Ligand Pharmaceuticals Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Ligand is a biopharmaceutical company focused on licensing technologies and acquiring economic rights to drug-development programs. OmniAb was spun off in November 2022 and is reported as a discontinued operation; comparisons below generally reflect continuing operations.
Financial performance
- Revenue: Q3 revenue was $32.9 million, down 44% from $59.2 million. Nine-month revenue was $103.2 million, down 29% from $145.9 million.
- Revenue mix: Q3 royalties rose 24% to $23.9 million and core Captisol revenue rose 140% to $8.6 million. Contract revenue fell 90% to $0.4 million. The principal comparison factor was the absence of COVID-related Captisol sales: $32.4 million in Q3 2022 and none in Q3 2023. For nine months, royalties increased 22% to $61.4 million and core Captisol increased 86% to $24.5 million, while COVID-related Captisol revenue fell from $64.5 million to zero.
- Profit and margins: Q3 operating income was $3.1 million versus $12.3 million; operating margin was approximately 9.4% versus 20.8%. A $15.2 million net loss from other income and expense—principally a $13.2 million investment loss—contributed to a continuing-operations net loss of $10.3 million, versus income of $9.6 million. For nine months, operating income was $15.3 million versus $23.1 million, while continuing-operations net income was $35.6 million versus $9.3 million. Total net income was $34.0 million versus a $15.9 million loss, including discontinued-operation losses of $1.7 million and $25.2 million, respectively.
- Cash flow: Nine-month operating cash flow was $41.5 million, down from $84.4 million. Investing activities used $1.4 million, compared with $170.9 million provided in the prior period; financing activities used $65.3 million, primarily reflecting repayment of the notes at maturity. Cash, cash equivalents and restricted cash ended at $19.9 million.
- Liquidity and debt: Cash and short-term investments totaled $190.5 million at September 30, 2023, down $21.4 million from year-end 2022. Current assets were $254.0 million and current liabilities $15.7 million. Ligand repaid the remaining $76.9 million principal of its 0.75% convertible notes in May 2023; no notes remained outstanding at quarter-end. A $75 million revolving facility was entered into after quarter-end, and no amounts had been drawn as of the filing.
- Balance sheet: Total assets were $769.2 million, liabilities $101.3 million and stockholders’ equity $667.9 million at September 30, 2023.
Material changes and notable items
- Ligand sold its Pelican business to Primrose Bio in September, retaining existing royalty rights and a 49.9% equity interest. The transaction generated a $2.1 million gain. Ligand also invested $15 million for rights to a portion of certain future milestones and commercial economics related to PeliCRM197.
- Q3 results included a $3.2 million expected-credit-loss adjustment for Elutia commercial license rights after recent nonpayment; Ligand placed the loan on non-accrual while it works to modify payment terms. A $0.9 million impairment was recorded for Selexis commercial license rights following program reductions.
- Ligand acquired selected Novan assets in September, including the NDA-stage berdazimer gel 10.3% program, NITRICIL technology and rights to Sitavig. The acquisition included provisional purchase accounting and a $20.5 million assumed liability related to a royalty and milestone payment agreement.
- Short-term investment gains were volatile: Ligand recorded a $13.2 million loss in Q3, while nine-month investment results were a $30.3 million gain. The company sold 4.5 million Viking shares during the nine-month period, recognizing $37.2 million of realized gains.
Outlook, risks and contingencies
- No quantified company-wide revenue or earnings guidance is provided in the filing. Management said berdazimer gel remained on track for a January 5, 2024 PDUFA goal date and that the Novan team was preparing for potential commercialization in the second half of 2024.
- After quarter-end, Ligand paid $30 million for a 13% interest in Ovid Therapeutics’ soticlestat royalties and milestones, and $20 million to acquire Tolerance Therapeutics’ royalty of less than 1% on TZIELD sales. These are prospective economics, not Q3 revenue.
- The new revolving facility is secured by specified collateral and includes financial covenants, including a maximum leverage ratio and minimum consolidated EBITDA. A covenant breach could restrict borrowing, accelerate repayment or permit enforcement against collateral.
- Management cited risks to partner product sales, Captisol demand, development and regulatory outcomes, and the ability to generate expected royalties and cash flows. The company also disclosed opioid-related multi-district litigation; it intends to defend the claims and does not currently expect pending matters to have a material adverse effect, while noting litigation outcomes are unpredictable.
- Disclosure controls were assessed as effective, with no material change in internal control over financial reporting during the quarter.
Investor facts to verify
- Whether royalty growth—particularly from Kyprolis, Rylaze and other partner products—can offset the loss of COVID-related Captisol sales and fluctuations in core Captisol orders.
- The valuation and volatility of Ligand’s investment portfolio, including Viking shares, and how investment gains or losses affect reported earnings.
- Elutia’s revised payment terms and recoverability of the related commercial license rights, as well as further developments in Selexis programs.
- Berdazimer’s regulatory decision, commercialization plans and the economics and liabilities associated with the Novan assets.
- Post-quarter acquisition and investment returns, available liquidity, and compliance with the revolving-credit facility’s covenants.