Ligand(LGND) - 2019 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION The company's financial position improved significantly in 2019, driven by the Promacta license sale, leading to increased assets and net income despite a quarterly loss Item 1. Condensed Consolidated Financial Statements (unaudited) The unaudited condensed consolidated financial statements reflect a strengthened financial position, significant net income from the Promacta sale, and strategic cash flow management Condensed Consolidated Balance Sheets As of September 30, 2019, total assets were $1.55 billion, an increase from $1.26 billion at December 31, 2018, mainly due to an increase in cash and short-term investments Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $225,302 | $117,164 | | Short-term investments | $874,383 | $601,217 | | Total Assets | $1,547,476 | $1,260,803 | | Total Liabilities | $696,895 | $699,889 | | Total Stockholders' Equity | $850,581 | $560,914 | Condensed Consolidated Statements of Operations For Q3 2019, the company reported a net loss of $15.3 million on revenues of $24.8 million, a significant shift from a net income of $67.4 million in Q3 2018 Statement of Operations Summary (in thousands, except per share amounts) | Metric | Q3 2019 | Q3 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $24,808 | $45,663 | $93,279 | $191,863 | | Income (loss) from operations | $(5,158) | $23,362 | $817,255 | $130,578 | | Gain from sale of Promacta license | — | — | $812,797 | — | | Net Income (Loss) | $(15,251) | $67,362 | $636,667 | $185,803 | | Diluted Net Income (Loss) per Share | $(0.81) | $2.80 | $31.29 | $7.61 | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2019, net cash used in operating activities was $22.0 million, a decrease from $161.5 million provided in the prior year, mainly due to the non-cash gain on the Promacta sale being excluded Net Cash Flow Summary (in thousands) | Activity | Nine months ended Sep 30, 2019 | Nine months ended Sep 30, 2018 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(21,997) | $161,487 | | Net cash provided by (used in) investing activities | $530,097 | $(698,571) | | Net cash provided by (used in) financing activities | $(401,479) | $675,670 | Notes to Condensed Consolidated Financial Statements The notes detail significant accounting policies, the Promacta royalty sale, the Ab Initio acquisition, debt repayment, share repurchases, and ongoing legal proceedings - On March 5, 2019, the company sold its rights to Promacta royalties to Royalty Pharma for $827.0 million in cash, recognizing a gain of $812.8 million[71] - On July 23, 2019, the company acquired Ab Initio Biotherapeutics, an antigen-discovery company, for an initial purchase price of $12.0 million[77][78] - The 2019 Convertible Senior Notes matured on August 15, 2019, and the company paid the remaining $26.3 million principal amount in cash[89] - The company repurchased $366.5 million of its common stock in the first nine months of 2019. A new $500 million repurchase program was approved in September 2019, with $408.7 million remaining available at quarter-end[107][109] - The company settled patent litigation with Teva, permitting Teva to market a generic version of EVOMELA® in the U.S. on June 1, 2026, or earlier under certain circumstances[113] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses revenue decline due to the Promacta sale, increased operating expenses, key portfolio updates, and strong liquidity supporting share repurchases and strategic investments Overview Ligand operates as a biopharmaceutical company focused on developing and acquiring technologies to aid pharmaceutical partners in drug discovery and development - Ligand's business model focuses on drug discovery, early-stage development, and partnering to create a diversified portfolio of over 200 programs with more than 110 partners[125][127] - Revenue is generated from three primary sources: royalties, Captisol material sales, and license fees/milestones[128] Portfolio Program Updates Significant portfolio progress includes the Ab Initio acquisition, new license agreements, strong Kyprolis sales, Zulresso® launch, and positive CE-Iohexol clinical trial results - Acquired Ab Initio for $12 million to add a patented antigen technology synergistic with the OmniAb® platform[131] - Kyprolis® third-quarter sales totaled $280 million. Amgen announced a collaboration with BeiGene to commercialize Kyprolis in China[131] - Sage Therapeutics launched Zulresso®, the 11th FDA-approved drug utilizing Ligand's Captisol technology[131] - Announced positive topline results from a Phase 1 clinical trial of its internal CE Iohexol program, demonstrating bioequivalence to OMNIPAQUE[133] Results of Operations Total revenue for Q3 2019 decreased 46% to $24.8 million compared to Q3 2018, primarily due to the sale of Promacta royalties Revenue Comparison (in thousands) | Revenue Source | Q3 2019 | Q3 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | Royalties | $9,767 | $36,127 | $35,931 | $88,343 | | Material sales | $6,849 | $7,027 | $24,357 | $19,030 | | License fees, milestones and other | $8,192 | $2,509 | $32,991 | $84,490 | | Total revenue | $24,808 | $45,663 | $93,279 | $191,863 | - The decrease in royalty revenue is primarily due to the sale of the Promacta license on March 6, 2019; no Promacta royalties were recognized after this date[134] Operating Costs and Expenses Comparison (in thousands) | Expense Category | Q3 2019 | Q3 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | Costs of material sales | $3,147 | $1,460 | $9,410 | $3,382 | | Research and development | $13,742 | $5,483 | $37,244 | $19,023 | | General and administrative | $9,525 | $9,633 | $31,607 | $26,571 | | Total operating costs and expenses | $29,966 | $22,301 | $88,821 | $61,285 | Liquidity and Capital Resources The company's liquidity remains strong, with cash, cash equivalents, and marketable securities totaling $1.1 billion as of September 30, 2019 - As of September 30, 2019, cash, cash equivalents, and marketable securities totaled $1.1 billion[146] - The 2019 Notes were fully paid off at maturity on August 15, 2019. The $750.0 million 2023 Notes remain outstanding[148][149] - A new $500 million stock repurchase program was approved on September 11, 2019, after a prior $350 million program was fully utilized[150][151] Cash Flow Summary (in thousands) | Activity | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | | Net cash provided by (used in) Operating activities | $(21,997) | $161,487 | | Net cash provided by (used in) Investing activities | $530,097 | $(698,571) | | Net cash provided by (used in) Financing activities | $(401,479) | $675,670 | Item 3. Quantitative and Qualitative Disclosures about Market Risk The company states that there were no substantial changes to its market risks during the third quarter of 2019 compared to the disclosures in its 2018 Annual Report on Form 10-K - There were no substantial changes to market risks in the three and nine months ended September 30, 2019, compared to the disclosures in the 2018 Annual Report[157] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2019 - Based on an evaluation as of the end of the period, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[158] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[160] PART II. OTHER INFORMATION This section provides updates on legal proceedings, risk factors, equity security sales, and other required disclosures Item 1. Legal Proceedings Legal proceedings include an appeal in the AG Oncon case, a settlement with Teva, new EVOMELA® patent lawsuits, and civil complaints related to opioid litigation - For updates on legal proceedings, the report refers to Note 8 in Part I, Item 1[161] Item 1A. Risk Factors Updated risk factors include market and credit risks, potential revenue shortfalls from key products, reliance on collaborations, and specific risks for the OmniAb platform - The company's investments are subject to market and credit risks, which could be heightened during periods of market volatility and adversely impact financial results[163] - Future revenue from key products like Kyprolis and Evomela may be lower than expected due to various commercial and competitive risks[166] - The OmniAb antibody platform faces risks as no drug using its antibodies has been approved, and failure in a partner's clinical trial could negatively impact the platform's perception and future revenue[170] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the third quarter of 2019, the company repurchased a total of 1,833,896 shares of its common stock Issuer Purchases of Equity Securities (Q3 2019) | Program | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Prior Program | 937,567 | $95.91 | | Current Program | 896,329 | $101.83 | - The prior $350.0 million stock repurchase program was fully utilized and terminated in September 2019 upon the approval of a new program[174] Item 3. Defaults Upon Senior Securities None - None[177] Item 4. Mine Safety Disclosures Not applicable - Not applicable[178] Item 5. Other Information None - None[179] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including officer certifications (Exhibits 31.1, 31.2, 32.1) and financial data in iXBRL format (Exhibits 101, 104)