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Ligand Reports First Quarter 2019 Financial Results

May 2, 2019 Off By BusinessWire

Conference Call Begins at 4:30 p.m. Eastern Time Today

SAN DIEGO–(BUSINESS WIRE)–Ligand Pharmaceuticals Incorporated (NASDAQ: LGND) today reported
financial results for the three months ended March 31, 2019 and provided
an operating forecast and program updates. Ligand management will host a
conference call today beginning at 4:30 p.m. Eastern time to discuss
this announcement and answer questions.

“The first quarter of 2019 was a great start to the year for Ligand. We
saw an important new drug approved that will generate royalties for
Ligand, we completed six new OmniAb and Captisol licensing deals,
invested in a new technology company called Dianomi and saw our first
OmniAb partnered program enter Phase 3 testing. This past quarter we
divested Promacta for $827 million, converting the remaining years of
royalty cash to be generated into capital today that can be reinvested
into growing our business. Our partnered programs experienced
significant value-enhancing events in the first quarter with a calendar
for the rest of the year stacked with several substantial events,” said
John Higgins, Chief Executive Officer of Ligand. “At our analyst day we
laid out our strategic priorities and cash investment agenda, which
centers on M&A, project-financing royalty purchases, seed investments
into technology companies and share repurchases. We have a highly
diversified portfolio and robust financial outlook with attractive
growth of top and bottom lines projected and meaningful expansion of our
operating margins anticipated.”

First Quarter 2019 Financial Results

Total revenues for the first quarter of 2019 were $43.5 million,
compared with $56.2 million for the same period in 2018. Royalties were
$19.5 million, compared with $20.8 million for the same period in 2018
and primarily consisted of royalties from Promacta^®, Kyprolis^®
and EVOMELA^®. Royalties reflect Ligand’s sale of Promacta to
Royalty Pharma as of March 6, 2019, resulting in a partial quarter of
Promacta royalties, and Ligand will not receive Promacta royalties going
forward. Material sales were $9.0 million, compared with $4.4 million
for the same period in 2018 due to the timing of Captisol^®
purchases for use in clinical trials and commercial products. License
fees, milestones and other revenues were $15.0 million, compared with
$30.9 million for the same period in 2018, with the prior-year quarter
including an upfront milestone payment upon the out-license of Ligand’s
Glucagon Receptor Antagonist program to Roivant Sciences.

Cost of material sales was $3.9 million for the first quarter of 2019,
compared with $0.8 million for the same period in 2018. Amortization of
intangibles was $3.5 million, compared with $3.3 million for the same
period in 2018. Research and development expense was $11.3 million,
compared with $7.4 million for the same period of 2018, due to costs
associated with recent acquisitions. General and administrative expense
was $11.1 million, compared with $7.6 million for the same period in
2018, due to costs associated with recent acquisitions and non-cash
stock-based compensation expense.

Net income for the first quarter of 2019 was $666.3 million, or $31.32
per diluted share, compared with net income of $45.3 million, or $1.83
per diluted share, for the same period in 2018. Net income for the first
quarter of 2019 was impacted by an after-tax gain of just over $640
million on the sale of Ligand’s assets and royalty on Promacta to
Royalty Pharma. Adjusted net income for the first quarter of 2019 was
$24.8 million, or $1.16 per diluted share excluding the impact of the
gain recognized on the sale of Promacta, compared with adjusted net
income of $35.7 million, or $1.55 per diluted share, for the same period
in 2018.

As of March 31, 2019, Ligand had cash, cash equivalents and short-term
investments of approximately $1.4 billion. Cash generated from
operations during the first quarter of 2019 was $45.3 million.

2019 Financial Guidance

Ligand is affirming existing revenue guidance for 2019 with total
revenues expected to be approximately $118 million including royalties
of approximately $48 million, material sales of approximately $27
million and license fees and milestones of approximately $43 million.
Ligand is also affirming its existing adjusted earnings per share
guidance of approximately $3.20, which excludes the impact of the gain
recognized on the sale of Promacta of $30.09 per share compared to the
initial estimate of the impact of the gain of $29.05 per share.

First Quarter 2019 and Recent Business Highlights

Promacta^®

In March 2019, Ligand announced the sale of Promacta to Royalty Pharma
for $827 million in cash. As of March 6, 2019 Ligand will not receive
any royalty on sales of Promacta.

Kyprolis^®(carfilzomib), an
Amgen Product Utilizing Captisol

On April 30, 2019, Amgen reported first quarter 2019 net sales of
Kyprolis of $245 million, a $23 million or 10% increase over the same
period in 2018.

Recent Acquisitions, Targeted Investments and Partner Funding
Events

Ligand announced a $3 million investment in Dianomi Therapeutics in
exchange for 1) a tiered royalty of 2% or 3% based on level of net
sales for the first five products to be approved using Dianomi’s
patented Mineral Coated Microparticle (MCM) technology, and 2) a loan
convertible into $1 million of equity at the next qualified financing.
Seelos Therapeutics completed a reverse merger with Apricus
Biosciences and is now publicly traded on the Nasdaq Capital Market
under the symbol “SEEL”. In conjunction with the transaction, Seelos
issued common stock and warrants in a private round led by a group of
leading venture capital investors, for gross proceeds of $18 million.
CStone Pharmaceuticals listed shares on the Hong Kong Stock Exchange
and raised $266 million in an equity offering that, in part, will be
used to fund the company’s OmniAb-derived Phase 2/3 program CS1001.

Internal R&D

Ligand announced completion of enrollment of the Company’s Phase 1
clinical trial of its internal Captisol-enabled Iohexol program and
announced that top-line data from the trial is expected in the third
quarter of 2019.

Additional Pipeline and Partner Developments

Ligand’s portfolio of partnerships now includes more than 200 Shots on
Goal driven by business development and licensing activity, and the
expansion and advancement of OmniAb partnerships.
Sage Therapeutics announced U.S. Food and Drug Administration (FDA)
approval of ZULRESSO™ (brexanolone) injection for the treatment of
postpartum depression. Ligand received a $3 million milestone payment
as a result of the approval. Sage Therapeutics plans to launch
ZULRESSO in late June 2019.
Daiichi Sankyo announced receipt of marketing approval in Japan for
MINNEBRO (esaxerenone) for the treatment of hypertension.
Melinta Therapeutics announced preparation of a supplemental new drug
application (sNDA) for Baxdela in community-acquired bacterial
pneumonia with the sNDA expected to be filed in the second quarter of
2019.
CStone Pharmaceuticals announced dosing of the first patient in a
Phase 3 clinical trial assessing OmniAb-derived CS1001 in combination
with chemotherapy for the treatment of gastric adenocarcinoma or
gastro-esophageal junction adenocarcinoma.
Viking Therapeutics announced that additional VK2809 Phase 2 data was
presented at the 2019 annual meeting of the European Association for
the Study of Liver, and that results demonstrated promising efficacy
at doses as low as 5 mg daily. Viking also announced plans to initiate
a Phase 2b study of VK2809 in biopsy-confirmed NASH in the second half
of 2019.
Metavant updated Ligand that they no longer plan to initiate a
clinical proof-of-concept trial this year for RVT-1502 in Type 1
diabetes following requests from FDA for additional non-clinical
studies. Metavant is evaluating its development plans for the program,
and we expect them to provide an update on the status of the program.
Verona Pharma announced positive interim efficacy and safety data from
part one of a two-part Phase 2 clinical trial of a dry powder inhaler
formulation of ensifentrine in patients with moderate-to-severe
chronic obstructive pulmonary disease (COPD).
Verona Pharma also announced the European Patent Office granted an
additional key patent relating to the company’s lead development
candidate ensifentrine.
Sermonix Pharmaceuticals announced a poster presentation on the
performance of its lead investigational drug, lasofoxifene, at ENDO
2019.
Opthea Limited announced that the independent Data and Safety
Monitoring Board for the company’s ongoing Phase 2b study of OPT-302
in wet age-related macular degeneration reaffirmed its positive
recommendation that the trial continue without modification.
Aptevo Therapeutics provided an update on OmniAb-derived APVO436 and
announced that Phase 1 data is anticipated in the fourth quarter of
2019. New preclinical data for APVO436 was also presented at the
American Association for Cancer Research (AACR) 2019 Annual Meeting.
OmniAb partner xCella Biosciences presented high-throughput functional
screening of antibody libraries, highlighting OmniRat and OmniChicken,
at the 2019 Protein Engineering Summit (PEGS).

Business Development

Ligand announced a worldwide license agreement with Genagon
Therapeutics AB to use the OmniAb platform technologies to discover
fully human antibodies. Genagon is an immuno-oncology biotechnology
company located in Sweden. Ligand is eligible to receive development
milestone payments and tiered royalties on future product sales.
Ligand disclosed a worldwide license agreement with a San Francisco
Bay Area venture-stage biotechnology company to use the OmniAb
platform technologies to discover fully human antibodies. Ligand is
eligible to receive development and commercial milestone payments and
royalties on future product sales.
Ligand entered into new Captisol clinical use or commercial license
and supply agreements with Merck KGaA, reVision Therapeutics, Takeda
and SQ Innovation.

Publications and Presentations

At PEGS 2019 Ligand scientists announced the launch of OmniClic™, a
novel next-generation common light chain OmniChicken-based antibody
discovery technology focused on bispecific antibodies.
Preclinical data of the combination of the BCL-2 inhibitor S55746 and
the MCL1 inhibitor S63845, compounds originating from the Servier
collaboration and now partnered with Novartis, in models of AML were
recently published in the journal Leukemia, demonstrating
potential to rapidly suppress leukemia with limited toxicity to normal
human bone marrow cells compared to chemotherapy.

Adjusted Financial Measures

The Company reports adjusted net income and adjusted net income per
diluted share in addition to, and not as a substitute for, or superior
to, financial measures calculated in accordance with GAAP. The Company’s
financial measures under GAAP include stock-based compensation expense,
amortization of debt-related costs, amortization related to acquisitions
and intangible assets, changes in contingent liabilities, mark-to-market
adjustments for amounts relating to its equity investments in public
companies, unissued shares relating to the Senior Convertible Notes,
gain on the sale of Promacta and others that are listed in the itemized
reconciliations between GAAP and adjusted financial measures included at
the end of this press release. However, other than with respect to total
revenues, the Company only provides financial guidance on an adjusted
basis and does not provide reconciliations of such forward-looking
adjusted measures to GAAP due to the inherent difficulty in forecasting
and quantifying certain amounts that are necessary for such
reconciliation, including adjustments that could be made for changes in
contingent liabilities, changes in the market value of its investments
in public companies, stock-based compensation expense and effects of any
discrete income tax items. Management has excluded the effects of these
items in its adjusted measures to assist investors in analyzing and
assessing the Company’s past and future core operating performance.
Additionally, adjusted earnings per diluted share is a key component of
the financial metrics utilized by the Company’s board of directors to
measure, in part, management’s performance and determine significant
elements of management’s compensation.

Conference Call

Ligand management will host a conference call today beginning at 4:30
p.m. Eastern time (1:30 p.m. Pacific time) to discuss this announcement
and answer questions. To participate via telephone, please dial (833)
591-4752 from the U.S. or (720) 405-1612 from outside the U.S., using
the conference ID 6375579. To participate via live or replay webcast, a
link is available at www.ligand.com.

About Ligand Pharmaceuticals

Ligand is a biopharmaceutical company focused on developing or acquiring
technologies that help pharmaceutical companies discover and develop
medicines. Our business model creates value for stockholders by
providing a diversified portfolio of biotech and pharmaceutical product
revenue streams that are supported by an efficient and low corporate
cost structure. Our goal is to offer investors an opportunity to
participate in the promise of the biotech industry in a profitable,
diversified and lower-risk business than a typical biotech company. Our
business model is based on doing what we do best: drug discovery,
early-stage drug development, product reformulation and partnering. We
partner with other pharmaceutical companies to leverage what they do
best (late-stage development, regulatory affairs and commercialization)
to ultimately generate our revenue.

Ligand’s OmniAb^® technology is a patent-protected transgenic
animal platform used in the discovery of fully human mono- and
bispecific therapeutic antibodies. The Captisol^® platform
technology is a patent-protected, chemically modified cyclodextrin with
a structure designed to optimize the solubility and stability of drugs.
Ligand has established multiple alliances, licenses and other business
relationships with the world’s leading pharmaceutical companies
including Novartis, Amgen, Merck, Pfizer, Celgene, Gilead, Janssen,
Baxter International and Eli Lilly. For more information, please visit www.ligand.com.

Follow Ligand on Twitter @Ligand_LGND.

Forward-Looking Statements

This news release contains forward-looking statements by Ligand that
involve risks and uncertainties and reflect Ligand’s judgment as of the
date of this release. Words such as “plans,” “believes,” “expects,”
“anticipates,” and “will,” and similar expressions, are intended to
identify forward-looking statements. These forward-looking statements
include, without limitation, statements regarding: Ligand’s belief that
recent events in its partnered programs will enhance value; Ligand’s
strategic priorities and cash investment agenda; Ligand’s belief that
its financial position will grow and that is operating margins will
expand; Ligand’s belief regarding the diversified nature of its
business; Ligand’s future revenue; the growth of future royalty streams;
Ligand’s entry into new license or partnering agreements; the timing of
the initiation or completion of preclinical studies and clinical trials
by Ligand and its partners; the timing of product launches by Ligand or
its partners; and guidance regarding the full-year 2019 financial
results. Actual events or results may differ from Ligand’s expectations
due to risks and uncertainties inherent in Ligand’s business, including,
without limitation: Ligand may not receive expected revenue from
royalties, Captisol material sales and license fees and milestone
revenue; Ligand and its partners may not be able to timely or
successfully advance any product(s) in its internal or partnered
pipeline; Ligand may not achieve its guidance for 2019 or operating
margin expansion; Ligand may not be able to create future revenues and
cash flows by developing innovative therapeutics; results of any
clinical study may not be timely, favorable or confirmed by later
studies; products under development by Ligand or its partners may not
receive regulatory approval; there may not be a market for the
product(s) even if successfully developed and approved; Amgen or
Acrotech Biopharma, or other Ligand partners, may not execute on their
sales and marketing plans for marketed products for which Ligand has an
economic interest; Ligand or its partners may not be able to protect
their intellectual property and patents covering certain products and
technologies may be challenged or invalidated; Ligand’s partners may
terminate any of its agreements or development or commercialization of
any of its products; Ligand may not generate expected revenues under its
existing license agreements and may experience significant costs as the
result of potential delays under its supply agreements; Ligand and its
partners may experience delays in the commencement, enrollment,
completion or analysis of clinical testing for its product candidates,
or significant issues regarding the adequacy of its clinical trial
designs or the execution of its clinical trials, which could result in
increased costs and delays, or limit Ligand’s ability to obtain
regulatory approval; unexpected adverse side effects or inadequate
therapeutic efficacy of Ligand’s product(s) could delay or prevent
regulatory approval or commercialization; Ligand may not be able to
successfully implement its strategic growth plan and continue the
development of its proprietary programs; and ongoing or future
litigation could expose Ligand to significant liabilities and have a
material adverse effect on the company. The failure to meet expectations
with respect to any of the foregoing matters may reduce Ligand’s stock
price. Additional information concerning these and other risk factors
affecting Ligand can be found in prior press releases available at www.ligand.com
as well as in Ligand’s public periodic filings with the Securities and
Exchange Commission available at www.sec.gov.
Ligand disclaims any intent or obligation to update these
forward-looking statements beyond the date of this release, including
the possibility of additional license fees and milestone revenues we may
receive. This caution is made under the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995.

Other Disclaimers and Trademarks

The information in this press release regarding certain third-party
products and programs, including Promacta, a Novartis product, Kyprolis,
an Amgen product, and EVOMELA, an Acrotech Biopharma product, comes from
information publicly released by the owners of such products and
programs. Ligand is not responsible for, and has no role in, the
development of such products or programs.

Ligand owns or has rights to trademarks and copyrights that it uses in
connection with the operation of its business including its corporate
name, logos and websites. Other trademarks and copyrights appearing in
this press release are the property of their respective owners. The
trademarks Ligand owns include Ligand^®, Captisol^®and OmniAb^®.
Solely for convenience, some of the trademarks and copyrights referred
to in this press release are listed without the ®, © and ™ symbols, but
Ligand will assert, to the fullest extent under applicable law, its
rights to its trademarks and copyrights.

LIGAND PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)

	Three Months Ended March 31,
		2019			2018
Revenues:
Royalties	$	19,538		$	20,820
Material sales		8,959			4,391
License fees, milestones and other revenues		14,987			30,946
Total revenues		43,484			56,157
Operating costs and expenses:
Cost of material sales		3,858			788
Amortization of intangibles		3,503			3,278
Research and development		11,289			7,407
General and administrative		11,088			7,643
Total operating costs and expenses		29,738			19,116
Gain from sale of Promacta license		812,797			—
Income from operations		826,543			37,041
Gain from Viking		17,293			21,097
Interest expense, net		(2,997	)		(2,605	)
Other expense, net		1,874			(221	)
Total other income, net		16,170			18,271
Income before income taxes		842,713			55,312
Income tax expense		(176,376	)		(10,033	)
Net income:	$	666,337		$	45,279

Basic net income per share	$	32.59		$	2.13
Shares used in basic per share calculation		20,447			21,209

Diluted net income per share	$	31.32		$	1.83
Shares used in diluted per share calculations		21,277			24,800


LIGAND PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)

	March 31, 2019		December 31, 2018
ASSETS
Current assets:
Cash, cash equivalents and short-term investments	$	1,428,688	$	718,381
Investment in Viking		72,741		55,448
Accounts receivable, net		26,615		55,850
Inventory		11,905		7,124
Derivative asset		18,718		22,576
Other current assets		9,228		11,161
Total current assets		1,567,895		870,540
Deferred income taxes, net		—		46,521
Goodwill and other identifiable intangible assets		303,099		306,439
Commercial license and other economic rights, net		31,023		31,460
Other assets		11,971		5,843
Total assets	$	1,913,988	$	1,260,803
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	19,832	$	23,383
Income tax payable		113,997		—
Current contingent liabilities		4,666		5,717
Deferred revenue		2,808		3,286
Derivative liability		18,718		23,430
2019 convertible senior notes, net		26,756		26,433
Total current liabilities		186,777		82,249
2023 convertible senior notes, net		616,987		609,864
Long-term contingent liabilities		8,955		6,825
Deferred income taxes, net		9,614		—
Other long-term liabilities		11,681		951
Total liabilities		834,014		699,889
Total stockholders’ equity		1,079,974		560,914
Total liabilities and stockholders’ equity	$	1,913,988	$	1,260,803


LIGAND PHARMACEUTICALS INCORPORATED
ADJUSTED FINANCIAL MEASURES
(Unaudited, in thousands, except per share amounts)

	Three months ended March 31,
		2019			2018


Net income	$	666,337		$	45,279
Share-based compensation expense		5,347			4,555
Non-cash interest expense⁽¹⁾		7,449			3,018
Amortization related to acquisitions and intangible assets		3,503			5,279
Amortization of commercial license and other economic rights⁽²⁾		2,437			(443	)
Change in contingent liabilities⁽³⁾		1,388			960
Acquisition and integrations costs⁽⁴⁾		311			—
Gain from Viking		(17,293	)		(21,097	)
Other⁽⁵⁾		(3,111	)		(717	)
Income tax effect of adjusted reconciling items above		(7	)		1,866
Valuation allowance release⁽⁶⁾		—			(1,666	)
Excess tax benefit from share-based compensation⁽⁷⁾		(1,371	)		(1,372	)
		664,990			35,662
Gain from sale of Promacta license, net of tax		(640,240	)		—
Adjusted net income	$	24,750		$	35,662
Diluted per-share amounts attributable to common shareholders:
Net income	$	31.32		$	1.83
Share-based compensation expense		0.25			0.18
Non-cash interest expense⁽¹⁾		0.35			0.12
Amortization related to acquisitions and intangible assets		0.16			0.21
Amortization of commercial license and other economic rights⁽²⁾		0.11			(0.02	)
Change in contingent liabilities⁽³⁾		0.07			0.04
Acquisition and integrations costs⁽⁴⁾		0.01			—
Gain from Viking		(0.82	)		(0.85	)
Other⁽⁵⁾		(0.15	)		(0.03	)
Income tax effect of adjusted reconciling items above		—			0.08
Valuation allowance release⁽⁶⁾		—			(0.07	)
Excess tax benefit from share-based compensation⁽⁷⁾		(0.06	)		(0.06	)
2019 Senior Convertible Notes share count adjustment		—			0.11
		31.25			1.55
Gain from sale of Promacta license, net of tax		(30.09	)		—
Adjusted net income	$	1.16		$	1.55

GAAP – Weighted average number of common shares-diluted		21,277			24,800
Less: 2019 Senior Convertible Notes share count adjustment		—			1,719
Adjusted weighted average number of common shares-diluted		21,277			23,081

(1) Amounts represent non-cash debt related costs that are calculated in accordance with the authoritative accounting guidance for convertible debt instruments that may be settled in cash.

(2) For the three months ended March 31, 2019, the amounts represent the amortization of commercial license and other economic rights to revenue and research and development expenses in amounts of $1,245 and $1,192, respectively. For the three months ended March 31, 2018, the amounts represent the accretion of the commercial license and other economic rights based on estimated future cash flows that were recorded to revenue.

(3) Amounts represent changes in fair value of contingent consideration related to Crystal, CyDex and Metabasis transactions.

(4) Amounts represent severance costs and certain contract termination costs in connection with the acquisition of Vernalis plc.

(5) Amounts represent mark to market adjustments associated with our equity investments in Retrophin and Seelos net of amounts due to a third-party licensor, and net change in fair value of derivatives.

(6) Amount represents release of a valuation allowance relating to our investment in Viking Therapeutics during the first quarter of 2018.

(7) Excess tax benefits from share-based compensation are recorded as a discrete item within the provision for income taxes on the consolidated statement of income as a result of the adoption of an accounting pronouncement (ASU 2016-09) on January 1, 2017. Prior to the adoption, the amount was recognized in additional paid-in capital on the consolidated statement of stockholders’ equity.