LGND 10-Q

Ligand Pharmaceuticals Inc (LGND)

10-Q 2020-08-07 For: 2020-06-30

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Delaware			77-0160744
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

3911 Sorrento Valley Boulevard, Suite 110
San Diego
CA			92121
(Address of principal executive offices)			(Zip Code)


Title of each class:	Trading symbol:	Name of each exchange on which registered:
Common Stock , par value $0.001 per share	LGND	The Nasdaq Global Market


PART I. FINANCIAL INFORMATION
	ITEM 1. Condensed Consolidated Financial Statements (unaudited)	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Comprehensive Income (Loss)	6
	Condensed Consolidated Statements of Stockholders' Equity	7
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Condensed Consolidated Financial Statements	9
	ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	24
	ITEM 3. Quantitative and Qualitative Disclosures about Market Risk	29
	ITEM 4. Controls and Procedures	29
PART II. OTHER INFORMATION
	ITEM 1. Legal Proceedings	30
	ITEM 1A. Risk Factors	30
	ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	32
	ITEM 3. Defaults Upon Senior Securities	32
	ITEM 4. Mine Safety Disclosures	32
	ITEM 5. Other Information	32
	ITEM 6. Exhibits	34
	SIGNATURE	34


GLOSSARY OF TERMS AND ABBREVIATIONS
Abbreviation			Definition
2019 Annual Report			Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 27, 2020
2019 Notes			$245.0 million aggregate principal amount of convertible senior unsecured notes due 2019
2023 Notes			$750.0 million aggregate principal amount of convertible senior unsecured notes due 2023
Ab Initio			Ab Initio Biotherapeutics, Inc.
Acrotech Biopharma			Acrotech Biopharma, LLC
Amgen			Amgen, Inc.
ANDA			Abbreviated New Drug Application
ASC			Accounting Standards Codification
ASCO			American Society of Clinical Oncology
ASU			Accounting Standards Update
Aziyo			Aziyo Med, LLC
CE			Captisol-enabled
cGMP			current Good Manufacturing Practices
Company			Ligand Pharmaceuticals Incorporated, including subsidiaries
CorMatrix			CorMatrix Cardiovascular, Inc.
CVR			Contingent value right
Crystal			Crystal Bioscience, Inc.
CStone Pharmaceuticals			CStone Pharmaceuticals (Suzhou) Co., Ltd.
CyDex			CyDex Pharmaceuticals, Inc.
Dianomi Therapeutics			Dianomi Therapeutics, Inc.
ESPP			Employee Stock Purchase Plan, as amended and restated
EUA			Emergency Use Authorization
FASB			Financial Accounting Standards Board
FDA			Food and Drug Administration
GAAP			Generally accepted accounting principles in the United States
Gloria Biosciences			Gloria Biosciences, Co.
Glucagon CVR			The contingent value right issued pursuant to the Glucagan CVR Agreement, dated January 10, 2010 by and between the Company, Meatabasis and the other parties named therein
Gilead			Gilead Sciences, Inc.
GRA			Glucagon receptor antagonist
Icagen			Icagen, Inc.
IPR&D			In-process Research and Development
Ligand			Ligand Pharmaceuticals Incorporated, including subsidiaries
Metabasis			Metabasis Therapeutics, Inc.
NDA			New Drug Application
Pfizer			Pfizer Inc.
Q2 2019			The Company's fiscal quarter ended June 30, 2019
Q2 2020			The Company's fiscal quarter ended June 30, 2020
Roivant			Roivant Sciences GmbH
Roivant License Agreement			License Agreement, dated March 5, 2018, between Ligand and Roivant
Retrophin			Retrophin, Inc.
SBC			Share-based compensation expense
SEC			Securities and Exchange Commission
Selexis			Selexis, SA
sNDA			Supplemental New Drug Application
Teva			Teva Pharmaceuticals USA, Inc., Teva Pharmaceutical Industries Ltd. and Actavis, LLC, collectively
Vernalis			Vernalis plc
Viking			Viking Therapeutics, Inc.
YTD			Year-to-date


	June 30, 2020		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	115,156	$	71,543
Short-term investments	694,724		998,324
Accounts receivable, net	41,874		30,387
Inventory	3,702		7,296
Income taxes receivable	2,679		11,361
Other current assets	5,489		4,734
Total current assets	863,624		1,123,645
Deferred income taxes, net	26,411		25,608
Intangible assets, net	215,295		210,448
Goodwill	103,369		95,229
Commercial license and other economic rights, net	10,606		20,090
Property and equipment, net	7,883		7,185
Operating lease right-of-use assets	9,689		10,353
Other assets	6,059		2,357
Total assets	$	1,242,936	$	1,494,915
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	6,103	$	2,420
Accrued liabilities	12,828		9,836
Current contingent liabilities	1,416		2,607
Deferred revenue	8,917		2,139
Total current liabilities	29,264		17,002
2023 convertible senior notes, net	449,672		638,959
Long-term contingent liabilities	10,005		6,335
Deferred income taxes, net	23,340		32,937
Long-term operating lease liabilities	9,181		9,970
Other long-term liabilities	26,471		22,480
Total liabilities	547,933		727,683
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000 shares authorized; zero issued and outstanding at June 30, 2020 and December 31, 2019	—		—
Common stock, $0.001 par value; 60,000 shares authorized; 16,071 and 16,823 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively	16		17
Additional paid-in capital	304,404		367,326
Accumulated other comprehensive loss	(2,310)		(216)
Retained earnings	392,893		400,105
Total stockholders' equity	695,003		767,232
Total liabilities and stockholders' equity	$	1,242,936	$	1,494,915


☒			Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934


☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


	Three months ended						Six months ended
	June 30,						June 30,
	2020		2019		2020		2019
Revenues:
Royalties	$	7,181	$	6,626	$	13,746	$	26,164
Captisol	24,468		8,549		45,577		17,508
Service revenue	4,582		4,559		7,939		8,442
Contract revenue	5,189		5,253		7,319		16,357
Total revenues	41,420		24,987		74,581		68,471
Operating costs and expenses:
Cost of Captisol	7,644		2,405		12,327		6,263
Amortization of intangibles	3,875		3,505		7,410		7,008
Research and development	12,732		12,213		24,623		23,502
General and administrative	10,069		10,994		19,333		22,082
Total operating costs and expenses	34,320		29,117		63,693		58,855
Gain from sale of Promacta license	—		—		—		812,797
Income from operations	7,100		(4,130)		10,888		822,413
Other income (expense):
Gain (loss) from short-term investments	23,460		(15,061)		(7,281)		4,488
Interest income	1,969		9,285		6,699		15,194
Interest expense	(6,213)		(9,012)		(14,761)		(17,918)
Other income, net	1,803		890		2,159		508
Total other income (loss), net	21,019		(13,898)		(13,184)		2,272
Income (loss) before income taxes	28,119		(18,028)		(2,296)		824,685
Income tax benefit (expense)	(6,033)		3,609		251		(172,767)
Net income (loss)	$	22,086	$	(14,419)	$	(2,045)	$	651,918

Basic net income (loss) per share	$	1.38	$	(0.74)	$	(0.13)	$	32.60
Shares used in basic per share calculations	16,055		19,558		16,292		20,000

Diluted net income (loss) per share	$	1.32	$	(0.74)	$	(0.13)	$	31.34
Shares used in diluted per share calculations	16,694		19,558		16,292		20,799


	Common Stock					Additional paid in capital		Accumulated other comprehensive income (loss)		Retained earnings		Total stockholders' equity
	Shares	Amount
Balance at January 1, 2020	16,823	$	17	$	367,326	$	(216)	$	400,105	$	767,232
Issuance of common stock under employee stock compensation plans, net	105	—		(1,008)		—		—		(1,008)
Share-based compensation	—	—		5,653		—		—		5,653
Repurchase of common stock	(878)	(1)		(73,286)		—		—		(73,287)
Unrealized net loss on available-for-sale securities, net of deferred tax	—	—		—		(2,772)		—		(2,772)
Foreign currency translation adjustment	—	—		—		(1,879)		—		(1,879)
Reacquisition of equity due to 2023 debt extinguishment, net of tax	—	—		(2,745)		—		—		(2,745)
Cumulative-effect adjustment from adoption of ASU 2016-13, net of tax	—	—		—		—		(5,167)		(5,167)
Net loss	—	—		—		—		(24,131)		(24,131)
Balance at March 31, 2020	16,050	$	16	$	295,940	$	(4,867)	$	370,807	$	661,896
Issuance of common stock under employee stock compensation plans, net	21	—		1,128		—		—		1,128
Share-based compensation	—	—		7,359		—		—		7,359
Unrealized net gain on available-for-sale securities, net of deferred tax	—	—		—		2,742		—		2,742
Foreign currency translation adjustment	—	—		—		(185)		—		(185)
Adjustment on reacquisition of equity due to 2023 debt extinguishment, net of tax	—	—		(23)		—		—		(23)
Net income	—	—		—		—		22,086		22,086
Balance at June 30, 2020	16,071	$	16	$	304,404	$	(2,310)	$	392,893	$	695,003


Supplemental disclosure of cash flow information:
Interest paid	$	2,531	$	2,915
Taxes paid	$	—	$	69,703
Restricted cash in other current assets	$	730	$	1,353

Supplemental schedule of non-cash activity:



Accrued fixed asset purchases	$	292	$	54

Accrued inventory purchases	$	3,553	$	—
Unrealized gain (loss) on AFS investments	$	(38)	$	938


	June 30, 2020														December 31, 2019
	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value		Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value

Short-term investments
Bank deposits	$	269,114	$	221	$	(56)	$	269,279	$	411,690	$	188	$	(3)	$	411,875
Corporate bonds	55,380		125		(94)		55,411		63,818		161		—		63,979
Commercial paper	163,590		134		—		163,724		210,525		43		(16)		210,552
Corporate equity securities	4,506		634		(2,484)		2,656		4,506		416		(1,850)		3,072
Mutual fund	151,223		—		(97)		151,126		250,635		—		(249)		250,386
Warrants	—		177		—		177		—		125		—		125
	$	643,813	$	1,291	$	(2,731)	$	642,373	$	941,174	$	933	$	(2,118)	$	939,989


	June 30, 2020
	Amortized Cost		Fair Value
Within one year	$	414,505	$	414,905
After one year through five years	73,579		73,509
After five years	—		—
Total	$	488,084	$	488,414


	Less than 12 months						12 months or greater						Total
	Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value
June 30, 2020
Bank deposits	$	(56)	$	30,015	$	—	$	—	$	(56)	$	30,015
Corporate bonds	(94)		16,022		—		—		(94)		16,022
Total	$	(150)	$	46,037	$	—	$	—	$	(150)	$	46,037

December 31, 2019
Bank deposits	$	(3)	$	58,584	$	—	$	—	$	(3)	$	58,584
Commercial paper	(16)		79,363		—		—		(16)		79,363
Total	$	(19)	$	137,947	$	—	$	—	$	(19)	$	137,947


	June 30,		December 31,
	2020		2019
Goodwill	$	103,369	$	95,229
Definite lived intangible assets
Complete technology	244,513		242,813
Less: accumulated amortization⁽¹⁾	(57,053)		(50,203)
Trade name	2,642		2,642
Less: accumulated amortization	(1,246)		(1,180)
Customer relationships	40,700		29,600
Less: accumulated amortization	(14,261)		(13,224)
Total goodwill and other identifiable intangible assets, net	$	318,664	$	305,677

(1) accumulated amortization for complete technology includes immaterial amount of foreign currency translation adjustments for the complete technology acquired from the Vernalis acquisition.


	June 30, 2020										December 31, 2019
	Gross		Adjustments⁽¹⁾		Net		Gross		Adjustments⁽²⁾		Net
Aziyo and CorMatrix	$	17,696	$	(9,698)	$	7,998	$	17,696	$	(5,500)	$	12,196
Palvella	10,000		(10,000)		—		10,000		(7,492)		2,508
Selexis and Dianomi	10,602		(7,994)		2,608		10,602		(5,216)		5,386
Total	$	38,298	$	(27,692)	$	10,606	$	38,298	$	(18,208)	$	20,090


	June 30,		December 31,
	2020		2019
Compensation	$	3,457	$	1,986
Professional fees	964		1,135
Amounts owed to former licensees	413		381
Royalties owed to third parties	1,038		—
Return reserve	2,899		3,027
Current operating lease liabilities	1,728		1,242
Accrued interest	471		690
Other	1,858		1,375
Total accrued liabilities	$	12,828	$	9,836


	Three months ended			Six months ended
	June 30,			June 30,
	2020	2019	2020	2019
Risk-free interest rate	0.4%	1.9%	1.1%	2.4%
Dividend yield	—	—	—	—
Expected volatility	69%	40%	55%	43%
Expected term	5.1	5.9	4.8	5.2


	Stock Options				Restricted Stock Awards
	Shares	Weighted-Average Exercise Price		Shares	Weighted-Average Grant Date Fair Value
Balance as of December 31, 2019	1,956,379	$	77.54	147,259	$	125.11
Granted	458,750	$	89.43	101,156	$	89.25
Options exercised/RSUs vested	(93,570)	$	19.19	(49,749)	$	122.14
Forfeited	(3,500)	$	68.28	—	$	—
Balance as of June 30, 2020	2,318,059	$	82.26	198,666	$	107.59


(in millions)	Q2 2020 Estimated Partner Product Sales		Effective Royalty Rate		Q2 2020 Royalty Revenue		Q2 2019 Partner Product Sales		Effective Royalty Rate		Q2 2019 Royalty Revenue
Kyprolis	$	269.1	2.0	%	$	5.5	$	252.0	1.9	%	$	4.9
Evomela	6.0		20.0	%	1.2		5.7		20.0	%	1.1
Other	40.8		1.2	%	0.5		44.2		1.4	%	0.6
Total	$	315.9			$	7.2	$	301.9			$	6.6


	June 30, 2020														December 31, 2019
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Short-term investments, excluding Viking⁽¹⁾	$	2,655	$	639,541	$	177	$	642,373	$	3,073	$	936,791	$	125	$	939,989
Investment in Viking common stock	43,535		—		—		43,535		48,425		—		—		48,425
Investment in Viking warrants⁽²⁾	8,816		—		—		8,816		9,910		—		—		9,910
Total assets	$	55,006	$	639,541	$	177	$	694,724	$	61,408	$	936,791	$	125	$	998,324
Liabilities:
Crystal contingent liabilities⁽³⁾	$	—	$	—	$	859	$	859	$	—	$	—	$	2,659	$	2,659
CyDex contingent liabilities	—		—		413		413		—		—		348		348
Metabasis contingent liabilities⁽⁴⁾	—		5,349		—		5,349		—		5,935		—		5,935
Icagen contingent liabilities⁽⁵⁾	—		—		4,800		4,800		—		—		—		—
Amounts owed to former licensor	107		—		—		107		75		—		—		75
Total liabilities	$	107	$	5,349	$	6,072	$	11,528	$	75	$	5,935	$	3,007	$	9,017


	June 30, 2020		December 31, 2019
Principal amount of the 2023 Notes outstanding	$	515,560	$	750,000
Unamortized discount (including unamortized debt issuance cost)	(65,888)		(111,041)
Total long-term portion of notes payable	$	449,672	$	638,959

Carrying value of equity component of the 2023 Notes	$	60,181	$	101,422
Fair value of the 2023 Notes outstanding (Level 2)	$	452,167	$	647,280


(Dollars in thousands)	Q2 2020		Q2 2019		Change		% Change		YTD 2020		YTD 2019		Change		% Change
Royalties	$	7,181	$	6,626	$	555	8	%	$	13,746	$	26,164	$	(12,418)	(47)	%
Captisol	24,468		8,549		15,919		186	%	45,577		17,508		28,069		160	%
Service revenue	4,582		4,559		23		1	%	7,939		8,442		(503)		(6)	%
Contract revenue	5,189		5,253		(64)		(1)	%	7,319		16,357		(9,038)		(55)	%
Total revenue	$	41,420	$	24,987	$	16,433	66	%	$	74,581	$	68,471	$	6,110	9	%


(in millions)	YTD 2020 Estimated Partner Product Sales		Effective Royalty Rate		YTD 2020 Royalty Revenue		YTD 2019 Partner Product Sales		Effective Royalty Rate		YTD 2019 Royalty Revenue
Kyprolis	$	555.1	1.8	%	$	9.9	$	499.0	1.7	%	$	8.7
Evomela	13.9		20.0	%	2.8		10.2		20.0	%	2.1
Other	86.6		1.3	%	1.1		92.1		1.3	%	1.2
Promacta	N/A		N/A		N/A		225.1		6.3	%	14.2
Total	$	655.6			$	13.7	$	826.4			$	26.2


(Dollars in thousands)	Q2 2020		% of Revenue	Q2 2019		% of Revenue	YTD 2020		% of Revenue	YTD 2019		% of Revenue
Costs of Captisol	$	7,644		$	2,405		12,327			6,263
Amortization of intangibles	3,875			3,505			7,410			7,008
Research and development	12,732			12,213			24,623			23,502
General and administrative	10,069			10,994			19,333			22,082
Total operating costs and expenses	$	34,320	83%	$	29,117	117%	$	63,693	85%	$	58,855	86%


Exhibit Number			Description
2.1			Asset Purchase Agreement, dated February 11, 2020, (as amended on April 1, 2020), by and among the Registrant, Icagen Inc., Icagen Corp., XRPro Sciences, Inc. and Caldera Discovery, Inc. (incorporated by reference to Exhibit 2.1 to the Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 8, 2020).
10.1			Call Option Amendment Agreed, dated April 6, 2020, between the Registrant and Barclays Bank PLC (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 8, 2020).
10.2			Call Option Amendment Agreed, dated April 6, 2020, between the Registrant and Deutsche Bank AG, London Branch (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 8, 2020).
10.3			Call Option Amendment Agreed, dated April 6, 2020, between the Registrant and Goldman Sachs & Co. LLC (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 8, 2020).
31.1			Certification by Principal Executive Officer, Pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2			Certification by Principal Financial Officer, Pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1			Certifications by Principal Executive Officer and Principal Financial Officer, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101			The following financial information from our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in iXBRL (inline eXtensible Business Reporting Language): (i) Consolidated Condensed Balance Sheets, (ii) Consolidated Condensed Statements of Operations, (iii) Consolidated Condensed Statement of Comprehensive Income, (iv) Consolidated Condensed Statements of Stockholders' Equity, (v) Consolidated Condensed Statements of Cash Flows, and (vi) the Notes to Consolidated Condensed Financial Statements.*
104			The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in Inline XBRL and contained in Exhibit 101.