% in Q1 2020; the prior-year operating result is not comparable because of the Promacta sale gain. Interest expense was $8.5, and the reported income tax benefit was $6.3. The company did not report a formal Q1 gross margin measure.
Revenue mix
| Revenue category | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Royalties | $6.6 | $19.5 | Down 66% |
| Captisol | $21.1 | $9.0 | Up 136% |
| Service revenue | $3.4 | $3.9 | Down 14% |
| Contract revenue | $2.1 | $11.1 | Down 81% |
Royalty revenue fell largely because Ligand sold its Promacta rights in March 2019 and no longer receives Promacta royalties. Captisol sales rose with increased demand related to Gilead’s remdesivir program. Ligand attributed lower contract revenue in part to partners delaying clinical trial starts or pausing enrollment during COVID-19 disruptions.
Material changes and capital allocation
- In March, Ligand repurchased $234.4 million of 2023 Notes principal for $203.8 million in cash, including accrued interest. It recorded a $0.7 million gain on extinguishment; $515.6 million principal remained outstanding at quarter-end.
- Ligand repurchased 878,525 common shares for $73.3 million during Q1. $253.5 million remained authorized under its $500 million repurchase program at March 31.
- Cash, cash equivalents and investments declined by $298.2 million from year-end, primarily reflecting the debt and share repurchases. Operating cash flow was positive, while investing cash flow was $308.5 million and financing cash flow was $(279.3) million.
- The company recorded a $5.2 million after-tax cumulative adjustment to retained earnings upon adopting the expected-credit-loss accounting standard. It also recorded additional Q1 credit-loss provisions, including $0.2 million on receivables and $0.5 million on commercial license and economic rights.
Outlook, risks and unusual items
- COVID-19: Ligand reported partner delays in research and clinical programs and negative effects on some partner product sales, with potential risks to royalties, trials, commercialization and supply chains. It closed executive offices, moved administrative staff to remote work and limited laboratory staffing. The company said Captisol facilities and distribution remained operational and that it believed supply was adequate. It was increasing manufacturing to meet remdesivir-related demand; future revenue impact was uncertain.
- Pipeline and commercial developments: Ligand reported more than 80 OmniAb-related partnered programs and 43 active or recently completed clinical trials involving OmniAb-derived antibodies. These programs may generate future milestones or royalties, but outcomes and timing are uncertain. Kyprolis royalties increased to $4.4 million from $3.8 million; Evomela royalties increased to $1.6 million from $0.9 million.
- Viking and investment volatility: Ligand reported a $25.5 million Q1 loss from its Viking investment, reflecting changes in the fair values of Viking shares and warrants. Other expense included a $5.3 million realized and unrealized loss on equity investments.
- Legal matters: Patent litigation concerning generic EVOMELA remains ongoing with Alembic and Lupin. A Teva matter was settled, allowing generic entry no earlier than June 1, 2026, subject to specified earlier-entry circumstances. Ligand also disclosed opioid-related MDL complaints, which it said lacked individualized factual allegations against the company.
- Subsequent events: On April 1, 2020, Ligand acquired Icagen core assets for $15 million cash, with up to $25 million of additional revenue-based milestone payments. On May 5, Roivant gave notice terminating the GRA license agreement; Ligand said the program would revert after the notice period and that no further Glucagon CVR payments would be possible.
- Guidance: The filing provides no clear numerical full-year revenue or earnings guidance. Management said existing funds, operating cash generation and financing access were expected to be adequate for planned needs, while cautioning that actual results could differ materially.
Important facts for investors to verify
- Whether elevated Captisol demand tied to remdesivir continues and translates into sustained revenue, and whether supply capacity remains sufficient.
- How COVID-19 affects partner sales, clinical timelines, milestone receipts and Ligand’s royalty revenue after Q1.
- The extent to which Viking and other investment fair-value changes continue to affect reported earnings and liquidity.
- Remaining 2023 Notes obligations, any further debt repurchases, and the pace of share repurchases relative to available liquidity.
- Progress and potential economics of the Icagen assets, Roivant program reversion, and partner pipeline programs; the filing does not establish that anticipated milestones or royalties will be achieved.
- Developments in the EVOMELA patent cases and any resulting effect on product royalties or Captisol-related economics.