Caution: This discussion and analysis may contain predictions, estimates and
other forward-looking statements that involve a number of risks and
uncertainties, including those discussed in Part II, Item 1A. Risk Factors. This
outlook represents our current judgment on the future direction of our business.
These statements include those related to our future results of operations and
financial position, Captisol-related revenues and Kyprolis and other product
royalty revenues and milestones under license agreements, product development,
and product regulatory filings and approvals, and the timing thereof. Actual
events or results may differ materially from our expectations. For example,
there can be no assurance that our revenues or expenses will meet any
expectations or follow any trend(s), that we will be able to retain our key
employees or that we will be able to enter into any strategic partnerships or
other transactions. We cannot assure you that we will receive expected Kyprolis,
Captisol and other product revenues to support our ongoing business or that our
internal or partnered pipeline products will progress in their development, gain
marketing approval or achieve success in the market. In addition, ongoing or
future arbitration, litigation or disputes with third parties may have a
material adverse effect on us. Such risks and uncertainties, and others, could
cause actual results to differ materially from any future performance suggested.
We undertake no obligation to make any revisions to these forward-looking
statements to reflect events or circumstances arising after the date of this
quarterly report. This caution is made under the safe harbor provisions of
Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange
Act.
We use our trademarks, trade names and services marks in this report as well as
trademarks, trade names and service marks that are the property of other
organizations. Solely for convenience, trademarks and trade names referred to in
this report appear without the ® and ™ symbols, but those references are not
intended to indicate, in any way, that we will not assert, to the fullest extent
under applicable law, our rights or that the applicable owner will not assert
its rights, to these trade marks and trade names.
References to “Ligand Pharmaceuticals Incorporated,” “Ligand,” the “Company,”
“we” or “our” include Ligand Pharmaceuticals Incorporated and our wholly-owned
subsidiaries.
Overview
Our business is focused on acquiring or funding programs and technologies that
life science companies use to discover and develop medicines. Our business model
provides a diversified portfolio of biotech and pharmaceutical product revenue
streams that are supported by an efficient and low corporate cost structure. Our
goal is to offer investors an opportunity to participate in the promise of the
biotech industry in a profitable and diversified manner.
Our business model is focused on funding mid to late-stage drug development in
return for economic rights and outlicensing our technology platforms to help
partners discover and develop medicines. We partner with other pharmaceutical
companies to leverage what they do best (late-stage development, regulatory
management and commercialization) ultimately to generate our revenue. Our
Captisol platform technology is a chemically modified cyclodextrin with a
structure designed to optimize the solubility and stability of drugs. Our
Pelican Expression Technology is a validated, cost-effective and scalable
platform for recombinant protein production that is especially well-suited for
complex, large-scale protein production where traditional systems are not. We
have established multiple alliances, licenses and other business relationships
with the world’s leading pharmaceutical companies including Amgen, Merck,
Pfizer, Jazz, Gilead Sciences and Baxter International.
Our revenue consists of three primary elements: royalties from commercialized
products, sales of Captisol material, and contract revenue from license,
milestone and other service payments. We selectively pursue acquisitions and
drug development funding opportunities that address high unmet clinical needs to
bring in new assets, pipelines, and technologies to aid in generating additional
potential new revenue streams.
OmniAb Separation and Spin-Off
On March 23, 2022, we entered into the Merger Agreement, by and among our
company, APAC (which later became New OmniAb), OmniAb and Merger Sub, pursuant
to which New OmniAb combined with OmniAb, our then-antibody discovery business,
in a Reverse Morris Trust transaction. Pursuant to the Separation Agreement, we
transferred the OmniAb Business, including certain of our related subsidiaries,
to OmniAb and, in connection therewith, distributed (the Distribution) to Ligand
stockholders 100% of the common stock of OmniAb. Immediately following the
Distribution on November 1, 2022, in accordance with and subject to the terms
and conditions of the Merger Agreement, Merger Sub merged with and into OmniAb
(the Merger), with OmniAb continuing as the surviving company in the Merger and
as a wholly-owned subsidiary of New OmniAb. After the Distribution, we do not
beneficially own any shares of common stock in OmniAb and no longer consolidate
OmniAb into our financial results for periods ending after October 31, 2022. As
a result, OmniAb’s historical financial results are reflected in our
consolidated financial statements as discontinued operations.
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Business Updates
Travere Therapeutics (Nasdaq: TVTX) received FDA accelerated approval for
FILSPARI™ (sparsentan) for the treatment of IgA nephropathy (IgAN) on February
17, 2023, with commercial availability beginning in the last week of February. A
review decision on sparsentan for the treatment of IgAN in Europe by the EMA is
expected in the second half of 2023. On April 1, 2023, Travere announced
publication in The Lancet of the interim analysis of efficacy and safety data
from the ongoing pivotal, Phase 3 PROTECT Study evaluating sparsentan in adults
with IgAN. The data were simultaneously presented in a late-breaking trials
session at the World Congress of Nephrology 2023. On May 1, 2023, Travere
announced that the pivotal Phase 3 DUPLEX Study evaluating sparsentan in focal
segmental glomerulosclerosis (FSGS) did not achieve the primary efficacy eGFR
slope endpoint over 108 weeks of treatment compared to the active control
irbesartan. Travere reported that secondary and topline exploratory endpoints
trended favorably and a reduction of proteinuria was sustained through 108 weeks
of treatment. Travere plans to engage with regulators to explore a potential
path forward for sparsentan as a treatment for FSGS in the U.S. and Europe.
Viking Therapeutics (Nasdaq: VKTX) completed enrollment in its Phase 2b clinical
trial of VK2809 in patients with biopsy-confirmed non-alcoholic steatohepatitis
(NASH) with topline data on the primary endpoint expected in the first half of
2023. Separately, Ligand sold 3.2 million shares of Viking stock during the
quarter resulting in $43 million of net proceeds following Viking’s announcement
of positive data on their VK2735 obesity program. Ligand does not have any
direct economic interest in VK2735. As of March 31, 2023, Ligand owned 3.6
million shares of VKTX stock.
Novan (Nasdaq: NOVN) submitted an NDA to the U.S. FDA seeking marketing approval
for berdazimer gel, 10.3% (SB206) for the topical treatment of molluscum
contagiosum. The NDA has been accepted and assigned a PDUFA target date of
January 5, 2024.
Palvella Therapeutics (private) announced positive topline results from its
Phase 2 study of QTORIN™ rapamycin in microcystic lymphatic malformations; 100%
of participants were rated by physicians as being “Much Improved” or “Very Much
Improved” as measured on the Clinician Global Impression of Change following
12-weeks of dosing with QTORIN rapamycin. Results showed that QTORIN was
generally well-tolerated with no drug-related severe adverse events. QTORIN
rapamycin has the potential to become the first FDA-approved treatment for this
serious, rare genetic skin disease and has been granted Fast Track and Orphan
Drug Designation from the FDA for this indication. Palvella anticipates
initiation of a pivotal Phase 3 study in the second half of 2023.
Novartis AG (NYSE: NVS) announced that the FDA granted approval for a liquid
form of TAFINLAR® (dabrafenib) + MEKINIST® (trametinib) for the treatment of
pediatric patients one year of age and older with lowgrade glioma (LGG) with a
BRAF V600E mutation and who require systemic therapy. This is the first approval
of an oral Captisol-enabled product.
Sermonix (private) announced the initiation of a registrational Phase 3 clinical
study comparing targeted lasofoxifene in combination with the CDK 4/6 inhibitor
abemaciclib to fulvestrant plus abemaciclib in pre- and post-menopausal subjects
with locally advanced or metastatic ER+/HER2- breast cancer with an ESR1
mutation. Additionally, Sermonix announced that lasofoxifene improved
vaginal/vulvar symptoms relative to fulvestrant in a study of postmenopausal
women with locally advanced or metastatic estrogen receptor-positive ER+/HER2-
breast cancer with an ESR1 mutation.
Anebulo Pharmaceuticals (Nasdaq: ANEB) announced completion of dosing in its
randomized, double-blind, placebo-controlled, Phase 2 clinical trial evaluating
ANEB-001 as a potential treatment for acute cannabinoid intoxication. The
preliminary data showed ANEB-001 reduced effects of a 30 mg dose of THC, and
that delayed dosing of ANEB-001 rapidly reversed pre-existing THC effects.
Anebulo is targeting an End of Phase 2a meeting with FDA in the second quarter
2023.
Results of Operations
Revenue
(Dollars in thousands) Q1 2023 Q1 2022(a)
Change % Change
Royalties $ 17,154 $ 13,432 $ 3,722 28 %
Captisol – Core 10,622 6,226 4,396 71 %
Captisol – COVID – 5,896 (5,896) (100) %
Contract revenue 16,203 10,962 5,241 48 %
Total revenue $ 43,979 $ 36,516 $ 7,463 20 %
(a) Prior period amounts have been retrospectively adjusted to reflect the
effects of the Separation.
Total revenue increased by $7.5 million, or 20%, to $44.0 million in Q1 2023
compared to $36.5 million in Q1 2022 primarily due to a $5.2 million increase in
contract revenue which was driven by the achievement of milestone tied to FDA
approval of Travere’s FILSPARI. Royalty revenue increased by $3.7 million, or
28%, to $17.2 million in Q1 2023 compared to
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$13.4 million in Q1 2022 primarily due to the increase of Kyprolis sales and
sales of drugs using the Pelican platform. Core Captisol sales increased by $4.4
million, or 71%, to $10.6 million in Q1 2023 primarily due to the timing of
customer orders. There was no Captisol sales related to COVID-19 in Q1 2023,
compared with $5.9 million for the same period in 2022.
Royalty revenue is a function of our partners’ product sales and the applicable
royalty rate. Kyprolis royalty rates are under a tiered royalty rate structure
with the highest tier being 3%. Evomela has a fixed royalty rate of 20%.
Teriparatide injection has a tiered royalty between 25% and 40% on sales that
have been adjusted for certain deductible items as defined in the respective
license agreement. The Rylaze royalty rate is in the low single digits. Contract
revenue includes service revenue, license fees and development, regulatory and
sales based milestone payments.
The following table represents royalty revenue by program (in millions):
Q1 2023 Estimated Q1 2022 Estimated
Partner Product Effective Royalty Q1 2023 Royalty Partner Product Effective Royalty Q1 2022 Royalty
(in millions) Sales Rate Revenue Sales(a) Rate(a) Revenue(a)
Kyprolis $ 378.9 1.6 % $ 6.2 $ 298.6 1.5 % $ 4.6
Evomela 13.0 20.0 % 2.6 13.5 20.0 % 2.7
Teriparatide injection(b) 10.5 33.3 % 3.5 9.7 29.9 % 2.9
Rylaze 83.0 3.1 % 2.6 54.2 3.0 % 1.6
Other 158.9 1.4 % 2.3 76.3 2.1 % 1.6
Total $ 644.3 $ 17.2 $ 452.3 $ 13.4
(a) Prior period amounts have been retrospectively adjusted to reflect the
effects of the Separation.
(b) Teriparatide injection sales have been adjusted for certain deductible items
as defined in the respective license agreement.
Operating Costs and Expenses
(Dollars in thousands) Q1 2023 % of Revenue Q1 2022(a) % of Revenue
Cost of Captisol $ 3,717 $ 4,699
Amortization of intangibles 8,539 8,580
Research and development 6,663 9,179
General and administrative 10,855 11,925
Total operating costs and expenses $ 29,774 68% $ 34,383 94%
(a) Prior period amounts have been retrospectively adjusted to reflect the
effects of the Separation.
Total operating costs and expenses decreased by $4.6 million, or 13%, to $29.8
million in Q1 2023 compared to $34.4 million in Q1 2022.
Cost of Captisol decreased by $1.0 million, or (21)%, to $3.7 million in Q1 2023
compared to $4.7 million in Q1 2022, with the decrease primarily due to the
lower Captisol sales this quarter.
Amortization of intangibles remained steady in Q1 2023 compared to the same
period in 2022 as there have been no change to the gross balance of intangible
assets over these periods.
At any one time, we are working on multiple R&D programs. As such, we generally
do not track our R&D expenses on a specific program basis. Research and
development expense was $6.7 million for Q1 2023, compared with $9.2 million for
the same period of 2022, with the decrease primarily due to lower share-based
compensation, employee-related expenses and lab supply expenses.
General and administrative expense was $10.9 million for Q1 2023, compared to
$11.9 million for the same period in 2022, with the decrease primarily due to a
decrease in legal expenses in connection with the OmniAb spin-off.
Other Income (Expense)
(Dollars in thousands) Q1 2023 Q1 2022(a) Change
Gain (loss) from short-term investments $ 39,533 $ (12,877) $ 52,410
Interest income 1,435 134 1,301
Interest expense (240) (789) 549
Other income (expense), net 603 2,255 (1,652)
Total other income (expense), net $ 41,331 $ (11,277) $ 52,608
(a) Prior period amounts have been retrospectively adjusted to reflect the
effects of the Separation.
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The fluctuation in the gain (loss) from short-term investments is primarily
driven by the changes in the fair value of our ownership in Viking common stock
and other equity security investments, which contributed an unrealized gain of
$19.0 million in Q1 2023 as compared to an unrealized loss of $12.6 million in
Q1 2022. In addition, during Q1 2023 we sold 3.2 million shares of Viking
contributing to realized gains of $20.5 million compared to no Viking shares
sold in Q1 2022.
Interest income consists primarily of interest earned on our short-term
investments. The increase over the prior year was due to the increase in
interest rates, partially offset by the decrease in our short-term investment
balance.
Interest expense includes the 0.75% coupon cash interest expense in addition to
the non-cash accretion of discount (including the amortization of debt issuance
cost) on our 2023 Notes in both Q1 2023 and Q1 2022. The decrease in interest
expense was primarily due to the lower average debt outstanding balance in Q1
2023 as compared to Q1 2022. See Note 4, Convertible Senior Notes.
Other income (expense), net, in Q1 2023 decreased by $1.7 million as compared to
Q1 2022, primarily due to no debt extinguishment gain or loss in Q1 2023
compared to a $1.5 million gain on extinguishment of debt during Q1 2022. See
Note 4, Convertible Senior Notes.
Income Tax Benefit (Expense)
(Dollars in thousands) Q1 2023 Q1 2022(a)
Change
Income (loss) before income taxes $ 55,536 $ (9,144)
$ 64,680
Income tax benefit (11,922) (3,785)
(8,137)
Income (loss) from operations $ 43,614 $ (12,929)
$ 56,543
Effective tax rate 21.5 % (41.4) %
(a) Prior period amounts have been retrospectively adjusted to reflect the
effects of the Separation.
We compute our income tax provision by applying the estimated annual effective
tax rate to income from operations and adding the effects of any discrete income
tax items specific to the period. The effective tax rate for the three months
ended March 31, 2023 and 2022 was 21.5% and (41.4)%, respectively. The variance
from the U.S. federal statutory tax rate of 21% for the three months ended
March 31, 2023 was primarily due to Internal Revenue Code Section 162(m)
limitation on deduction for officer compensation, non-deductible incentive stock
option (ISO) related stock compensation expense, which were partially offset by
foreign derived intangible income tax benefit during the period. The variance
from the U.S. federal statutory tax rate of 21% for the three months ended
March 31, 2022 was primarily due to the tax deductions related to foreign
derived intangible income tax benefit as well as the research and development
tax credits, which were partially offset by Section 162(m) limitation during the
period.
Net Loss from Discontinued Operations
Net loss from discontinued operations for Q1 2023 and Q1 2022 was $1.7 million
and $2.5 million, respectively. See additional information in “Item 1. Condensed
Consolidated Financial Statements -Notes to Condensed Consolidated Financial
Statements-Note (2), Spin-off Of OmniAb.”
Liquidity and Capital Resources
As of March 31, 2023, our cash, cash equivalents, and short-term investments
totaled $282.7 million, which increased by $70.8 million from the end of last
year due to factors described in the Cash Flow Summary below. Our primary source
of liquidity, other than our holdings of cash, cash equivalents, and short-term
investments, has been cash flows from operations. Our ability to generate cash
from operations provides us with the financial flexibility we need to meet
operating, investing, and financing needs.
Historically, we have liquidated our short-term investments and/or issued debt
and equity securities to finance our business needs as a supplement to cash
provided by operating activities. Our short-term investments include U.S.
government debt securities, investment-grade corporate debt securities, mutual
funds and certificates of deposit. We have established guidelines relative to
diversification and maturities of our investments in order to provide both
safety and liquidity. These guidelines are periodically reviewed and modified to
take advantage of trends in yields and interest rates. Additionally, we own
certain securities which are classified as short-term investments that we
received as a result of a milestone and an upfront license payment as well as
3.6 million shares of common stock in Viking.
In May 2018, we issued an aggregate principal amount of $750.0 million of the
2023 Notes. During the three months ended March 31, 2023, no 2023 Notes were
repurchased. As of March 31, 2023, $76.9 million in principal amount of the 2023
Notes remain outstanding. We plan to use existing cash to pay off the remaining
2023 Notes on the maturity date. Since November 15, 2022, the 2023 Notes have
been convertible without regard to the conditions applicable to conversions
prior to
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such date and will continue to be until the close of business on May 11, 2023
(the second scheduled trading day preceding May 15, 2023, which is the maturity
date). It is our intent and policy to settle conversions through combination
settlement, which essentially involves payment in cash equal to the principal
portion and delivery of shares of common stock for the excess of the conversion
value over the principal portion. See Note 4, Convertible Senior Notes. In
advance of the Distribution of the shares of common stock of OmniAb to Ligand’s
shareholders on November 1, 2022, a notice of convertibility was delivered to
the holders of the 2023 Notes. No holders exercised their right to convert their
2023 Notes during the applicable period for conversion. After we completed the
Separation of the OmniAb Business, on November 15, 2022, the conversion rate was
adjusted to 4.8390 shares of common stock per $1,000 principal amount of the
2023 Notes which represents a conversion price of approximately $206.65 per
share. The maximum conversion rate of the 2023 Notes was adjusted to 6.2907 per
$1,000 principal amount of the 2023 Notes which represents a conversion price of
approximately $158.97. The conversion rate for the 2023 Notes was adjusted in
accordance with the requirements of the Indenture based on calculations
determined with reference to a valuation period of the first 10 consecutive
trading days after, and including, the ex-dividend date of the spin-off (as
determined in the Indenture). The conversion rate and maximum conversion rate
are subject to further adjustment under the circumstances and pursuant to the
terms set forth in the Indenture.
On September 30, 2022, we entered into the Sales Agreement with the Agent, under
which we may, from time to time, sell shares of our common stock having an
aggregate offering price of up to $100.0 million in “at the market” offerings
through the Agent. Sales of the shares of common stock, if any, will be made at
prevailing market prices at the time of sale, or as otherwise agreed with the
Agent. The Agent will receive a commission from the Company of up to 3.0% of the
gross proceeds of any shares of common stock sold under the Sales Agreement. The
shares will be issued pursuant to our shelf registration statement on Form S-3
(File No. 333-267678), including the sales agreement prospectus contained
therein, which automatically became effective upon filing with the SEC on
September 30, 2022.
We believe that our existing funds, cash generated from operations and existing
sources of and access to financing are adequate to fund our need for working
capital, capital expenditures, debt service requirements, continued advancement
of research and development efforts, potential stock repurchases and other
business initiatives we plan to strategically pursue, including acquisitions and
strategic investments.
As of March 31, 2023, we had $2.8 million in fair value of contingent
consideration liabilities associated with prior acquisitions to be settled in
future periods.
Cash Flow Summary
(Dollars in thousands) Q1 2023 Q1 2022
Net cash provided by (used in):
Operating activities $ 33,948 $ 52,011
Investing activities $ 10,549 $ 113,881
Financing activities $ (775) $ (170,421)
During the three months ended March 31, 2023, we generated cash from operations
primarily due to the increase in net income. We generated cash from investing
activities primarily from sale and maturity of short-term investments including
Viking shares. There was no repurchase of 2023 Notes during the three months
ended March 31, 2023.
During the three months ended March 31, 2022, we repurchased $165.8 million in
principal amount of the 2023 Notes for $163.7 million in cash, including accrued
interest of $0.4 million.
Critical Accounting Policies and Estimates
Certain of our policies require the application of management judgment in making
estimates and assumptions that affect the amounts reported in our consolidated
financial statements and the disclosures made in the accompanying notes. Those
estimates and assumptions are based on historical experience and various other
factors deemed applicable and reasonable under the circumstances. The use of
judgment in determining such estimates and assumptions is by nature, subject to
a degree of uncertainty. Accordingly, actual results could differ materially
from the estimates made. There have been no material changes in our critical
accounting policies and estimates as compared to the critical accounting
policies and estimates described in our 2022 Annual Report.
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