Ligand Pharmaceuticals Incorporated — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2020. Unless stated otherwise, figures are in millions of dollars. Ligand is a partner-focused biopharmaceutical company whose revenue primarily comes from royalties, Captisol sales, and contract services, licenses, and milestones.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $41.8 | $24.8 | $116.4 | $93.3 |
| Operating income (loss) | $3.7 | $(5.2) | $14.6 | $817.3 |
| Net income (loss) | $(6.7) | $(15.3) | $(8.7) | $636.7 |
| Operating costs and expenses | $38.1 | $30.0 | $101.8 | $88.8 |
| Operating costs as a share of revenue | 91% | 121% | 87% | 95% |
- Revenue mix: Q3 royalties were $9.0 million (down 8% year over year), Captisol revenue was $23.4 million (up 241%), and contract revenue was $9.5 million (up 15%). For the nine months, royalties were $22.8 million (down 37%), Captisol $69.0 million (up 183%), and contract revenue $24.7 million (down 25%). Increased Captisol demand for Gilead’s remdesivir drove total revenue growth.
- Profit and comparison: Q3 operating income improved from a loss, but investment losses and interest expense contributed to a net loss. Nine-month 2019 results included an $812.8 million gain on the Promacta license sale; Ligand sold those rights in March 2019 and no longer earns Promacta royalties. Thus, reported year-over-year net income comparisons are not representative of recurring performance.
- Costs: Q3 operating expenses increased 27%, primarily due to higher Captisol costs associated with sales growth and higher G&A, including acquisition integration and Icagen expenses. R&D expense was broadly stable year over year.
- Cash flow: Nine-month operating cash flow was $54.0 million, versus cash used of $22.0 million a year earlier. Investing activities provided $613.9 million, substantially reflecting investment maturities and sales; financing activities used $283.0 million, including debt and share repurchases.
- Liquidity and debt: At September 30, cash and cash equivalents were $456.9 million and short-term investments were $338.2 million. Management reported cash, cash equivalents, and marketable securities of $795.1 million. The 2023 convertible notes had $515.6 million principal outstanding and a $455.0 million net carrying value. Current assets were $857.7 million versus current liabilities of $42.3 million.
Material changes and notable transactions
- In March 2020, Ligand repurchased $234.4 million principal of its 2023 notes for $203.8 million cash, leaving approximately $515.6 million principal outstanding.
- Ligand repurchased $73.3 million of common stock in Q1; it made no repurchases in Q2 or Q3. $253.5 million remained authorized under its share repurchase program at quarter-end.
- Ligand acquired Icagen in April, and antibody discovery businesses xCella and Taurus in September. These acquisitions brought technology and programs but also integration costs and contingent consideration.
- On October 1, after quarter-end, Ligand completed its Pfenex acquisition for $437.5 million in cash, plus a contingent value right that could pay $78 million if a specified milestone is achieved. The acquisition was funded with cash on hand.
- On October 11, Ligand agreed to sell its Vernalis research operations for $25 million cash, subject to working-capital adjustment, while retaining certain collaboration economics. Closing was expected in Q4 2020. The disposal group was classified as held for sale at September 30.
Outlook, risks, and contingencies
- COVID-19: Management cited partner clinical-trial delays and some negative effects on partner product sales, potentially reducing contract and royalty revenue. Risks include trial enrollment disruption, supply-chain or manufacturing interruption, and delays in product launches. Conversely, remdesivir-related Captisol demand increased; Ligand said it extended its Gilead supply agreement through September 2030 and expected existing and planned capacity to meet anticipated demand. Captisol supply and remdesivir demand remain uncertain.
- Pipeline commentary: Ligand reported more than 8,500 clinical subjects treated or planned in trials with OmniAb-derived antibodies. It expected the first regulatory submission for an OmniAb-derived antibody in 2021 and said as many as 10 approvals could occur by 2025; these are expectations, not assurances. Ligand also planned to initiate a potentially pivotal CE-Iohexol trial in December 2020.
- Other risks: The filing highlights dependence on partners, Captisol customer and supplier concentration, partner termination rights, acquisition integration and execution risks, and uncertainty around the Vernalis sale. Ligand stated it had no off-balance-sheet arrangements.
- Legal matters: CyDex is pursuing patent litigation against Alembic and Lupin concerning proposed generic versions of Evomela. Ligand also reported opioid-related complaints in multidistrict litigation; it rejected the claims and stated no individualized factual allegations had been made against it in those complaints.
- Ligand recorded a $5.5 million pre-tax reserve for credit losses upon adopting the expected-credit-loss standard and an additional $0.5 million reserve during the first nine months of 2020, principally relating to commercial license and economic rights.
Important facts for investors to verify
- Whether remdesivir-related Captisol demand, pricing, and supply capacity persist, and the extent of customer concentration and manufacturing commitments.
- Post-Pfenex liquidity and debt after the $437.5 million cash acquisition payment, alongside any subsequent proceeds or uses of cash.
- Progress and potential economics from Pfenex, xCella, Taurus, Icagen, and the proposed Vernalis divestiture, including integration costs and contingent payments.
- Partner sales and clinical progress underlying royalty and contract revenue, including COVID-19-related delays and the expected OmniAb milestones.
- Developments in the Evomela patent cases, contingent liabilities, and other litigation or credit-loss exposures.