Ligand(US:LGND)2023-11-09 22:03PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements Ligand's unaudited condensed consolidated financial statements detail financial position, operations, and cash flows post-OmniAb spin-off, with notes on key accounting and transactions Condensed Consolidated Balance Sheets Total assets slightly increased to $769.2 million by September 30, 2023, driven by equity investments and inventory, while total liabilities significantly decreased to $101.3 million due to convertible note repayment Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $19,275 | $45,006 | | Short-term investments | $171,227 | $166,864 | | Total current assets | $253,994 | $263,601 | | Total assets | $769,226 | $762,668 | | Liabilities & Equity | | | | Total current liabilities | $15,727 | $98,810 | | 2023 convertible senior notes, net | $0 | $76,695 | | Total liabilities | $101,330 | $165,183 | | Total stockholders' equity | $667,896 | $597,485 | Condensed Consolidated Statements of Operations Q3 2023 total revenues decreased to $32.9 million due to absent COVID-related Captisol sales, resulting in a $10.3 million net loss from continuing operations, impacted by investment losses Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $32,868 | $59,221 | $103,213 | $145,863 | | Royalties | $23,863 | $19,255 | $61,447 | $50,507 | | Captisol | $8,608 | $35,949 | $24,450 | $77,616 | | Operating income from continuing operations | $3,078 | $12,341 | $15,300 | $23,136 | | Net income (loss) from continuing operations | ($10,273) | $9,645 | $35,631 | $9,315 | | Net loss from discontinued operations | $0 | ($9,241) | ($1,665) | ($25,191) | | Net income (loss) | ($10,273) | $404 | $33,966 | ($15,876) | | Diluted net income (loss) per share | ($0.59) | $0.02 | $1.91 | ($0.93) | Condensed Consolidated Statements of Cash Flows Net cash from operations decreased to $41.5 million for the nine months ended September 30, 2023, with significant cash usage in financing for convertible note repayment, leading to a $25.1 million net decrease in cash Cash Flow Summary (in thousands) | Activity | Nine months ended Sep 30, 2023 | Nine months ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $41,512 | $84,378 | | Net cash (used in) provided by investing activities | ($1,398) | $170,908 | | Net cash used in financing activities | ($65,262) | ($270,692) | | Net decrease in cash, cash equivalents and restricted cash | ($25,148) | ($15,406) | - The repayment of the 2023 Convertible Notes for $76.9 million was the primary use of cash in financing activities during the first nine months of 202323 Notes to Condensed Consolidated Financial Statements Notes detail significant corporate actions, including the OmniAb spin-off, Pelican sale, Novan acquisition, revenue recognition, convertible note repayment, and subsequent events like a new credit facility and further acquisitions - The spin-off of the OmniAb Business was completed in November 2022 and is now classified as a discontinued operation, with its financial results reported separately3182 Disaggregation of Revenue (in thousands) | Revenue Stream | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Royalties | $23,863 | $19,255 | $61,447 | $50,507 | | Kyprolis | $10,537 | $9,123 | $24,862 | $20,872 | | Rylaze | $3,678 | $2,099 | $9,315 | $6,065 | | Captisol | $8,608 | $35,949 | $24,450 | $77,616 | | Captisol - Core | $8,608 | $3,582 | $24,450 | $13,133 | | Captisol - COVID | $0 | $32,367 | $0 | $64,483 | | Contract revenue | $397 | $4,017 | $17,316 | $17,740 | | Total | $32,868 | $59,221 | $103,213 | $145,863 | - On September 18, 2023, the company sold its Pelican subsidiary to Primrose Bio, receiving common, preferred, and restricted shares in Primrose Bio and retaining commercial royalty rights to key products like RYLAZE and VAXNEUVANCE, recognizing a gain of $2.1 million on the sale6667 - On September 27, 2023, Ligand acquired certain assets of Novan, Inc. for $12.2 million, including the lead product candidate berdazimer gel, 10.3%, and the NITRICIL technology platform75 - The 2023 Convertible Senior Notes matured on May 15, 2023, and the company paid the remaining $76.9 million principal amount in cash92 - Subsequent to the quarter end, Ligand entered into a $75.0 million revolving credit facility, acquired royalty interests in soticlestat from Ovid Therapeutics for $30.0 million, and acquired Tolerance Therapeutics for $20.0 million to gain royalty rights to TZIELD109112113 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Ligand's strategy to diversify revenue through licensing and acquisitions, highlighting a 44% Q3 2023 revenue decrease due to absent COVID-related Captisol sales, offset by royalty growth, while maintaining strong liquidity Overview and Business Updates Ligand's business model focuses on funding drug development and licensing Captisol® technology, with recent strategic moves including the Pelican spin-out, Novan acquisition, and royalty interest purchases to diversify future revenue streams - The company's business model focuses on creating a diversified portfolio of biotech and pharmaceutical product revenue streams supported by an efficient, low-cost corporate structure118 - Acquired Novan Inc. assets for $12.2 million, including the NDA-stage berdazimer gel 10.3% program with a PDUFA goal date of January 5, 2024124 - Invested $30 million to acquire 13% of Ovid Therapeutics' interest in royalties and milestones for soticlestat, a program in Phase 3 trials for rare epilepsy syndromes125 - Acquired Tolerance Therapeutics for $20 million, securing a royalty of less than 1% on worldwide net sales of TZIELD, a therapy for type 1 diabetes126 Results of Operations Q3 2023 total revenue decreased 44% to $32.9 million due to absent COVID-related Captisol sales, despite a 24% increase in royalty revenue, resulting in a $10.3 million net loss from continuing operations Revenue Comparison (in thousands) | Revenue Stream | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | Royalties | $23,863 | $19,255 | 24% | | Captisol - Core | $8,608 | $3,582 | 140% | | Captisol - COVID | $0 | $32,367 | (100)% | | Contract revenue | $397 | $4,017 | (90)% | | Total revenue | $32,868 | $59,221 | (44)% | - Total operating costs and expenses decreased by 32% in Q3 2023 compared to Q3 2022, primarily driven by a $10.7 million (75%) decrease in the Cost of Captisol, corresponding to lower sales139140 - Other expense in Q3 2023 was $15.2 million, compared to other income of $13 thousand in Q3 2022, mainly due to a $13.2 million unrealized loss from short-term investments in Q3 2023149150 Liquidity and Capital Resources Ligand maintained $190.5 million in cash and investments as of September 30, 2023, with operating cash flow of $41.5 million, and secured a new $75.0 million revolving credit facility to support future operations and strategic initiatives - The company held $190.5 million in cash, cash equivalents, and short-term investments as of September 30, 2023159 - In October 2023, Ligand entered into a new $75.0 million revolving credit facility, which matures in October 2026, with no amounts borrowed to date164166 - A stock repurchase program authorizing up to $50.0 million remains in place through April 2026, with the full amount available for repurchase as of September 30, 2023162163 Item 3. Quantitative and Qualitative Disclosures about Market Risk No material changes to market risks were reported for the nine months ended September 30, 2023, compared to the 2022 Annual Report disclosures - No material changes to market risks were reported for the nine months ended September 30, 2023172 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the quarter173 - No material changes to internal control over financial reporting were identified during the third quarter of 2023174 PART II. OTHER INFORMATION Item 1. Legal Proceedings Ligand is involved in the National Prescription Opiate Litigation but rejects all claims, intending to vigorously defend itself, believing no material adverse effect is likely - The company is a defendant in the Multi-District Litigation (MDL) captioned In Re: National Prescription Opiate Litigation, but rejects all claims and intends to defend the matters vigorously106 Item 1A. Risk Factors A new risk factor highlights the $75.0 million Revolving Credit Facility, whose financial covenants and security over assets could limit operational flexibility and lead to material harm upon default - A new risk factor was disclosed concerning the terms of the October 2023 Credit Agreement, which could limit business flexibility and affect financial health177 - The Credit Agreement contains financial covenants, including maintaining a leverage ratio no greater than 2.50 to 1.00 and minimum consolidated EBITDA of $45 million for any trailing four-quarter period179 - Obligations under the Credit Agreement are secured by company collateral, and a default could result in lenders foreclosing on these assets, which would harm the business177 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities were reported during the period - None reported181 Item 5. Other Information No officers or directors adopted, modified, or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q3 2023 - No officers or directors adopted, modified, or terminated any Rule 10b5-1 trading arrangements during the three months ended September 30, 2023184 Item 6. Exhibits Exhibits filed with the Form 10-Q include the Credit Agreement, CEO/CFO certifications, and iXBRL financial data - Exhibits filed with the report include the new Credit Agreement, CEO/CFO certifications, and iXBRL financial data186