Ligand Pharmaceuticals Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed February 24, 2021. Ligand is a biopharmaceutical technology and licensing company whose revenue is primarily royalties, Captisol material sales and contract payments. Partners fund development and commercialization for most programs.
Financial performance and liquidity
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Total revenue | $186.4 million | $120.3 million | +55% |
| Royalties | $33.8 million | $47.0 million | -28% |
| Captisol revenue | $110.0 million | $31.5 million | +249% |
| Contract revenue | $42.7 million | $41.8 million | +2% |
| Operating costs and expenses | $177.7 million | $126.0 million | +41% |
| Income (loss) from operations | $25.8 million | $807.1 million | Primarily reflects prior-year Promacta sale gain |
| Net income (loss) | ($3.0 million) | $629.3 million | Prior-year result included the Promacta license sale |
| Operating cash flow | $54.6 million | ($29.3 million) | Improved |
Captisol revenue rose principally from remdesivir (Veklury) demand. Royalty revenue fell mainly because Ligand sold its Promacta royalty rights in March 2019, which contributed $14.2 million of 2019 royalties, and because of COVID-19 impacts. Kyprolis royalties were $25.2 million, broadly flat year over year; Evomela royalties increased to $6.4 million from $5.2 million.
Fourth-quarter 2020 revenue was $70.0 million, operating costs and expenses were $75.9 million, and net income was $5.8 million.
At year-end, cash, cash equivalents and short-term investments totaled $411.2 million, down from $1.07 billion. Working capital was $400.4 million; total assets were $1.36 billion and stockholders’ equity was $709.5 million. Notes payable, net, were $442.3 million, representing $495.3 million principal of 0.75% convertible notes due 2023. Ligand repurchased $254.7 million principal of those notes for $222.8 million cash during 2020. Cash and investments declined primarily amid acquisitions, debt repurchases and share repurchases. No covenant defaults were reported.
Reported operating income included a $17.1 million gain on the Vernalis sale; excluding that gain, operating income was approximately $8.7 million. Other expense, net, was $36.4 million, including a $16.9 million loss from short-term investments, primarily reflecting an unrealized loss on Viking securities. Income tax benefit was $7.6 million. The filing reports no off-balance-sheet arrangements.
Material changes and significant transactions
- Acquired Pfenex in October for preliminary total consideration of $465.1 million, including $429.6 million cash consideration and a contingent value right with up to $77.8 million payable if a specified FDA milestone is achieved by December 31, 2021. The acquisition added protein-expression technology and partnered programs.
- Acquired Icagen assets for $15.1 million cash, with up to $25.0 million in additional revenue-based payments. Also acquired xCella and Taurus, investing approximately $7.1 million and $5.1 million, respectively, plus potential contingent payments.
- Sold Vernalis research operations and internal programs to HitGen for $26.7 million cash, recognizing a $17.1 million gain; Ligand retained certain economic rights.
- Captisol demand from Veklury materially increased sales. Ligand has a 10-year Captisol supply agreement with Gilead and is investing to expand manufacturing capacity.
- Promacta sale proceeds drove FY2019’s unusually high earnings: Ligand received $827.0 million in cash, of which $812.8 million was recorded as a gain.
Outlook, commentary and risks
Management anticipates substantial continued Captisol demand and is expanding capacity, but the filing provides no formal numeric revenue or earnings guidance. The company plans a U.S. Phase 2 study of Captisol-enabled iohexol in 2021. Partner developments noted after year-end included FDA priority review acceptance of Merck’s V114 vaccine application and Travere’s positive interim FSGS endpoint for sparsentan; these are partner programs, not guaranteed Ligand revenue.
- Revenue depends on partner decisions, clinical and regulatory outcomes, product sales, and milestone timing. Management highlights concentration in Captisol sales and royalties from partner products; COVID-19 could disrupt trials, sales, supply chains and regulatory timelines.
- Captisol is primarily manufactured by a single supplier, Hovione. Capacity expansion, supply interruption, demand changes or competition could affect sales and margins.
- Generic competition is a risk: the Evomela settlement permits U.S. generic entry from June 1, 2026 or earlier in certain circumstances; publicly reported Kyprolis generic timing includes 2027 or sooner in certain circumstances.
- The $495.3 million principal balance of 2023 convertible notes, potential dilution or cash settlement, acquisition integration, contingent consideration and potential impairment of acquired intangibles are material considerations.
- Legal matters include generic-drug patent disputes concerning Evomela and an Abvivo arbitration demand. Ligand said it intended to defend the matters; the filing does not establish their ultimate outcomes.
Important facts for investors to verify
- Whether Veklury-related Captisol demand and expanded manufacturing capacity persist, and the resulting revenue and profitability.
- Underlying royalty trends excluding the sold Promacta rights, including Kyprolis, Evomela and other partnered products.
- Cash deployment, remaining 2023 Notes principal, repurchases and acquisition-related contingent liabilities, including the Pfenex CVR milestone.
- Regulatory and clinical progress of key partner programs, and whether any progress converts into Ligand milestones or royalties.
- Possible effects of COVID-19, Hovione supply dependence, generic competition and pending patent or arbitration proceedings.