Ligand Pharmaceuticals Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Ligand is a biopharmaceutical company focused on acquiring or funding drug-development programs and licensing technologies; reported results are for continuing operations unless noted. The OmniAb antibody-discovery business was spun off in November 2022 and is presented as a discontinued operation.
Financial performance
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Revenue | $26.4 million | $50.1 million | $70.3 million | $86.6 million |
| Operating income (loss), continuing operations | $(2.0) million | $8.7 million | $12.2 million | $10.8 million |
| Net income (loss) | $2.3 million | $(0.9) million | $44.2 million | $(16.3) million |
| Diluted earnings (loss) per share | $0.13 | $(0.05) | $2.48 | $(0.97) |
| Operating cash flow | Not separately provided | Not separately provided | $33.9 million | $63.9 million |
Q2 operating margin was approximately negative 7.5%, versus 17.3% a year earlier; first-half operating margin was 17.4%, versus 12.5%. These figures reflect operating income divided by revenue. First-half net income included a $43.5 million gain from short-term investments, so it was substantially higher than operating income. Q2 investment gain was $4.0 million. The filing does not provide a clear gross-margin figure.
- Revenue mix and comparisons: Q2 royalties rose 15% to $20.4 million, while core Captisol revenue increased 57% to $5.2 million. Contract revenue fell 74% to $0.7 million. Total revenue declined 47%, chiefly because Q2 2022 included $26.2 million of COVID-related Captisol sales and Q2 2023 had none. First-half revenue fell 19%; royalties increased 20% to $37.6 million and core Captisol increased 66% to $15.8 million, while COVID-related Captisol revenue fell from $32.1 million to zero.
- Expenses and earnings: Q2 operating costs and expenses declined 32% to $28.3 million, mainly reflecting lower Captisol costs, R&D expense and legal expense. First-half costs declined 23% to $58.1 million. Q2 net income improved from a prior-year loss, but continuing-operations income fell to $2.3 million from $12.6 million, partly due to lower pre-tax income and a change from a tax benefit to tax expense. The prior-year Q2 also included a $13.5 million discontinued-operations loss.
- Liquidity and debt: Cash, cash equivalents and short-term investments totaled $219.0 million at June 30, 2023, up $7.2 million from year-end. Cash and cash equivalents were $28.4 million and short-term investments were $190.6 million. The remaining $76.9 million principal of the 0.75% convertible notes was repaid at maturity on May 15, 2023; no balance remained at quarter-end. First-half investing cash flow was $18.1 million and financing cash outflow was $68.5 million, including the note repayment. Capital expenditures were $2.6 million.
Material developments, outlook and risks
- First-half investment gains were driven substantially by Viking Therapeutics shares: Ligand sold 4.5 million shares and recognized $37.2 million in realized gains. It held 2.2 million Viking shares valued at $36.1 million at June 30. Equity-value changes can make reported earnings volatile.
- On July 17, 2023, Ligand agreed to a proposed $15 million cash purchase of Novan assets and up to $15 million of debtor-in-possession financing, including a $3 million bridge loan already funded. The acquisition is subject to bankruptcy-court approval and a successful bid in the sale process. The assets include berdazimer gel, for which an FDA action date was stated as January 5, 2024. Ligand said it would seek to outlicense or sell the acquired programs and assets.
- Management said existing funds, operating cash generation and financing access were adequate for planned needs, including development, potential repurchases and strategic initiatives. No specific revenue or earnings guidance was provided. The company had an unused $50 million share-repurchase authorization through April 2026 and an unused ATM offering capacity of up to $100 million at quarter-end.
- Key risks include dependence on partners’ product sales and development/regulatory milestones, variable Captisol orders, investment-value fluctuations, and uncertainty around product development and approvals. The company reported no material change to previously disclosed risk factors. It stated that pending opioid-related litigation claims did not contain individualized factual allegations against Ligand and were not expected to have a material adverse effect, while noting litigation outcomes are unpredictable.
- Disclosure controls were assessed as effective at June 30, 2023, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether royalty growth—particularly for Kyprolis, Rylaze and other partner products—continues to offset the absence of COVID-related Captisol sales.
- The composition and valuation sensitivity of the $190.6 million investment portfolio, including remaining Viking shares and the contribution of realized and unrealized gains to earnings.
- The final outcome, total funding requirement and expected economics of the Novan bankruptcy sale and proposed acquisition.
- The effect of the repaid convertible notes and any remaining dilution exposure from outstanding warrants, which have exercise prices above specified share-price thresholds.
- Progress and potential payments from partner programs, including Viking’s VK2809, and the timing and collectability of milestone or royalty proceeds.