Ligand Pharmaceuticals Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Ligand is a biopharmaceutical company that earns royalties, Captisol material sales, license fees and milestone payments through a broad portfolio of partnered programs.
Financial performance
Amounts in millions, except per-share data. Comparisons are with the corresponding 2018 period.
| Metric | Q2 2019 | Q2 2018 | First half 2019 | First half 2018 |
|---|---|---|---|---|
| Revenue | $25.0 | $90.0 | $68.5 | $146.2 |
| Operating income (loss) | $(4.1) | $70.2 | $822.4 | $107.2 |
| Net income (loss) | $(14.4) | $73.2 | $651.9 | $118.4 |
| Diluted EPS | $(0.74) | $2.99 | $31.34 | $4.81 |
| Operating cash flow | Not separately presented for Q2 | $(15.8) | $134.4 |
- Q2 revenue comprised $6.6 million in royalties, $8.5 million in Captisol material sales and $9.8 million in license fees, milestones and other revenue. The quarter’s operating loss was $4.1 million.
- First-half 2019 results include an $812.8 million operating gain from the Promacta license sale. Without that transaction, the reported increase in first-half income is not representative of recurring operating performance; the filing does not provide a complete adjusted earnings measure.
- Q2 revenue fell 72%, and first-half revenue fell 53%. Material sales increased, but royalties and license-related revenue declined.
Liquidity, debt and cash flows
- At June 30, cash and cash equivalents were $273.0 million and short-term investments were $1.059 billion. Management described cash, cash equivalents and marketable securities as totaling approximately $1.4 billion.
- Total liabilities were $760.4 million. Convertible notes had $777.3 million aggregate principal outstanding: $27.3 million due in 2019 and $750.0 million due in 2023. The 2019 notes were expected to be settled in cash at maturity in August 2019; the 2023 notes were not convertible as of June 30.
- First-half operating cash flow was negative $15.8 million, despite reported net income, reflecting primarily the noncash Promacta gain adjustment and other working-capital and tax-related movements. Investing cash flow was $360.6 million and financing cash flow was negative $190.2 million.
- First-half cash uses included $189.9 million for share repurchases, $69.7 million for income taxes and $12.0 million for Novan economic rights. Management said available liquidity and expected operating cash flow were sufficient for at least the next 12 months.
Material changes and unusual items
- In March, Ligand sold all Promacta royalty rights to Royalty Pharma for $827.0 million cash. It recognized $14.2 million as royalty revenue through the sale date and $812.8 million as an operating gain; it will no longer receive Promacta royalties.
- Q2 included a $12.4 million loss from changes in the fair value of Ligand’s Viking stock and warrants. Viking-related fair-value movements contributed materially to the variability of other income and expense.
- Ligand repurchased approximately 1.53 million shares during the first half for $189.9 million. After June 30, it repurchased a further 378,746 shares through August 7.
- In May, Ligand paid Novan $12.0 million for economic rights to SB206, including potential milestones of up to $20.0 million and tiered royalties. It also acquired privately held Ab Initio for approximately $12.0 million on July 23, a subsequent event.
- Operating expenses rose 47% in Q2 and 51% in the first half, with increases attributed to material sales, R&D timing, the Vernalis acquisition, amortization of economic rights, and higher share-based compensation and G&A.
Outlook, commentary and risks
- No specific numerical revenue or earnings guidance is provided. Management expects current liquidity and operating cash flow to cover near-term needs for at least 12 months, while identifying debt settlement, repurchases, R&D, acquisitions and facility expansion as potential capital needs.
- Key business risks include dependence on partner performance and product sales, particularly Kyprolis and Evomela; potential product setbacks or generic competition; and the possibility that collaborators reduce, terminate or dispute programs. Ligand also cautioned that no OmniAb-derived product had yet received regulatory approval.
- Teva’s challenge to EVOMELA-related patents was scheduled for trial in January 2020. Ligand filed a separate patent-infringement complaint following Alembic’s generic application. Plaintiffs in a separate Delaware note-related action appealed its dismissal with prejudice in July 2019.
- Ligand said continued U.S. development of the partner glucagon-receptor-antagonist program RVT-1502 for diabetes was highly unlikely given FDA requirements; the partner was considering other indications or geographies.
- The filing identifies market and credit risk in the investment portfolio, including potential fair-value declines or impairment under stressed conditions. Operating lease liabilities totaled $11.5 million at June 30.
Important facts for investors to verify
- How the loss of Promacta royalties affects recurring revenue and the company’s reliance on Kyprolis, Captisol sales and partner milestones.
- The maturity and cash settlement of the 2019 notes, and the terms and potential dilution or cash exposure associated with the 2023 notes and related warrants.
- Investment portfolio composition, fair-value movements and any credit or impairment developments.
- Outcomes and timing of the EVOMELA patent disputes and the Delaware appeal.
- Partner program progress, especially SB206, RVT-1502 and OmniAb-derived candidates, and whether milestones or future royalties are achieved.
- Repurchase activity after quarter-end and the effect of ongoing buybacks on liquidity and share count.