LGND 10-Q

Ligand Pharmaceuticals Inc (LGND)

10-Q 2021-05-06 For: 2021-03-31

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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	5
	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	29
	ITEM 1A. Risk Factors	30
	ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	31
	ITEM 3. Defaults Upon Senior Securities	31
	ITEM 4. Mine Safety Disclosures	31
	ITEM 5. Other Information	31
	ITEM 6. Exhibits	32
	SIGNATURE	32


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
Aziyo			Aziyo Med, LLC
CE			Captisol-enabled
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
FASB			Financial Accounting Standards Board
FDA			Food and Drug Administration
GAAP			Generally accepted accounting principles in the United States
Gilead			Gilead Sciences, Inc.
GRA			Glucagon receptor antagonist
Icagen			Icagen, Inc.
IND			Investigational New Drug
Ligand			Ligand Pharmaceuticals Incorporated, including subsidiaries
Metabasis			Metabasis Therapeutics, Inc.
NDA			New Drug Application
Pfenex			Pfenex Inc.
Pfizer			Pfizer Inc.
Q1 2020			The Company's fiscal quarter ended March 31, 2020
Q1 2021			The Company's fiscal quarter ended March 31, 2021
SBC			Share-based compensation expense
SEC			Securities and Exchange Commission
Selexis			Selexis, SA
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


	March 31, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	31,853	$	47,619
Short-term investments	307,354		363,567
Accounts receivable, net	54,436		56,847
Inventory	36,932		26,487
Income taxes receivable	1,145		2,217
Other current assets	5,708		3,822
Total current assets	437,428		500,559
Deferred income taxes, net	27,432		24,320
Intangible assets, net	583,785		595,330
Goodwill	190,515		189,662
Commercial license and other economic rights, net	10,451		10,979
Property and equipment, net	16,896		14,434
Operating lease right-of-use assets	7,611		6,892
Financing lease right-of-use assets	17,950		15,842
Other assets	3,053		4,267
Total assets	$	1,295,121	$	1,362,285
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	9,469	$	3,784
Accrued liabilities	12,110		18,530
Current contingent liabilities	41,509		39,884
Deferred revenue	25,107		29,435
Current operating lease liabilities	2,173		1,885
Current financing lease liabilities	5,437		6,593
Total current liabilities	95,805		100,111
2023 convertible senior notes, net	352,313		442,293
Long-term contingent liabilities	9,548		9,249
Deferred income taxes, net	56,812		64,598
Long-term operating lease liabilities	6,081		5,643
Other long-term liabilities	28,722		30,866
Total liabilities	549,281		652,760
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000 shares authorized; zero issued and outstanding at March 31, 2021 and December 31, 2020	—		—
Common stock, $0.001 par value; 60,000 shares authorized; 16,652 and 16,080 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively	17		16
Additional paid-in capital	336,621		318,358
Accumulated other comprehensive loss	(856)		(801)
Retained earnings	410,058		391,952
Total stockholders' equity	745,840		709,525
Total liabilities and stockholders' equity	$	1,295,121	$	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
	March 31,
	2021		2020
Revenues:
Royalties	$	7,112	$	6,565
Captisol	31,272		21,109
Contract revenue	16,766		5,487
Total revenues	55,150		33,161
Operating costs and expenses:
Cost of Captisol	8,153		4,683
Amortization of intangibles	11,786		3,535
Research and development	17,879		11,891
General and administrative	12,617		9,264
Total operating costs and expenses	50,435		29,373
Income from operations	4,715		3,788
Other income (expense):
Gain (loss) from short-term investments	13,061		(30,741)
Interest income	296		4,730
Interest expense	(5,831)		(8,548)
Other income (expense), net	(6,477)		356
Total other income (loss), net	1,049		(34,203)
Income (loss) before income taxes	5,764		(30,415)
Income tax benefit	12,342		6,284
Net income (loss)	$	18,106	$	(24,131)

Basic net income (loss) per share	$	1.10	$	(1.46)
Shares used in basic per share calculations	16,435		16,529

Diluted net income (loss) per share	$	1.05	$	(1.46)
Shares used in diluted per share calculations	17,248		16,529


	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


Supplemental disclosure of cash flow information:
Interest paid	$	241	$	597

Restricted cash in other current assets	$	344	$	730

Supplemental schedule of non-cash activity:



Accrued fixed asset purchases	$	87	$	63

Accrued inventory purchases	$	775	$	1,445

Unrealized loss on AFS investments	$	(55)	$	(3,541)


	March 31, 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	$	51,232	$	25	$	(4)		$	51,253	$	84,120	$	35	$	(1)	$	84,154
Corporate bonds	25,853		72		(8)			25,917		30,512		99		(1)		30,610
Agency bonds	4,501		—		(4)			4,497		4,499		2		—		4,501
Commercial paper	19,815		9		—			19,824		45,459		27		(1)		45,485
Corporate equity securities	4,456		3,736		—			8,192		4,466		360		(1,388)		3,438
Mutual fund	151,830		53		—			151,883		151,512		386		—		151,898
Treasury bill	—		—		—			—		3,999		—		—		3,999
Warrants	—		1,422		—			1,422		—		393		—		393
	$	257,687	$	5,317	$	(16)		$	262,988	$	324,567	$	1,302	$	(1,391)	$	324,478
Viking common stock								44,366								32,763
Viking warrants								—								6,326
Total short-term investments								$	307,354							$	363,567


	March 31, 2021
	Amortized Cost		Fair Value
Within one year	$	77,913	$	77,981
After one year through five years	23,488		23,509
Total	$	101,401	$	101,490


	March 31,		December 31,
	2021		2020
Indefinite-lived intangible assets
Goodwill	$	190,515	$	189,662
Definite lived intangible assets
Complete technology	277,980		277,740
Less: accumulated amortization	(67,441)		(63,600)
Trade name	2,642		2,642
Less: accumulated amortization	(1,345)		(1,312)
Customer relationships	40,700		40,700
Less: accumulated amortization	(16,264)		(15,597)
Contractual relationships	362,000		362,000
Less: accumulated amortization	(14,487)		(7,243)
Total goodwill and other identifiable intangible assets, net	$	774,300	$	784,992


	March 31, 2021						December 31, 2020
	Gross		Adjustments(1)		Net		Gross		Adjustments(2)		Net
Aziyo and CorMatrix	$	17,696	$	(9,530)	$	8,166	$	17,696	$	(9,588)	$	8,108
Selexis and Dianomi	10,602		(8,317)		2,285		10,602		(7,731)		2,871
Total	$	28,298	$	(17,847)	$	10,451	$	28,298	$	(17,319)	$	10,979


	March 31, 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)	$	8,193	$	253,373	$	1,422	$	262,988	$	3,438	$	320,647	$	393	$	324,478
Investment in Viking common stock	44,366		—		—		44,366		32,763		—		—		32,763
Investment in Viking warrants(2)	—		—		—		—		6,326		—		—		6,326
Total assets	$	52,559	$	253,373	$	1,422	$	307,354	$	42,527	$	320,647	$	393	$	363,567
Liabilities:
Crystal contingent liabilities(3)	$	—	$	—	$	800	$	800	$	—	$	—	$	800	$	800
CyDex contingent liabilities	—		—		496		496		—		—		508		508
Metabasis contingent liabilities(4)	—		4,182		—		4,182		—		3,821		—		3,821
Icagen contingent liabilities(5)	—		—		7,439		7,439		—		—		6,404		6,404
Pfenex contingent liabilities(6)	—		—		37,900		37,900		—		—		37,600		37,600
xCella contingent liabilities(7)	—		—		240		240		—		—		—		—
Amounts owed to former licensor	73		—		—		73		60		—		—		60
Total liabilities	$	73	$	4,182	$	46,875	$	51,130	$	60	$	3,821	$	45,312	$	49,193


	March 31,		December 31,
	2021		2020
Compensation	$	3,347	$	8,810
Professional fees	958		977
Amounts owed to former licensees	468		421
Royalties owed to third parties	102		693
Return reserve	682		687
Acquisition related liabilities	1,500		1,500
Subcontractor	1,034		733
Supplier	788		604
Accrued interest	1,086		464
Other	2,145		3,641
Total accrued liabilities	$	12,110	$	18,530


	Three months ended
	March 31,
	2021	2020
Risk-free interest rate	0.5%	1.4%
Dividend yield	—	—
Expected volatility	63%	47%
Expected term	5.0	4.7


	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	265,529	$	172.39	153,166	$	173.32
Options exercised/RSUs vested	(522,172)	$	51.98	(88,959)	$	127.16
Forfeited	(58,862)	$	101.77	(5,024)	$	110.91
Balance as of March 31, 2021	2,246,317	$	103.24	265,385	$	138.85


(in millions)	Q1 2021 Estimated Partner Product Sales		Effective Royalty Rate		Q1 2021 Royalty Revenue		Q1 2020 Partner Product Sales		Effective Royalty Rate		Q1 2020 Royalty Revenue
Kyprolis	$	266.0	1.6	%	$	4.3	$	286.0	1.5	%	$	4.4
Evomela	11.7		20.0	%	2.3		7.9		20.0	%	1.6
Other	27.1		1.8	%	0.5		45.8		1.3	%	0.6
Total	$	304.7			$	7.1	$	339.7			$	6.6


Fair value of level 3 financial instruments as of December 31, 2020	$	45,312
Fair value adjustments to contingent liabilities	1,323
Contingent liabilities from xCella asset acquisition	240
Fair value of level 3 financial instruments as of March 31, 2021	$	46,875


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)	91,837
Accounts payable	(6,814)
Accrued liabilities	(8,455)
Deferred revenue	(3,908)
Lease liabilities	(3,070)
Other liabilities	(1,382)
Deferred tax liabilities, net	(53,296)
	$	465,109


	Three Months Ended March 31, 2020
Revenue	$	33,843
Net loss	$	(37,939)
Net loss per common share:
Basic and diluted	$	(2.30)


	March 31, 2021		December 31, 2020
Principal amount of the 2023 Notes outstanding	$	390,780	$	495,280
Unamortized discount (including unamortized debt issuance cost)	(38,467)		(52,987)
Total long-term portion of notes payable	$	352,313	$	442,293

Carrying value of equity component of the 2023 Notes	$	35,135	$	48,397
Fair value of the 2023 Notes outstanding (Level 2)	$	404,477	$	466,053


(Dollars in thousands)	Q1 2021		Q1 2020		Change		% Change
Royalties	$	7,112	$	6,565	$	547	8	%
Captisol	31,272		21,109		10,163		48	%
Contract revenue	16,766		5,487		11,279		206	%
Total revenue	$	55,150	$	33,161	$	21,989	66	%


(Dollars in thousands)	Q1 2021		% of Revenue	Q1 2020		% of Revenue
Cost of Captisol	$	8,153		$	4,683
Amortization of intangibles	11,786			3,535
Research and development	17,879			11,891
General and administrative	12,617			9,264
Total operating costs and expenses	$	50,435	91%	$	29,373	89%


Exhibit Number			Description
10.1			Call Option Amendment Agreed, dated January 28, 2021, between the Registrant and Barclays Bank PLC (incorporated by reference to Exhibit 10.67 to the Registrant’s Annual Report on Form 10-K filed February 24, 2021).
10.2			Call Option Amendment Agreed, dated January 28, 2021, between the Registrant and Deutsche Bank AG, London Branch (incorporated by reference to Exhibit 10.68 to the Registrant’s Annual Report on Form 10-K filed February 24, 2021).
10.3			Call Option Amendment Agreed, dated January 28, 2021, between the Registrant and Goldman Sachs & Co. LLC (incorporated by reference to Exhibit 10.69 to the Registrant’s Annual Report on Form 10-K filed February 24, 2021.
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 March 31, 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 March 31, 2021, formatted in Inline XBRL and contained in Exhibit 101.