Ligand Pharmaceuticals Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unaudited consolidated results. Ligand operates royalty, Captisol and contract-revenue businesses; from Q1 2022 it reports two segments: Ligand core and OmniAb.
Key financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $57.4 million | $84.7 million | $103.1 million | $139.8 million |
| Operating income (loss) | $(0.5) million | $45.7 million | $(9.8) million | $50.5 million |
| Net income (loss) | $(0.9) million | $30.7 million | $(16.3) million | $48.8 million |
| Diluted EPS | $(0.05) | $1.79 | $(0.97) | $2.84 |
| Operating cash flow | Not separately stated by quarter | $63.9 million | $31.1 million |
- Q2 royalty revenue rose 108% to $18.0 million, while Captisol revenue fell 53% to $29.5 million, principally because COVID-related Captisol sales for remdesivir declined to $26.2 million from $52.8 million. Contract revenue declined 27% to $9.9 million.
- For the first half, royalty revenue more than doubled to $31.7 million; COVID-related Captisol fell to $32.1 million from $82.8 million. Total revenue decreased 26% year over year.
- Reported operating margin was approximately negative 0.8% in Q2 2022, compared with approximately 54% in Q2 2021; the comparison is heavily affected by a $34.1 million non-cash Pfenex CVR liability reduction recorded as other operating income in Q2 2021. The filing does not present a normalized margin measure.
- Six-month net loss included a $14.8 million loss from short-term investments, compared with a $6.2 million gain in the prior-year period. Investment losses chiefly reflected changes in the fair value of Viking shares and other equity securities.
Financial position and liquidity
- At June 30, cash and cash equivalents were $5.3 million and short-term investments were $142.7 million, totaling $147.9 million. This was down $193.2 million from year-end 2021.
- Current assets were $243.8 million and current liabilities $167.9 million. Total assets were $1.08 billion; stockholders’ equity was $802.4 million.
- Ligand repurchased $227.8 million principal amount of its 0.75% convertible notes due 2023 for $223.7 million cash during the first half, leaving $115.5 million principal outstanding. The notes were classified as current at June 30 and were not convertible at that date. Repurchases generated a $3.3 million gain on extinguishment.
- Operating cash flow was $63.9 million; investing activities provided $151.7 million, largely reflecting investment sales and maturities; financing activities used $229.9 million, primarily for note repurchases. Cash and cash equivalents declined by $14.2 million during the period.
Material changes, outlook and risks
- Ligand expected the OmniAb separation and combination with Avista Public Acquisition Corp. II (APAC) to close in Q4 2022. The transaction was structured as a Reverse Morris Trust: Ligand intended to distribute all OmniAb shares to Ligand shareholders before OmniAb’s merger with APAC. Avista’s sponsor agreed to invest up to $115 million, and Ligand expected to contribute $15 million less specified costs; the combined company’s initial pre-money equity valuation was stated as $850 million. Completion remained subject to approvals, effective registration statements, tax opinions and other closing conditions.
- Management said existing funds, operating cash flows and financing access were adequate for working capital, capital expenditures, debt service, R&D and strategic initiatives. Ligand may continue repurchasing 2023 Notes. No quantified full-year revenue or earnings guidance is provided in the supplied filing text.
- OmniAb reported more than 60 partners and over 270 actively pursued or commercialized programs. The filing describes partner pipeline progress and approvals, but these programs and outcomes are controlled by partners and are not assured sources of future Ligand revenue.
- Key risks include reduced demand for COVID-related Captisol, variability in partner product sales and milestone timing, investment-value fluctuations, and uncertainty around the OmniAb transaction, including potential delay or failure to close, transaction costs, tax consequences and disruption to business relationships.
- A dispute with Baxter over Captisol-related Nexterone royalties proceeded to arbitration; a decision was expected before year-end 2022. Ligand disputed Baxter’s position that royalties ended upon a patent’s May 2022 expiration. The filing also describes opioid litigation involving allegations focused on other defendants; Ligand said it intended to defend the claims.
- Management reported disclosure controls were effective as of June 30, 2022, with no material changes to internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether the OmniAb separation and APAC merger closed as anticipated, and the final distribution, funding, expenses and tax treatment.
- Subsequent Captisol demand and whether growth in royalties can offset the decline in COVID-related sales.
- Remaining 2023 Notes balance, repayment or conversion terms, and the company’s cash and investment position after further transactions.
- The outcome and financial effect, if any, of the Baxter arbitration and other legal or contingent obligations.
- Value and liquidity of investment holdings, particularly Viking shares, given their contribution to reported investment gains and losses.