Ligand Pharmaceuticals Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Ligand is a biopharmaceutical company whose revenue primarily comes from partner-product royalties, Captisol material sales, and licensing, milestone and service payments.
Financial performance and position
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $24.8 million | $45.7 million | $93.3 million | $191.9 million |
| Operating income (loss) | $(5.2) million | $23.4 million | $817.3 million | $130.6 million |
| Net income (loss) | $(15.3) million | $67.4 million | $636.7 million | $185.8 million |
| Diluted EPS | $(0.81) | $2.80 | $31.29 | $7.61 |
- Revenue mix: Q3 royalties were $9.8 million, material sales $6.8 million, and license, milestone and other revenue $8.2 million. Nine-month amounts were $35.9 million, $24.4 million and $33.0 million, respectively.
- Costs and margins: Q3 operating costs and expenses were $30.0 million, or 121% of revenue, versus $22.3 million, or 49%, a year earlier. Nine-month costs were $88.8 million, or 95% of revenue, versus $61.3 million, or 32%. The reported nine-month operating income and net income include a large one-time gain from the Promacta license sale.
- Cash flow: Nine-month operating cash flow was $(22.0) million, investing cash flow was $530.1 million and financing cash flow was $(401.5) million. Cash, cash equivalents and restricted cash ended at $226.3 million. Operating cash flow included the non-cash adjustment removing the $812.8 million Promacta sale gain; investing cash flow included $812.8 million sale proceeds.
- Liquidity: Cash and cash equivalents were $225.3 million and short-term investments $874.4 million at September 30, for approximately $1.10 billion combined. Management expected these resources and operating cash flows to fund near-term needs for at least 12 months.
- Debt: The $245.0 million 2019 convertible notes were repaid at maturity in August 2019. The $750.0 million principal of 2023 convertible notes remained outstanding; carrying value net of discount was $631.5 million. No credit facility balance is reported.
- Capital returns: Ligand repurchased $366.5 million of shares in the first nine months, including $181.2 million in Q3. A new three-year program authorizes up to $500 million; $408.7 million remained available at quarter-end. Shares outstanding declined from 20.8 million at year-end 2018 to 17.6 million at September 30, 2019.
Changes versus the prior comparable period
- Revenue fell 46% in Q3 and 51% year to date, chiefly because Ligand sold all rights to Promacta royalties on March 6, 2019. Q3 2018 included $27.8 million of Promacta royalties; Q3 2019 included none. The sale generated $827.0 million in cash, of which $812.8 million was recorded as an operating gain and $14.2 million as pre-sale royalty revenue.
- Q3 royalty revenue also reflected higher Kyprolis royalties, partly offset by the loss of Promacta royalties. Captisol sales were nearly flat in Q3 but up 28% year to date, primarily due to customer purchase timing.
- Q3 net loss contrasts with prior-year net income, reflecting lower revenue and a $10.5 million loss from the Viking investment, compared with a $62.4 million Viking gain in Q3 2018. Nine-month 2019 net income was elevated by the Promacta sale gain.
- Research and development expense increased to $13.7 million in Q3 from $5.5 million, with the filing citing the Vernalis acquisition and amortization of economic rights. Nine-month R&D expense rose to $37.2 million from $19.0 million.
Outlook, commentary and material matters
- No specific revenue or earnings guidance is provided. Management stated current cash, cash equivalents, short-term investments and operating cash flow should cover near-term operating and capital needs for at least 12 months.
- Management highlighted partner and pipeline developments, including Kyprolis Q3 partner-reported sales of $280 million and Novan’s expectation for SB206 Phase 3 topline data in Q1 2020. These are partner updates, not Ligand revenue guidance.
- Risks include dependence on collaborators and partner products, particularly Kyprolis and Evomela; partner decisions or product setbacks; generic competition; and the uncertainty that OmniAb-partnered candidates may advance or reach approval. The filing notes no OmniAb-derived drug had yet received FDA or comparable approval.
- The portfolio includes $874.4 million of short-term investments. Ligand added a risk-factor disclosure that market disruption, credit defaults or investment-value declines could adversely affect its financial condition and liquidity.
- Litigation updates: Teva, CyDex and Acrotech settled the EVOMELA patent case after quarter-end; Teva may launch a generic on June 1, 2026, or earlier in specified circumstances. Patent litigation involving Alembic and Lupin remained ongoing. Plaintiffs appealed dismissal of a lawsuit concerning the 2018 notes indenture. Ligand also reported three opioid-related complaints received October 31, 2019, with no individualized factual allegations or specific damages stated against Ligand; the company intends to defend itself.
- Ligand acquired Ab Initio for approximately $12 million in July 2019 and paid $12 million for Novan economic rights. Contingent consideration liabilities were $9.8 million at quarter-end. The filing reports no off-balance-sheet arrangements.
Important facts for investors to verify
- Separate recurring operating performance from the $812.8 million Promacta sale gain when assessing nine-month earnings.
- Track royalty and Captisol revenue after the loss of Promacta, including Kyprolis and Evomela partner sales and any generic-entry developments.
- Review investment-portfolio composition, fair-value changes and credit exposure; assess the effect of any market stress on reported liquidity.
- Monitor the $750 million 2023 notes, conversion terms and potential dilution, alongside the pace and pricing of the new share-repurchase program.
- Follow partner-program milestones and risks, including SB206 data, and updates in the EVOMELA patent matters and other litigation.