Ligand(LGND) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. Condensed Consolidated Financial Statements (unaudited) This section provides the unaudited condensed consolidated financial statements and related notes, covering financial position, performance, cash flows, and key accounting policies Condensed Consolidated Balance Sheets This statement presents the company's financial position, detailing assets, liabilities, and equity at specific points in time | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :----- | :---------------------------- | :------------------------------- | | Total Assets | $811,076 | $762,668 | | Cash and Cash Equivalents | $88,728 | $45,006 | | Short-term Investments | $193,937 | $166,864 | | Total Liabilities | $164,759 | $165,183 | | Total Stockholders' Equity | $646,317 | $597,485 | - Total assets increased by $48.4 million, driven by a significant increase in cash and cash equivalents and short-term investments[12] Condensed Consolidated Statements of Operations This statement outlines the company's financial performance over a period, showing revenues, expenses, and net income or loss | Metric | Three months ended March 31, 2023 (in thousands) | Three months ended March 31, 2022 (in thousands) | Change (in thousands) | % Change | | :----- | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | :------- | | Total Revenues | $43,979 | $36,516 | $7,463 | 20% | | Total Operating Costs and Expenses | $29,774 | $34,383 | $(4,609) | (13)% | | Operating Income from Continuing Operations | $14,205 | $2,133 | $12,072 | 566% | | Total Other Income (Expense), net | $41,331 | $(11,277) | $52,608 | N/A | | Net Income (Loss) | $41,949 | $(15,385) | $57,334 | N/A | | Basic Net Income (Loss) Per Share | $2.46 | $(0.91) | $3.37 | N/A | | Diluted Net Income (Loss) Per Share | $2.33 | $(0.91) | $3.24 | N/A | - The company reported a net income of $41.95 million in Q1 2023, a significant improvement from a net loss of $15.39 million in Q1 2022, driven by increased revenues and a substantial gain from short-term investments[14] Condensed Consolidated Statements of Comprehensive Income (Loss) This statement presents net income and other comprehensive income items, reflecting the total change in equity from non-owner sources | Metric | Three months ended March 31, 2023 (in thousands) | Three months ended March 31, 2022 (in thousands) | | :----- | :----------------------------------------------- | :----------------------------------------------- | | Net income (loss) | $41,949 | $(15,385) | | Unrealized net gain (loss) on available-for-sale securities, net of tax | $49 | $(114) | | Comprehensive income (loss) | $41,998 | $(15,499) | - Comprehensive income for Q1 2023 was $41.998 million, a substantial increase from a comprehensive loss of $15.499 million in Q1 2022[16] Condensed Consolidated Statements of Stockholders' Equity This statement details changes in the equity section of the balance sheet, including retained earnings and additional paid-in capital | Metric | December 31, 2022 (in thousands) | March 31, 2023 (in thousands) | | :----- | :------------------------------- | :---------------------------- | | Total Stockholders' Equity | $597,485 | $646,317 | | Retained Earnings | $450,862 | $492,811 | | Additional Paid-in Capital | $147,590 | $154,424 | - Total stockholders' equity increased by $48.83 million to $646.32 million as of March 31, 2023, primarily due to net income and share-based compensation[19] Condensed Consolidated Statements of Cash Flows This statement summarizes the cash inflows and outflows from operating, investing, and financing activities over a period | Metric | Three months ended March 31, 2023 (in thousands) | Three months ended March 31, 2022 (in thousands) | | :----- | :----------------------------------------------- | :----------------------------------------------- | | Net cash provided by operating activities | $33,948 | $52,011 | | Net cash provided by investing activities | $10,549 | $113,881 | | Net cash used in financing activities | $(775) | $(170,421) | | Cash, cash equivalents and restricted cash at end of period | $88,728 | $14,993 | - Net cash provided by operating activities decreased, while net cash used in financing activities significantly decreased due to no repurchase of 2023 Notes in Q1 2023, leading to a substantial increase in cash and cash equivalents at period end[22][135] Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations and additional information essential for understanding the condensed consolidated financial statements 1. Basis of Presentation and Summary of Significant Accounting Policies This section outlines the foundational principles and key accounting methods used in preparing the financial statements - Post-OmniAb spin-off, Ligand operates as a biopharmaceutical company focused on developing and licensing biopharmaceutical assets[27] - The OmniAb Business spin-off in November 2022 is classified as a discontinued operation, with financial statements adjusted to reflect continuing operations[29] - Revenue is primarily generated from royalties, Captisol material sales, and contract revenue (license fees, milestones, and R&D services)[32][35][36][37][38] Disaggregation of Revenue (Q1 2023 vs Q1 2022, in thousands) | Revenue Type | Q1 2023 | Q1 2022 | Change | % Change | | :----------- | :------ | :------ | :----- | :------- | | Royalties | $17,154 | $13,432 | $3,722 | 28% | | Captisol - Core | $10,622 | $6,226 | $4,396 | 71% | | Captisol - COVID | $0 | $5,896 | $(5,896) | (100)% | | Contract Revenue | $16,203 | $10,962 | $5,241 | 48% | | Total | $43,979 | $36,516 | $7,463 | 20% | - Total short-term investments increased to $193.94 million as of March 31, 2023, and the company recognized a $20.5 million realized gain from selling 3.2 million shares of Viking common stock[45] - Share-based compensation expense decreased to $5.93 million in Q1 2023 from $7.11 million in Q1 2022[58] 2. Spin-off of OmniAb This note details the completion of the OmniAb business spin-off and its financial reporting as a discontinued operation - The spin-off of the OmniAb Business was completed on November 1, 2022, through a Reverse Morris Trust transaction, resulting in OmniAb becoming an independent, publicly traded company[64][65] - OmniAb's historical financial results are now reflected as discontinued operations in Ligand's consolidated financial statements for all periods presented through the distribution date[65] Net Loss from Discontinued Operations (Q1 2022, in thousands) | Metric | Three months ended March 31, 2022 | | :----- | :--------------------------------| | Total Revenues | $9,177 | | Total Operating Costs and Expenses | $20,616 | | Net loss | $(2,456) | 3. Fair Value Measurements This note provides information on assets and liabilities measured at fair value, categorized by valuation inputs Assets and Liabilities Measured at Fair Value (in thousands) | Category | March 31, 2023 | December 31, 2022 | | :------- | :------------- | :---------------- | | Total Assets | $193,937 | $166,864 | | Investment in Viking common stock | $59,359 | $63,122 | | Total Liabilities | $2,887 | $3,557 | - Total assets measured at fair value increased, while total liabilities measured at fair value decreased, primarily due to a reduction in Metabasis contingent liabilities[69] - No impairment of goodwill, indefinite-lived assets, or long-lived assets was recorded during Q1 2023 or Q1 2022[72] 4. Convertible Senior Notes This note details the outstanding convertible senior notes, their conversion terms, and the company's settlement intentions - As of March 31, 2023, $76.85 million in principal amount of the 0.75% convertible senior notes due 2023 remain outstanding[85] - Holders are entitled to convert the notes without conditions from November 15, 2022, until May 11, 2023, with a conversion rate adjusted to 4.8390 shares per $1,000 principal amount[75][76] - The company intends to settle conversions through a combination of cash for the principal portion and shares for the excess conversion value[78] - No 2023 Notes were repurchased during Q1 2023, in contrast to $165.8 million repurchased in Q1 2022[79] 5. Income Tax This note explains the company's effective tax rate and the primary factors contributing to its variance from the statutory rate - The effective tax rate for Q1 2023 was 21.5%, a significant change from (41.4)% in Q1 2022[87] - The Q1 2023 variance from the U.S. federal statutory tax rate was primarily due to Section 162(m) limitation on officer compensation and non-deductible ISO-related stock compensation, partially offset by foreign derived intangible income tax benefit[87] 6. Stockholders' Equity This note details changes in stock options and restricted stock activity, along with information on the At-The-Market Equity Offering Sales Agreement Stock Options and Restricted Stock Activity (as of March 31, 2023) | Metric | Stock Options (Shares) | Restricted Stock Awards (Shares) | | :----- | :--------------------- | :------------------------------- | | Balance as of December 31, 2022 | 2,991,473 | 348,453 | | Granted | 409,591 | 194,615 | | Exercised/Vested | (93,598) | (153,431) | | Forfeited | (69,853) | (12,635) | | Balance as of March 31, 2023 | 3,237,613 | 377,002 | - The company has an At-The-Market (ATM) Equity Offering Sales Agreement to sell up to $100.0 million of common stock, but no shares have been issued under this program to date[91] 7. Commitment and Contingencies This note outlines the company's involvement in legal proceedings and significant lease agreement amendments - The company is involved in civil complaints related to the National Prescription Opiate Litigation but believes these claims are unlikely to have a material adverse effect on its business[93][95] - An amendment to the headquarters lease agreement in Q1 2023 resulted in a $1.1 million increase in both operating lease assets and liabilities[96] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, condition, and future outlook, highlighting key revenue drivers, expense changes, and liquidity - Ligand's business model focuses on acquiring or funding programs and out-licensing technology platforms (Captisol, Pelican) to generate diversified revenue streams from royalties, Captisol sales, and contract revenue[100][101][102] - The OmniAb spin-off was completed on November 1, 2022, with OmniAb's historical results now reported as discontinued operations[103] - As of March 31, 2023, cash, cash equivalents, and short-term investments totaled $282.7 million, an increase of $70.8 million from year-end 2022[128] - The company plans to use existing cash to pay off the remaining $76.9 million principal amount of 2023 Notes on their May 15, 2023 maturity date[130] Overview This section describes Ligand's business model, focusing on its strategy of acquiring and licensing biopharmaceutical assets and technologies - Ligand's business model is focused on acquiring or funding programs and technologies for life science companies to discover and develop medicines, aiming for a diversified portfolio of biotech and pharmaceutical product revenue streams[100] - Key technology platforms include Captisol (optimizes drug solubility/stability) and Pelican Expression Technology (cost-effective, scalable recombinant protein production)[101] - Revenue consists of royalties from commercialized products, sales of Captisol material, and contract revenue from license, milestone, and other service payments[102] OmniAb Separation and Spin-Off This section details the completion of the OmniAb spin-off and its subsequent classification as discontinued operations - The spin-off of the OmniAb antibody discovery business was completed on November 1, 2022, through a Reverse Morris Trust transaction, making OmniAb an independent public company[103] - Following the distribution, OmniAb's historical financial results are reflected as discontinued operations in Ligand's consolidated financial statements[103] Business Updates This section highlights recent developments, including FDA approvals, clinical trial progress, and strategic asset sales - Travere Therapeutics received FDA accelerated approval for FILSPARI™ (sparsentan) for IgA nephropathy (IgAN) in February 2023, with EMA review expected in H2 2023[104] - Viking Therapeutics completed enrollment in its Phase 2b clinical trial of VK2809 for NASH, with topline data expected in H1 2023. Ligand sold 3.2 million Viking shares, generating $43 million in net proceeds[105] - Novan submitted an NDA for berdazimer gel, 10.3% (SB206) for molluscum contagiosum, with a PDUFA target date of January 5, 2024[106] - Novartis AG received FDA approval for a liquid form of TAFINLAR® (dabrafenib) + MEKINIST® (trametinib), the first approval of an oral Captisol-enabled product, for pediatric low-grade glioma[108] Results of Operations This section analyzes the company's financial performance, detailing revenue, operating costs, other income, and tax impacts - Total revenue increased by $7.5 million (20%) to $44.0 million in Q1 2023, driven by contract revenue and royalties, despite a 100% decrease in Captisol-COVID sales[111][112] - Total operating costs and expenses decreased by $4.6 million (13%) to $29.8 million in Q1 2023, primarily due to lower R&D and G&A expenses[117][118][119][120] - Total other income (expense), net, swung to a gain of $41.3 million in Q1 2023 from a loss of $11.3 million in Q1 2022, mainly due to a $39.5 million gain from short-term investments (including $20.5 million realized gain from Viking stock sales and $19.0 million unrealized gain)[121][122] - Net income from continuing operations was $43.6 million in Q1 2023, a significant improvement from a net loss of $12.9 million in Q1 2022[14] Revenue This section analyzes the components of total revenue, including royalties, Captisol sales, and contract revenue, and their respective changes Revenue Breakdown (Q1 2023 vs Q1 2022, in thousands) | Revenue Type | Q1 2023 | Q1 2022 | Change | % Change | | :----------- | :------ | :------ | :----- | :------- | | Royalties | $17,154 | $13,432 | $3,722 | 28% | | Captisol - Core | $10,622 | $6,226 | $4,396 | 71% | | Captisol - COVID | $0 | $5,896 | $(5,896) | (100)% | | Contract revenue | $16,203 | $10,962 | $5,241 | 48% | | Total revenue | $43,979 | $36,516 | $7,463 | 20% | - Contract revenue increased significantly due to a milestone payment tied to FDA approval of Travere's FILSPARI[112] - Core Captisol sales increased by 71% due to the timing of customer orders, while Captisol sales related to COVID-19 ceased[113] Royalty Revenue by Program (Q1 2023 vs Q1 2022, in millions) | Program | Q1 2023 Royalty Revenue | Q1 2022 Royalty Revenue | Change | | :------ | :---------------------- | :---------------------- | :----- | | Kyprolis | $6.2 | $4.6 | $1.6 | | Evomela | $2.6 | $2.7 | $(0.1) | | Teriparatide injection | $3.5 | $2.9 | $0.6 | | Rylaze | $2.6 | $1.6 | $1.0 | | Other | $2.3 | $1.6 | $0.7 | | Total | $17.2 | $13.4 | $3.8 | Operating Costs and Expenses This section details the changes in cost of Captisol, amortization, research and development, and general and administrative expenses Operating Costs and Expenses (Q1 2023 vs Q1 2022, in thousands) | Expense Type | Q1 2023 | Q1 2022 | Change | % Change | | :----------- | :------ | :------ | :----- | :------- | | Cost of Captisol | $3,717 | $4,699 | $(982) | (21)% | | Amortization of intangibles | $8,539 | $8,580 | $(41) | (0.5)% | | Research and development | $6,663 | $9,179 | $(2,516) | (27)% | | General and administrative | $10,855 | $11,925 | $(1,070) | (9)% | | Total | $29,774 | $34,383 | $(4,609) | (13)% | - Research and development expense decreased primarily due to lower share-based compensation, employee-related expenses, and lab supply expenses[119] - General and administrative expense decreased mainly due to reduced legal expenses in connection with the OmniAb spin-off[120] Other Income (Expense) This section examines the components of other income and expense, including gains from short-term investments and interest income/expense Other Income (Expense), net (Q1 2023 vs Q1 2022, in thousands) | Metric | Q1 2023 | Q1 2022 | 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 | $41,331 | $(11,277) | $52,608 | - The significant gain from short-term investments in Q1 2023 was driven by $19.0 million in unrealized gains and $20.5 million in realized gains from Viking common stock sales[122] - Interest income increased due to higher interest rates, while interest expense decreased due to a lower average debt outstanding balance[123][124] Income Tax Benefit (Expense) This section analyzes the income tax benefit or expense and the effective tax rate for the period Income Tax (Q1 2023 vs Q1 2022, in thousands) | Metric | Q1 2023 | Q1 2022 | | :----- | :------ | :------ | | Income (loss) before income taxes | $55,536 | $(9,144) | | Income tax benefit (expense) | $(11,922) | $(3,785) | | Effective tax rate | 21.5% | (41.4)% | - The effective tax rate for Q1 2023 was 21.5%, a significant change from (41.4)% in Q1 2022, primarily due to Section 162(m) limitation and non-deductible ISO-related stock compensation, partially offset by foreign derived intangible income tax benefit[127] Net Loss from Discontinued Operations This section reports the net loss attributable to discontinued operations for the period - Net loss from discontinued operations was $1.7 million in Q1 2023, a decrease from $2.5 million in Q1 2022[128] Liquidity and Capital Resources This section discusses the company's cash position, investment strategy, and ability to fund future operations and obligations - As of March 31, 2023, cash, cash equivalents, and short-term investments totaled $282.7 million, an increase of $70.8 million from the end of last year[128] - The company plans to use existing cash to pay off the remaining $76.9 million principal amount of 2023 Notes on their maturity date of May 15, 2023[130] - Management believes existing funds, cash generated from operations, and access to financing are adequate to fund business needs, including working capital, capital expenditures, debt service, R&D, and strategic initiatives[133] Cash Flow Summary (Q1 2023 vs Q1 2022, in thousands) | Activity Type | Q1 2023 | Q1 2022 | | :------------ | :------ | :------ | | Operating activities | $33,948 | $52,011 | | Investing activities | $10,549 | $113,881 | | Financing activities | $(775) | $(170,421) | Critical Accounting Policies and Estimates This section confirms that there have been no material changes to the company's critical accounting policies and estimates - There have been no material changes to the critical accounting policies and estimates compared to those described in the 2022 Annual Report[137] ITEM 3. Quantitative and Qualitative Disclosures about Market Risk This section states that there were no material changes to the company's market risks during the three months ended March 31, 2023, compared to the disclosures in its 2022 Annual Report - No material changes to market risks were identified in Q1 2023 compared to the disclosures in the 2022 Annual Report[139] ITEM 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2023, and there were no material changes in internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of March 31, 2023[140] - There were no material changes in internal control over financial reporting during the quarter ended March 31, 2023[141] PART II. OTHER INFORMATION ITEM 1. Legal Proceedings This section refers to Note 7 of the financial statements for updated disclosures on legal proceedings, which primarily involve civil complaints related to the National Prescription Opiate Litigation - Updates on legal proceedings are provided in Note 7, Commitment and Contingencies, to the Condensed Consolidated Financial Statements[142] ITEM 1A. Risk Factors The company states that there have been no material changes to the risk factors disclosed in its 2022 Annual Report, but reminds readers that other unknown or immaterial factors could still adversely affect the business - No material changes to the risk factors disclosed in the 2022 Annual Report were identified[143] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds occurred during the period - No unregistered sales of equity securities or use of proceeds occurred[144] ITEM 3. Defaults Upon Senior Securities No defaults upon senior securities occurred during the period - No defaults upon senior securities occurred[145] ITEM 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to the company[146] ITEM 5. Other Information No other information is reported in this section - No other information is reported in this section[147] ITEM 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the At-the-Market Equity Offering Sales Agreement, Director Compensation Policy, Change in Control Severance Agreement, and various certifications and XBRL financial information - Key exhibits include the At-the-Market Equity Offering Sales Agreement, Director Compensation and Stock Ownership Policy, Form of Change in Control Severance Agreement, and various certifications by principal officers[148] - The report includes financial information formatted in iXBRL (Exhibit 101)[148] SIGNATURE The report is duly signed on May 8, 2023, by Octavio Espinoza, Chief Financial Officer - The report was signed by Octavio Espinoza, Chief Financial Officer, on May 8, 2023[153]