Ligand Pharmaceuticals Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. The unaudited consolidated results include the OmniAb business through the period; Ligand completed the OmniAb separation and merger on November 1, 2022.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $66.1 million | $64.8 million | $169.2 million | $204.7 million |
| Operating income (loss) | $0.6 million | $15.7 million | $(9.1) million | $66.2 million |
| Net income (loss) | $0.4 million | $13.7 million | $(15.9) million | $62.6 million |
| Operating cash flow | Not provided by quarter | Not provided by quarter | $84.4 million | $51.2 million |
Q3 diluted EPS was $0.02 versus $0.80; nine-month diluted loss per share was $0.94 versus diluted EPS of $3.64 in 2021. Operating margin was approximately 1% in Q3 and negative 5% for the nine-month period, compared with approximately 24% and 32%, respectively, in 2021.
- Revenue mix: Q3 royalties were $19.8 million, Captisol revenue $35.9 million and contract revenue $10.3 million. Nine-month figures were $51.5 million, $77.6 million and $40.1 million, respectively.
- Cash and liquidity: Cash, cash equivalents and short-term investments totaled $121.4 million at September 30, down $219.7 million from December 31, 2021. Cash and equivalents alone were $4.1 million. Operating cash flow was $84.4 million; investing cash flow was $170.9 million and financing cash flow was $(270.7) million for the nine months.
- Debt: $76.9 million principal of 0.75% convertible notes due 2023 remained outstanding ($76.6 million net carrying value). Ligand repurchased $266.4 million principal for $261.4 million cash during the first nine months. The notes were classified as current liabilities at quarter-end.
- Balance sheet: Total assets were $1.05 billion and stockholders’ equity was $816.3 million. Current assets were $220.4 million and current liabilities $135.2 million.
Changes versus prior comparable periods
- Q3 revenue increased 2%, while nine-month revenue fell 17%, mainly reflecting lower COVID-related Captisol sales for remdesivir: down $48.1 million year to date. Q3 COVID-related Captisol revenue was $32.4 million, up from $29.7 million.
- Royalties increased 27% in Q3 and 64% year to date, supported principally by Kyprolis, teriparatide injection and Rylaze. Nine-month Captisol core revenue declined 19%; contract revenue declined 10%.
- Nine-month earnings fell sharply, reflecting reduced revenue and the absence of the prior-year $37.6 million non-cash Pfenex CVR valuation benefit. 2022 also included a $15.7 million loss from short-term investments, versus an $8.1 million gain in 2021.
- Q3 operating expenses rose 33%, including increased R&D investment and G&A costs, partly associated with OmniAb separation preparation, legal costs and headcount. Nine-month R&D increased to $61.5 million and G&A to $50.2 million.
- Ligand adopted ASU 2020-06 accounting for convertible debt on January 1, 2022. This changed the notes’ accounting presentation and reduced reported debt-related interest expense; prior-year comparative figures were not restated.
Outlook, transactions and material items
- Management stated existing funds, operating cash generation and financing access were expected to be adequate for working capital, debt service, R&D, capital expenditures and strategic initiatives. The filing gives no quantified revenue or earnings guidance.
- The November 1 OmniAb transaction distributed OmniAb shares to Ligand shareholders and combined OmniAb with APAC. Ligand shareholders received one OmniAb share per Ligand share held on the record date, followed by exchange into New OmniAb shares and potential price-triggered earnout shares. Management expected OmniAb to have approximately $95 million net cash at closing and expected the transaction to be tax-free; tax treatment is not assured.
- Ligand established a $100 million at-the-market equity offering program on September 30; no shares had been issued under it by the filing date. A $248.8 million common-stock repurchase authorization remained available, though no shares were repurchased in the period.
- A September 2022 arbitration award favored CyDex in its royalty dispute with Baxter, denying a requested refund, awarding underpaid royalties and requiring future royalties at least through March 2029 under the stated patent term.
- In October 2022, Ligand agreed to a lump-sum payment to Kangchen to terminate a license agreement and release related claims; the agreement was expected to take effect in Q4. The payment amount is not stated in the provided filing text.
- Management cited risks including dependence on partner product sales and Captisol demand, development and regulatory uncertainty, litigation or disputes, and the possibility that the OmniAb separation’s anticipated benefits may not materialize. The filing also describes potential tax exposure if the separation or merger fails to qualify for intended tax treatment, and risks related to fraudulent conveyance and lawful distributions.
Key facts for investors to verify
- Post-separation revenue, expenses, cash flows and segment comparability, given OmniAb’s removal from Ligand’s consolidated business.
- Future COVID-related Captisol demand and the durability of royalty growth, particularly for Kyprolis, teriparatide injection and Rylaze.
- Cash generation and liquidity after the substantial cash used to repurchase 2023 notes, plus the remaining notes’ repayment or conversion terms and post-spin conversion-rate adjustment.
- Actual costs and financial effects of the Kangchen termination, OmniAb transaction and leadership changes.
- Tax and indemnification exposure associated with the separation, and developments in remaining legal or contingent liabilities.
- Management reported disclosure controls were effective as of September 30, 2022 and no material change in internal control over financial reporting occurred during the quarter.