Ligand Pharmaceuticals Incorporated — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unless otherwise noted, financial amounts are in U.S. dollars; statement amounts below are in millions.
Business context
Ligand is a biopharmaceutical company that earns revenue primarily from partner-product royalties, Captisol material sales, and contract services, licenses and milestones. It reported two segments beginning in Q1 2022: OmniAb and Ligand core. The company described a portfolio of more than 140 partners and over 400 programs.
Financial highlights
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $45.7 | $55.2 | Down 17% |
| Operating income (loss) | $(9.3) | $4.7 | Down $14.0 |
| Net income (loss) | $(15.4) | $18.1 | Down $33.5 |
| Diluted earnings (loss) per share | $(0.91) | $1.05 | — |
| Cash provided by operating activities | $52.0 | $10.8 | Up $41.3 |
Revenue mix: Royalties were $13.7 million, up 93%; Captisol revenue was $12.1 million, down from $31.3 million; contract revenue was $19.9 million, up 19%. COVID-related Captisol revenue fell $24.1 million to $5.9 million, while core Captisol sales rose $5.0 million to $6.2 million. Higher royalties reflected partner-product sales, including Kyprolis, Evomela, teriparatide injection and Rylaze.
Costs and margins: Operating costs and expenses increased 9% to $55.0 million, exceeding revenue; operating margin was approximately negative 20%, versus positive 9% a year earlier. Research and development expense rose to $20.3 million from $17.9 million, and general and administrative expense rose to $18.2 million from $12.6 million. The company cited OmniAb transaction costs, including $4.8 million in G&A, as a principal driver. The filing does not present a consolidated gross-margin figure.
Other income and taxes: Other expense, net, was $10.8 million versus income of $1.0 million, principally reflecting a $12.9 million loss on short-term investments. The Q1 2022 loss included a $10.7 million unrealized loss on Viking shares. Income tax benefit was $4.8 million; the effective tax rate was 23.6%.
Liquidity and debt: At March 31, cash and cash equivalents were $15.0 million and short-term investments were $189.0 million, totaling $204.0 million in cash, equivalents and investments. Total current assets were $276.1 million and current liabilities were $42.6 million. The company reported $52.0 million of operating cash flow, $113.9 million of investing cash inflow and $170.4 million of financing cash outflow; cash declined $4.5 million during the quarter. It repurchased $165.8 million principal amount of its 0.75% convertible notes for $163.7 million cash. Remaining principal was $177.5 million; carrying value was $176.5 million. Management said existing funds, operating cash flow and financing access should be adequate for planned needs.
Material changes and notable items
- Total revenue declined mainly because of lower COVID-related Captisol sales, partly offset by growth in royalties, core Captisol and contract revenue.
- Short-term investments declined from $321.6 million at year-end 2021 to $189.0 million at March 31, 2022. The quarter included substantial investment sales and maturities as well as the convertible-note repurchase.
- Ligand adopted ASU 2020-06 for convertible debt accounting on January 1, 2022. The transition adjustment reduced additional paid-in capital by $51.1 million and increased retained earnings by $35.1 million, among other adjustments; prior-period comparative figures were not restated.
- The company recorded a $1.5 million gain on extinguishment of debt. Share-based compensation was $9.0 million, versus $8.4 million in Q1 2021.
Outlook, transaction and risks
Ligand had no quantified company-wide revenue or earnings guidance in the provided filing text. Management expected existing liquidity and operating cash generation to support working capital, capital expenditures, debt service, R&D, potential repurchases and strategic initiatives, while cautioning that interim results may not indicate full-year performance.
On March 23, 2022, Ligand agreed to separate and distribute OmniAb to Ligand shareholders, followed by OmniAb’s combination with Avista Public Acquisition Corp. II in a Reverse Morris Trust transaction. The transaction was expected to close in the second half of 2022, subject to conditions and approvals. Avista’s sponsor agreed to invest up to $115 million; Ligand expected to contribute $15 million, less certain expenses. The stated initial pre-money equity valuation for the combined company was $850 million. Ligand expected the transaction to be tax-free, but disclosed that closing, tax treatment and expected benefits were not assured.
- Closing risks include regulatory and shareholder approvals, effective registration statements, other customary conditions, and potential litigation or delay. Failure to qualify for the intended tax treatment could create significant tax liabilities.
- Ligand disclosed an ongoing arbitration with Baxter over Captisol-related Nexterone royalties and refunds; a hearing was scheduled for late May 2022. It also described opioid-related civil complaints in which it said no individualized factual allegations had been made against Ligand.
- Other business risks include dependence on partner sales and development outcomes, uncertainty around Captisol demand and COVID-related sales, transaction costs, and the potential effects of the separation on OmniAb’s employees and business relationships.
- Management reported disclosure controls and procedures were effective as of March 31, 2022, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Subsequent revenue trends, especially COVID-related Captisol demand and the durability of royalty growth.
- Fair-value changes in Viking shares and other investments, which materially affected quarterly earnings.
- Completion terms, funding, timing and tax opinions for the OmniAb separation and merger, including the final Ligand contribution and distribution mechanics.
- Remaining convertible-note balance, maturity and any further repurchases or conversions.
- Developments and potential financial exposure in the Baxter arbitration and other disclosed contingencies.