Ligand Pharmaceuticals Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Ligand is a biopharmaceutical company that earns revenue primarily from partner-product royalties, Captisol sales, and contract services, licenses, and milestones. Unless otherwise noted, figures below are in millions of dollars.
Financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $64.8 | $41.8 | $204.7 | $116.4 |
| Operating income | $15.7 | $3.7 | $66.2 | $14.6 |
| Net income (loss) | $13.7 | $(6.7) | $62.6 | $(8.7) |
| Diluted EPS | $0.80 | $(0.42) | $3.64 | $(0.54) |
| Operating cash flow | Not separately stated | Not separately stated | $51.2 | $54.0 |
Revenue increased 55% in Q3 and 76% year to date. Captisol revenue was $35.1 million in Q3 (+50%) and $128.9 million year to date (+87%), chiefly from demand related to remdesivir. Royalties rose to $15.6 million in Q3 (+74%) and $31.4 million year to date (+38%), reflecting partner sales and the Pfenex acquisition. Contract revenue increased to $14.1 million in Q3 (+49%) and $44.4 million year to date (+80%), including acquired business and milestone revenue.
Operating margin was approximately 24% in Q3 and 32% year to date, versus approximately 9% and 13% in the comparable 2020 periods. Profitability includes substantial noncash income from reducing the Pfenex contingent value right (CVR) liability: $3.8 million in Q3 and $37.6 million year to date. The year-to-date tax benefit was $8.2 million; the effective tax rate was negative 15.1%, influenced by the CVR-related tax benefit and share-based compensation tax benefits. Investment gains also improved versus 2020, while lower interest expense reflected reduced debt.
Cash, debt, and liquidity
At September 30, cash and cash equivalents were $23.4 million and short-term investments were $299.8 million, totaling $323.2 million, down $88.0 million from year-end 2020. Nine-month operating cash flow was $51.2 million. Investing cash flow was $66.2 million, largely reflecting purchases, sales, and maturities of short-term investments. Financing cash outflow was $141.9 million, including $155.8 million to repurchase notes, partly offset by proceeds from stock option exercises and bond-hedge settlement.
Ligand repurchased $152.0 million principal of its 0.75% convertible notes due 2023 for approximately $156.0 million cash, recording a $7.3 million extinguishment loss. Remaining principal was $343.3 million; its balance-sheet carrying value was $316.9 million. Management said existing funds, operating cash flow, and financing access should cover working capital, debt service, R&D, capital expenditures, potential repurchases, and strategic initiatives. Contingent consideration liabilities were $9.4 million.
Material developments, outlook, and risks
- Captisol exposure: Increased remdesivir-related sales drove growth, but the filing warns revenue could decline if demand falls, competing treatments emerge, Gilead uses a formulation requiring less Captisol, or supply, manufacturing, regulatory, or customer issues arise. Captisol cost was 33% of Captisol revenue in Q3 versus 27% a year earlier; year-to-date it was 39% versus 27%, partly due to lower-priced India sales and capacity-expansion costs.
- CVR accounting: The Pfenex CVR liability was eliminated after management lowered the probability of meeting the required FDA therapeutic-equivalence milestone by December 31, 2021. This noncash fair-value adjustment materially boosted reported operating income and net income; the milestone remained a key unusual item.
- Strategic review: On November 9, 2021, Ligand announced it was considering separating OmniAb from its royalty, Pelican, and Captisol businesses. An OmniAb IPO and eventual distribution of shares to Ligand shareholders was the leading option under review, but the board had not approved a transaction and completion was not assured.
- Pipeline: The filing reports China approval of the OmniAb-derived antibody zimberelimab, and partner progress in clinical development and regulatory review for other programs. Takeda reported that the Phase 3 PANTHER trial of pevonedistat did not meet its predefined statistical significance threshold for the primary endpoint.
- Legal and operating risks: A Captisol royalty dispute with Baxter entered arbitration in 2021, which was at an early stage. Other highlighted risks include partner and product dependence, intellectual-property challenges, supply concentration, and the limited number of approved OmniAb-derived products. Ligand disclosed no off-balance-sheet arrangements and no material changes to most previously reported risks.
- Guidance: The filing provides no formal numeric revenue or earnings guidance. Management’s outlook is subject to partner sales, Captisol demand and supply, clinical and regulatory outcomes, and the proposed strategic review.
Key facts for investors to verify
- How much Captisol demand and revenue depend on remdesivir, and how customer demand, pricing, and the planned alternative formulation develop.
- Whether Captisol manufacturing capacity and supplier arrangements can support forecast demand at acceptable cost.
- The progress and outcome of the Pfenex CVR milestone, and the extent to which the CVR fair-value adjustment affects comparisons of reported earnings.
- Terms, timing, board approval, tax treatment, and expected costs or benefits of any OmniAb separation or IPO.
- Remaining convertible-note repayment or refinancing needs, cash generation, and investment portfolio value and liquidity.
- Developments in the Baxter arbitration and in partner clinical, regulatory, and commercial programs that underpin royalties and milestones.