LGND 10-Q

Ligand Pharmaceuticals Inc (LGND)

10-Q 2021-11-09 For: 2021-09-30

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

5980 Horton Street, Suite 405
Emeryville
CA			94608
(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	5
	Condensed Consolidated Statements of Comprehensive Income (Loss)	6
	Condensed Consolidated Statements of Stockholders' Equity	7
	Condensed Consolidated Statements of Cash Flows	9
	Notes to Condensed Consolidated Financial Statements	10
	ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	26
	ITEM 3. Quantitative and Qualitative Disclosures about Market Risk	33
	ITEM 4. Controls and Procedures	33
PART II. OTHER INFORMATION
	ITEM 1. Legal Proceedings	34
	ITEM 1A. Risk Factors	34
	ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	38
	ITEM 3. Defaults Upon Senior Securities	38
	ITEM 4. Mine Safety Disclosures	38
	ITEM 5. Other Information	38
	ITEM 6. Exhibits	39
	SIGNATURE	39


GLOSSARY OF TERMS AND ABBREVIATIONS
Abbreviation			Definition
2020 Annual Report			Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 24, 2021
2023 Notes			$750.0 million aggregate principal amount of convertible senior unsecured notes due 2023
Ab Initio			Ab Initio Biotherapeutics, Inc.
Amgen			Amgen, Inc.
ANDA			Abbreviated New Drug Application
ASC			Accounting Standards Codification
ASU			Accounting Standards Update
CE			Captisol-enabled
Company			Ligand Pharmaceuticals Incorporated, including subsidiaries
CVR			Contingent value right
Crystal			Crystal Bioscience, Inc.
CStone Pharmaceuticals			CStone Pharmaceuticals (Suzhou) Co., Ltd.
CyDex			CyDex Pharmaceuticals, Inc.
ESPP			Employee Stock Purchase Plan, as amended and restated
FASB			Financial Accounting Standards Board
FDA			Food and Drug Administration
GAAP			Generally accepted accounting principles in the United States
Gilead			Gilead Sciences, Inc.
Icagen			Icagen, Inc.
IND			Investigational New Drug
Ligand			Ligand Pharmaceuticals Incorporated, including subsidiaries
Metabasis			Metabasis Therapeutics, Inc.
NDA			New Drug Application
Pfenex			Pfenex Inc.
Pfenex CVR			Contingent value rights agreement, dated September 30, 2020, by and between Ligand and Pfenex
Pfizer			Pfizer Inc.
Q3 2020			The Company's fiscal quarter ended September 30, 2020
Q3 2021			The Company's fiscal quarter ended September 30, 2021
SBC			Share-based compensation expense
SEC			Securities and Exchange Commission
sNDA			Supplemental New Drug Application
Taurus			Taurus Biosciences, LLC
Teva			Teva Pharmaceuticals USA, Inc., Teva Pharmaceutical Industries Ltd. and Actavis, LLC, collectively
Travere			Travere Therapeutics, Inc.
Viking			Viking Therapeutics, Inc.
xCella			xCella Biosciences, Inc.
YTD			Year-to-date


	September 30, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	23,430	$	47,619
Short-term investments	299,781		363,567
Accounts receivable, net	64,336		56,847
Inventory	32,996		26,487
Income taxes receivable	6,378		2,217
Other current assets	5,161		3,822
Total current assets	432,082		500,559
Deferred income taxes, net	26,728		24,320
Intangible assets, net	562,372		595,330
Goodwill	190,183		189,662
Commercial license and other economic rights, net	10,748		10,979
Property and equipment, net	18,702		14,434
Operating lease right-of-use assets	12,951		6,892
Financing lease right-of-use assets	16,795		15,842
Other assets	3,095		4,267
Total assets	$	1,273,656	$	1,362,285
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	7,233	$	3,784
Accrued liabilities	12,237		18,530
Current contingent liabilities	2,594		39,884
Deferred revenue	12,007		29,435
Current operating lease liabilities	2,181		1,885
Current financing lease liabilities	45		6,593
Total current liabilities	36,297		100,111
2023 convertible senior notes, net	316,889		442,293
Long-term contingent liabilities	6,782		9,249
Deferred income taxes, net	63,026		64,598
Long-term operating lease liabilities	11,467		5,643
Other long-term liabilities	27,129		30,866
Total liabilities	461,590		652,760
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000 shares authorized; zero issued and outstanding at September 30, 2021 and December 31, 2020	—		—
Common stock, $0.001 par value; 60,000 shares authorized; 16,707 and 16,080 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively	17		16
Additional paid-in capital	358,418		318,358
Accumulated other comprehensive loss	(875)		(801)
Retained earnings	454,506		391,952
Total stockholders' equity	812,066		709,525
Total liabilities and stockholders' equity	$	1,273,656	$	1,362,285


☒			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				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Revenues:
Royalties	$	15,648	$	9,005	$	31,376	$	22,751
Captisol	35,093		23,389		128,875		68,966
Contract revenue	14,094		9,454		44,409		24,712
Total revenues	64,835		41,848		204,660		116,429
Operating costs and expenses:
Cost of Captisol	11,446		6,353		50,192		18,680
Amortization of intangibles	11,827		3,875		35,391		11,285
Research and development	16,938		12,853		50,769		37,476
General and administrative	12,718		15,020		39,747		34,353
Other operating income	(3,800)		—		(37,600)		—
Total operating costs and expenses	49,129		38,101		138,499		101,794
Income from operations	15,706		3,747		66,161		14,635
Other income (expense):
Gain (loss) from short-term investments	1,937		(9,862)		8,135		(17,143)
Interest income	169		991		698		7,690
Interest expense	(4,439)		(6,269)		(15,154)		(21,030)
Other income (expense), net	1,886		(219)		(5,516)		1,940
Total other income (loss), net	(447)		(15,359)		(11,837)		(28,543)
Income (loss) before income taxes	15,259		(11,612)		54,324		(13,908)
Income tax benefit (expense)	(1,536)		4,911		8,230		5,162
Net income (loss)	$	13,723	$	(6,701)	$	62,554	$	(8,746)

Basic net income (loss) per share	$	0.82	$	(0.42)	$	3.77	$	(0.54)
Shares used in basic per share calculations	16,688		16,082		16,595		16,222

Diluted net income (loss) per share	$	0.80	$	(0.42)	$	3.64	$	(0.54)
Shares used in diluted per share calculations	17,142		16,082		17,187		16,222


	Common Stock			Additional paid in capital		Accumulated other comprehensive loss		Retained earnings		Total stockholders' equity
	Shares	Amount
Balance at January 1, 2021	16,080	$	16	$	318,358	$	(801)	$	391,952	$	709,525
Issuance of common stock under employee stock compensation plans, net	572	1		20,580		—		—		20,581
Share-based compensation	—	—		8,405		—		—		8,405
Unrealized net loss on available-for-sale securities, net of deferred tax	—	—		—		(55)		—		(55)
Reacquisition of equity due to 2023 debt extinguishment, net of tax	—	—		(9,086)		—		—		(9,086)
Warrant and bond hedge unwind transactions	—	—		396		—		—		396
Tax effect for 2023 Notes transactions	—	—		(2,032)		—		—		(2,032)
Net income	—	—		—		—		18,106		18,106
Balance at March 31, 2021	16,652	$	17	$	336,621	$	(856)	$	410,058	$	745,840
Issuance of common stock under employee stock compensation plans, net	24	—		1,103		—		—		1,103
Share-based compensation	—	—		10,216		—		—		10,216
Unrealized net loss on available-for-sale securities, net of deferred tax	—	—		—		(5)		—		(5)
Reacquisition of equity due to 2023 debt extinguishment, net of tax	—	—		(1,073)		—		—		(1,073)
Tax effect for 2023 Notes transactions	—	—		(289)		—		—		(289)
Net income	—	—		—		—		30,725		30,725
Balance at June 30, 2021	16,676	$	17	$	346,578	$	(861)	$	440,783	$	786,517
Issuance of common stock under employee stock compensation plans, net	31	—		1,898		—		—		1,898
Share-based compensation	—	—		9,754		—		—		9,754
Unrealized net loss on available-for-sale securities, net of deferred tax	—	—		—		(14)		—		(14)
Reacquisition of equity due to 2023 debt extinguishment, net of tax	—	—		(32)		—		—		(32)
Warrant and bond hedge unwind transactions	—	—		96		—		—		96
Tax effect for 2023 Notes transactions	—	—		124		—		—		124
Net income	—	—		—		—		13,723		13,723
Balance at September 30, 2021	16,707	$	17	$	358,418	$	(875)	$	454,506	$	812,066


Supplemental disclosure of cash flow information:
Interest paid	$	1,740	$	2,531
Taxes paid	$	3,720	$	2,130
Restricted cash in other current assets	$	—	$	190

Supplemental schedule of non-cash activity:



Accrued fixed asset purchases	$	557	$	381
Accrued inventory purchases	$	4,968	$	1,390
Accrued financing lease payment	$	—	$	2,500
Unrealized loss on AFS investments	$	(74)	$	(109)


	September 30, 2021						December 31, 2020
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value		Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value

Bank deposits	$	47,739	$	8	$	(3)		$	47,744	$	84,120	$	35	$	(1)	$	84,154
Corporate bonds	25,914		50		—			25,964		30,512		99		(1)		30,610
Agency bonds	2,501		—		—			2,501		4,499		2		—		4,501
Commercial paper	23,264		10		—			23,274		45,459		27		(1)		45,485
Corporate equity securities	5,807		307		(723)			5,391		4,466		360		(1,388)		3,438
Mutual fund	152,041		53		—			152,094		151,512		386		—		151,898
Treasury bill	—		—		—			—		3,999		—		—		3,999
Warrants	—		642		—			642		—		393		—		393
	$	257,266	$	1,070	$	(726)		$	257,610	$	324,567	$	1,302	$	(1,391)	$	324,478
Viking common stock								42,171								32,763
Viking warrants								—								6,326
Total short-term investments								$	299,781							$	363,567


	September 30, 2021
	Amortized Cost		Fair Value
Within one year	$	76,055	$	76,086
After one year through five years	23,363		23,396
Total	$	99,418	$	99,482


	September 30,		December 31,
	2021		2020
Indefinite-lived intangible assets
Goodwill	$	190,183	$	189,662
Definite lived intangible assets
Complete technology	280,173		277,740
Less: accumulated amortization	(75,159)		(63,600)
Trade name	2,642		2,642
Less: accumulated amortization	(1,411)		(1,312)
Customer relationships	40,700		40,700
Less: accumulated amortization	(17,599)		(15,597)
Contractual relationships	362,000		362,000
Less: accumulated amortization	(28,974)		(7,243)
Total goodwill and other identifiable intangible assets, net	$	752,555	$	784,992


	September 30, 2021						December 31, 2020
	Gross		Adjustments(1)		Net		Gross		Adjustments(2)		Net
Commercial license rights	$	28,298	$	(17,550)	$	10,748	$	28,298	$	(17,319)	$	10,979


	September 30, 2021								December 31, 2020
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Short-term investments, excluding Viking(1)	$	5,390	$	251,578	$	642	$	257,610	$	3,438	$	320,647	$	393	$	324,478
Investment in Viking common stock	42,171		—		—		42,171		32,763		—		—		32,763
Investment in Viking warrants(2)	—		—		—		—		6,326		—		—		6,326
Total assets	$	47,561	$	251,578	$	642	$	299,781	$	42,527	$	320,647	$	393	$	363,567
Liabilities:
Crystal contingent liabilities(3)	$	—	$	—	$	800	$	800	$	—	$	—	$	800	$	800
CyDex contingent liabilities	—		—		349		349		—		—		508		508
Metabasis contingent liabilities(4)	—		2,699		—		2,699		—		3,821		—		3,821
Icagen contingent liabilities(5)	—		—		4,808		4,808		—		—		6,404		6,404
Pfenex contingent liabilities(6)	—		—		—		—		—		—		37,600		37,600
xCella contingent liabilities(7)	—		—		720		720		—		—		—		—
Amounts owed to former licensor	31		—		—		31		60		—		—		60
Total liabilities	$	31	$	2,699	$	6,677	$	9,407	$	60	$	3,821	$	45,312	$	49,193


	September 30,		December 31,
	2021		2020
Compensation	$	4,564	$	8,810
Professional fees	1,327		977
Amounts owed to former licensees	579		421
Royalties owed to third parties	103		693
Return reserve	105		687
Acquisition related liabilities	1,004		1,500
Subcontractor	—		733
Supplier	1,031		604
Accrued interest	—		464
Other	3,524		3,641
Total accrued liabilities	$	12,237	$	18,530


	Three months ended		Nine months ended
	September 30,		September 30,
	2021	2020	2021	2020
Risk-free interest rate	0.8%	3%	0.5%	1%
Dividend yield	—	—	—	—
Expected volatility	48%	59%	61%	55%
Expected term	4.9	4.9	5.0	4.8


	Stock Options			Restricted Stock Awards
	Shares	Weighted-Average Exercise Price		Shares	Weighted-Average Grant Date Fair Value
Balance as of December 31, 2020	2,561,822	$	85.59	206,202	$	106.88
Granted	363,889	$	160.36	165,117	$	170.04
Options exercised/RSUs vested	(564,302)	$	52.55	(95,657)	$	126.48
Forfeited	(121,472)	$	109.27	(9,575)	$	138.81
Balance as of September 30, 2021	2,239,937	$	104.77	266,087	$	137.88


Maturity Dates	Operating Leases
Remaining three months ending December 31, 2021	$	690
2022	357
2023	2,279
2024	2,114
2025	1,990
Thereafter	9,081
Total lease payments	16,511
Less imputed interest	(2,864)
Present value of lease liabilities	13,647


Fair value of level 3 financial instruments as of December 31, 2020	$	45,312
Payments to CVR holders and other contingent payments	(1,050)
Fair value adjustments to contingent liabilities	(38,305)
Contingent liabilities from xCella asset acquisition	720
Fair value of level 3 financial instruments as of September 30, 2021	$	6,677


Cash	$	51,407
Restricted cash	200
Accounts and unbilled receivables	1,359
Property and equipment, net	7,823
Right-of-use asset	3,070
Other assets	1,338
Intangibles acquired	385,000
Goodwill(1)	91,271
Accounts payable	(6,814)
Accrued liabilities	(8,466)
Deferred revenue	(3,908)
Lease liabilities	(3,070)
Other liabilities	(1,382)
Deferred tax liabilities, net	(52,730)
	$	465,098


	Three months ended September 30, 2020		Nine months ended September 30, 2020
Revenue	$	43,082	$	119,126
Net loss	$	(46,845)	$	(77,349)
Net loss per common share:
Basic and diluted	$	(2.91)	$	(4.77)


	September 30, 2021		December 31, 2020
Principal amount of the 2023 Notes outstanding	$	343,301	$	495,280
Unamortized discount (including unamortized debt issuance cost)	(26,412)		(52,987)
Total long-term portion of notes payable	$	316,889	$	442,293

Carrying value of equity component of the 2023 Notes	$	24,124	$	48,397
Fair value of the 2023 Notes outstanding (Level 2)	$	343,888	$	466,053


(Dollars in thousands)	Q3 2021		Q3 2020		Change		% Change		YTD 2021		YTD 2020		Change		% Change
Royalties	$	15,648	$	9,005	$	6,643	74	%	$	31,376	$	22,751	$	8,625	38	%
Captisol	35,093		23,389		11,704		50	%	128,875		68,966		59,909		87	%
Contract revenue	14,094		9,454		4,640		49	%	44,409		24,712		19,697		80	%
Total revenue	$	64,835	$	41,848	$	22,987	55	%	$	204,660	$	116,429	$	88,231	76	%


(in millions)	Q3 2021 Estimated Partner Product Sales		Effective Royalty Rate		Q3 2021 Royalty Revenue		Q3 2020 Estimated Partner Product Sales		Effective Royalty Rate		Q3 2020 Royalty Revenue
Kyprolis	$	312.3	2.8	%	$	8.8	$	277.2	2.5	%	$	6.9
Evomela	13.3		20.0	%	2.7		9.0		20.0	%	1.8
Other	59.7		7.0	%	4.2		45.6		0.6	%	0.3
Total	$	385.3			$	15.6	$	331.8			$	9.0


(in millions)	YTD 2021 Estimated Partner Product Sales		Effective Royalty Rate		YTD 2021 Royalty Revenue		YTD 2020 Partner Product Sales		Effective Royalty Rate		YTD 2020 Royalty Revenue
Kyprolis	$	842.5	2.2	%	$	18.5	$	832.3	2.0	%	$	16.8
Evomela	36.0		20.0	%	7.2		22.9		20.0	%	4.6
Other	131.5		4.3	%	5.6		132.2		1.0	%	1.4
Total	$	1,010.0			$	31.3	$	987.4			$	22.8


(Dollars in thousands)	Q3 2021		% of Revenue	Q3 2020		% of Revenue	YTD 2021		% of Revenue	YTD 2020		% of Revenue
Cost of Captisol	$	11,446		$	6,353		$	50,192		$	18,680
Amortization of intangibles	11,827			3,875			35,391			11,285
Research and development	16,938			12,853			50,769			37,476
General and administrative	12,718			15,020			39,747			34,353
Other operating income	(3,800)			—			(37,600)			—
Total operating costs and expenses	$	49,129	76%	$	38,101	91%	$	138,499	68%	$	101,794	87%


Exhibit Number			Description
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 September 30, 2021, 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 September 30, 2021, formatted in Inline XBRL and contained in Exhibit 101.