Ligand Pharmaceuticals Incorporated — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Comparisons are with Q1 2020 unless otherwise stated. Ligand’s biopharmaceutical business earns royalties, sells Captisol formulation material, and receives contract revenue from services, licenses and milestones across partner-funded programs.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change / context |
|---|---|---|---|
| Total revenue | $55.2 million | $33.2 million | Up 66% |
| Royalties | $7.1 million | $6.6 million | Up 8% |
| Captisol revenue | $31.3 million | $21.1 million | Up 48%, primarily higher remdesivir-related demand |
| Contract revenue | $16.8 million | $5.5 million | Up 206%, including milestone timing and acquired Icagen and Pfenex activities |
| Operating income | $4.7 million | $3.8 million | Operating margin approximately 8.6%, versus 11.4% |
| Net income (loss) | $18.1 million | $(24.1) million | Diluted EPS $1.05 versus $(1.46) |
| Operating cash flow | $10.8 million | $16.9 million | Down $6.2 million |
Net income included a $13.1 million gain from short-term investments, compared with a $30.7 million loss in Q1 2020, and a $12.3 million income tax benefit. The 2021 effective tax rate was negative 214.1%, primarily reflecting discrete share-based compensation tax benefits. The investment result was driven largely by fair-value movements in Viking securities; these items make the earnings comparison less representative of operating performance. Interest expense fell to $5.8 million from $8.5 million, while other expense included a $4.8 million loss on extinguishing convertible notes.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $31.9 million and short-term investments were $307.4 million at March 31, 2021, totaling $339.2 million, down $72.0 million from year-end.
- Total assets were $1.295 billion; current assets were $437.4 million and current liabilities were $95.8 million.
- Convertible notes had $390.8 million principal outstanding and a $352.3 million net carrying value. Ligand repurchased $104.5 million principal for $109.1 million cash during the quarter.
- Cash, cash equivalents and restricted cash declined by $15.8 million during the quarter. Investing activities provided $65.1 million, chiefly reflecting investment sales and maturities; financing activities used $91.6 million.
- Contingent consideration liabilities associated with prior acquisitions totaled $51.1 million in fair value. Management said existing funds, operating cash generation and financing access should be adequate for planned needs.
Material changes and business developments
- Revenue growth was led by Captisol and contract milestones. Estimated Kyprolis partner sales declined to $266.0 million from $286.0 million, and related royalties were $4.3 million versus $4.4 million. Evomela royalties rose to $2.3 million from $1.6 million.
- Operating costs and expenses rose 72% to $50.4 million, reflecting acquisitions, higher Captisol sales costs, and increased amortization of acquired intangibles. Research and development expense was $17.9 million, up from $11.9 million.
- Ligand exercised all Viking warrants, sold 0.3 million Viking shares and recorded a $2.2 million realized gain; the overall investment gain also included unrealized appreciation.
- OmniAb partners generated more than $4 million in milestones during Q1. Ligand stated it expected the first regulatory approvals for OmniAb-derived antibodies in 2021.
Outlook, risks and contingencies
The filing provides no quantified company-wide revenue or earnings guidance. Management cited potential growth from partner programs and said it expected adequate liquidity, but cautioned that results and development progress are uncertain. On May 3, 2021, Ligand said it would not initiate the next CE-iohexol clinical trial at that time while assessing potential partnering.
- COVID-19 may disrupt supply, manufacturing, clinical trials and partner commercialization, and could reduce royalty revenue. Captisol demand tied to remdesivir may fall if demand changes, alternatives emerge, or Gilead advances an inhaled formulation using less Captisol.
- Ligand depends on third-party Captisol manufacturing, particularly Hovione, and partner relationships that may be terminable. Supply interruptions, capacity expansion shortfalls, customer defaults, competition or patent expiration could materially affect revenue.
- Legal matters include generic EVOMELA patent challenges: the Lupin litigation was settled and dismissed after an April 26, 2021 agreement; the Alembic matter remained stayed amid settlement efforts. Ligand also disclosed an ongoing arbitration with Abvivo and related counterclaims.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of Captisol revenue growth is tied to remdesivir, and how would changing demand or formulation affect future sales?
- Whether contract revenue’s milestone contribution recurs, and how acquired businesses affect ongoing expenses and amortization.
- The extent to which reported earnings depend on Viking investment fair values and discrete tax benefits rather than recurring operations.
- Cash needs and future debt actions, including any further repurchases of the 2023 Notes and the remaining contingent consideration exposure.
- Progress and timing of partner programs, regulatory decisions and the disclosed EVOMELA and Abvivo legal matters.