On February 23, 2017 Ligand Pharmaceuticals Incorporated (NASDAQ: LGND) reported financial results for the three and 12 months ended December 31, 2016, and provided an operating forecast and program updates (Filing, Q4/Annual, Ligand, 2016, FEB 23, 2017, View Source [SID1234517872]). Ligand management will host a conference call today beginning at 4:30 p.m. Eastern time.
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"2016 was an exceptional year for Ligand. We reported substantial revenue growing more than 50% over last year and strong operating cash flow. Evomela, a new commercial product with a high royalty rate to Ligand, launched and joined Promacta and Kyprolis as major drivers of royalty revenue. We also had a very successful year operating our OmniAb business following the acquisition of OMT approximately one year ago. Additionally, many new deals entered our portfolio and numerous late-stage partnered assets generated meaningful positive news," said John Higgins, Chief Executive Officer. "2017 is positioned to be another year of strong growth in revenue and cash flow. We anticipate beginning to receive royalties from new product launches, and look forward to major data readouts from many late-stage partnered programs, results from our Phase 2 GRA trial and partners entering the clinic with antibodies from our OmniAb platform."
Fourth Quarter 2016 Financial Results
Total revenues for the fourth quarter of 2016 were $38.2 million, compared with $21.2 million for the same period in 2015, an increase of 80%. Royalty revenues were $19.6 million, compared with $11.5 million for the same period in 2015 primarily due to higher royalties from Promacta and Kyprolis. Material sales were $9.1 million, compared with $7.2 million for the same period in 2015 due to timing of Captisol purchases for use in clinical trials and commercial products. License and milestone revenues were $9.5 million, compared with $2.4 million for the same period in 2015 due to a higher number of contract payments and contributions from OmniAb-related deals.
Cost of goods sold was $2.9 million for the fourth quarter of 2016, compared with $0.9 million for the same period in 2015 due to the timing and mix of Captisol sales. Amortization of intangibles was $2.7 million, compared with $0.6 million for the same period in 2015 due primarily to additional amortization of intangibles related to the acquisition of OMT. Research and development expense was $6.4 million, compared with $2.3 million for the same period of 2015 as a result of the addition of OMT-related expenses, timing of spending on internal development programs and non-cash stock-based compensation expense. General and administrative expense was $6.6 million, compared with $6.2 million for the same period in 2015 due to costs associated with OMT and non-cash stock-based compensation expense.
GAAP net loss for the fourth quarter of 2016 was $3.1 million, or $0.15 per share, compared with GAAP net income for the fourth quarter of 2015 of $6.3 million, or $0.29 per diluted share. GAAP net income for the fourth quarter of 2016 was impacted by a $9.0 million non-cash charge related to Viking Therapeutics, primarily for a markdown of the book value of our holdings in Viking to current market values. Adjusted net income for the fourth quarter of 2016 was $16.1 million, or $0.74 per diluted share, compared with adjusted net income for the same period in 2015 of $12.2 million, or $0.59 per diluted share. Adjusted net income and EPS are now being reported on a fully-taxed basis, as disclosed in the Form 8-K filed with the Securities and Exchange Commission January 18, 2017. See "Adjusted Financial Measures" and the accompanying table below for the adjusted calculations and reconciliation to comparable GAAP financial measures.
As of December 31, 2016, Ligand had cash, cash equivalents and short-term investments of $141.0 million. Cash generated from operations was $21.0 million and $63.0 million for the 2016 fourth quarter and full year, respectively.
Full Year Financial Results
Total revenues in 2016 were $109.0 million, compared with $71.9 million for 2015, an increase of 52%. Royalty revenues were $59.4 million, compared with $38.2 million for 2015 primarily due to higher royalties from Promacta and Kyprolis. Material sales were $22.5 million, compared with $27.7 million for 2015 due to timing of Captisol purchases for use in clinical trials and commercial products. License and milestone revenues were $27.0 million, compared with $6.1 million for 2015 due to a higher number of contract payments and contributions from OmniAb-related deals.
Cost of goods sold was $5.6 million in 2016, compared with $5.8 million for 2015 due to the timing and mix of Captisol sales. Amortization of intangibles was $10.6 million, compared with $2.4 million for 2015 due primarily to additional amortization of intangibles related to the acquisition of OMT. Research and development expense was $21.2 million, compared with $11.0 million for 2015 as a result of the addition of OMT-related expenses, timing of spending on internal development programs and non-cash stock-based compensation expense. General and administrative expense was $26.6 million, compared with $24.4 million for 2015 due to costs associated with OMT and non-cash stock-based compensation expense.
GAAP net loss in 2016 was $1.6 million, or $0.08 per share, compared with GAAP net income in 2015 of $229.8 million, or $10.83 per diluted share. The difference is primarily attributable to a net income tax benefit in 2015 of $206.0 million, or $9.70 per diluted share, from the release of valuation allowance. 2016 GAAP net loss was also impacted by a $23.1 million non-cash charge associated with our investment in Viking, primarily consisting of a loss on dilution as a result of Viking financings and the mark-to-market charge taken in the fourth quarter of 2016. Adjusted net income for 2016 was $46.7 million, or $2.15 per diluted share, compared with adjusted net income in 2015 of $47.6 million, or $2.31 per diluted share.
2017 Financial Forecast
The Company expects 2017 revenues to consist of three components: royalties, material sales and contract (license and milestone) revenue. At this time, Ligand estimates 2017 core revenue to include royalties of approximately $87 million, material sales of approximately $23 million and contract payments of at least $20 million. During 2017, Ligand estimates it could potentially receive up to an additional $30 million of contract payments, however external events are out of Ligand’s control so the Company will provide more information about the timing and probability for any additional contract revenue expected to be booked in 2017 as the year progresses. Ligand estimates that cash expenses for 2017 will be in the range of $28 million to $30 million, consistent with the cash expenses incurred for 2016. Ligand notes that with core revenue of $130 million, adjusted earnings per diluted share would be approximately $2.70. This amount is expected to be higher in the event additional contract revenue is received in 2017. The core adjusted EPS figure reflects the Company’s new fully-taxed adjusted EPS methodology, including a 36% to 39% tax rate, but the Company continues to pay less than 1% cash taxes as it utilizes its over $500 million of remaining NOLs.
ASC 606 – Revenue Accounting Standard
In May 2014 the Financial Accounting Standards Board issued Accounting Standards Codification Topic 606 (ASC 606), Revenue From Contracts With Customers, which is intended to provide a single, comprehensive revenue recognition model for all contracts with customers and thereby improve comparability within industries, across industries, and across capital markets. Companies must implement this new standard no later than January 1, 2018 and they can elect to adopt the standard after January 1, 2017. At this time, Ligand does not expect to adopt ASC 606 as of January 1, 2017.
Fourth Quarter 2016 and Recent Business Highlights
Portfolio Program Progress
Promacta/Revolade
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Novartis reported fourth quarter 2016 net sales of Promacta (eltrombopag) of $178 million, a $45 million or 34% increase over the same period in 2015.
Kyprolis (carfilzomib), an Amgen Product Utilizing Captisol
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On February 2, 2017, Amgen reported fourth quarter 2016 net sales of Kyprolis (carfilzomib) of $183 million, a $35 million or 24% increase over the same period in 2015.
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On February 2, 2017, Ono Pharmaceutical reported that Kyprolis sales in Japan were ¥11 billion ($9.7 million) since the product was launched in August of 2016 through December 31, 2016.
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On November 10, 2016, Amgen announced a collaboration with Janssen Biotech, Inc. to evaluate the combination of Amgen’s Kyprolis (carfilzomib) and Janssen’s DARZALEX (daratumumab) in multiple clinical studies in patients with multiple myeloma. The first study initiated as part of this agreement is a Phase 3 registrational trial evaluating Kyprolis in combination with DARZALEX and dexamethasone compared to Kyprolis and dexamethasone alone in patients with multiple myeloma who have had one, two or three prior lines of therapy. The study is anticipated to start enrolling patients in April 2017.
Additional Pipeline and Partner Developments
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Retrophin announced positive top-line results from the Phase 2 DUET study of sparsentan for the treatment of focal segmental glomerulosclerosis (FSGS). The study achieved statistical significance in the primary efficacy endpoint for the overall sparsentan treatment group, demonstrating a greater than two-fold reduction of proteinuria compared to irbesartan after the eight-week, double-blind treatment period. Additional data from the Phase 2 DUET study of sparsentan for the treatment of FSGS were presented at the late-breaking High-Impact Clinical Trials oral session at the American Society of Nephrology Kidney Week 2016. Retrophin also announced it would meet with the FDA in January 2017 regarding the regulatory pathway for sparsentan in FSGS.
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Lundbeck announced FDA approval of Carnexiv (carbamazepine) injection as a short-term replacement therapy for oral carbamazepine formulations in adults with certain seizure types when oral administration is temporarily not feasible. Ligand earned a $1.25 million milestone payment upon approval and is entitled to receive a royalty of 2.75% on net sales of Carnexiv.
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Sage Therapeutics announced an expedited development plan for brexanolone (SAGE-547) in the treatment of postpartum depression (PPD) following receipt of formal meeting minutes from a breakthrough therapy meeting with the FDA. Sage anticipates announcing top-line data from the PPD registration trials in 2H 2017.
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Melinta Therapeutics announced that the NDAs for approval of IV and oral Baxdela (delafloxacin) for the treatment of patients with acute bacterial skin and skin structure infections (ABSSSI) were accepted for filing by the FDA and were granted a PDUFA date of June 19, 2017. If approved, Ligand is entitled to receive a 2.5% royalty on net sales of the IV formulation of Baxdela and a $1.5 million approval milestone payment.
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The FDA granted orphan designation to Merck’s Noxafil for treatment of invasive aspergillosis.
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Merck announced that it stopped the Phase 2/3 EPOCH study evaluating verubecestat in people with mild-to-moderate Alzheimer’s disease due to the conclusion that the efficacy endpoint could not be achieved. No safety concerns where noted. Results from EPOCH will be analyzed and presented at an upcoming scientific meeting.
The external Data Monitoring Committee recommended that the ongoing Phase 3 APECS study, which is evaluating verubecestat in people with prodromal Alzheimer’s disease, continue unchanged. Results from the APECS study are expected in February 2019.
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Eli Lilly presented data on Captisol-enabled prexasertib (LY2606368) demonstrating activity in patients with BRCA wild type sporadic high-grade serous ovarian cancer at the European Society for Medical Oncology 2016 Congress.
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Viking Therapeutics announced it expects the Phase 2 clinical trial of VK5211in patients recovering from hip fracture surgery and the Phase 2 clinical trial of VK2809 in patients with primary hypercholesterolemia and non-alcoholic fatty liver disease to be completed in the second quarter of 2017.
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Viking Therapeutics announced positive initial results from a proof-of-concept study of VK2809 in an in vivo model of glycogen storage disease 1a (GSD 1a) and announced funding of initial clinical development of VK2809 for treatment of GSD 1a with plans to file and IND in the second half of 2017.
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Aldeyra provided an update on its Phase 3 clinical program of ADX-102 in noninfectious anterior uveitis and anticipates beginning the Phase 3 trial in the second quarter of 2017.
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Aldeyra announced that it had enrolled the first patient in a Phase 2b clinical trial of ADX-102 for the treatment of allergic conjunctivitis and also presented results of a Phase 2 clinical trial of ADX-102 topical ophthalmic solution in a challenge model of allergic conjunctivitis.
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Merck KGaA announced it licensed rights to develop Captisol-enabled VX-970 from Vertex Pharmaceuticals. Economic terms of the original agreement between Ligand and Vertex remained unchanged.
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Takeda presented clinical data on Captisol-enabled pevonedistat in older patients with acute myeloid leukemia at ASH (Free ASH Whitepaper) 2016.
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XTL Biopharmaceuticals announced the company intends to pursue Sjögren-Larsson Syndrome as the second indication for its lead drug candidate hCDR1.
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Oncobiologics presented final data from the Phase 1 trial evaluating bioequivalence of ONS-3010 (Humira biosimilar) and the U.S. and European originator versions of Humira (adalimumab).
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Gilead Sciences highlighted Captisol-enabled GS-5734 for the treatment of Ebola virus infection at JP Morgan’s healthcare conference.
New Licensing Deals
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Ligand announced a worldwide license agreement with Ono Pharmaceutical to use the OmniAb platform technologies to discover fully human antibodies. Ligand is eligible to receive annual access payments, milestone payments and royalties on future net sales of any antibodies discovered under these licenses.
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Ligand announced global license and supply agreements with Novartis for the development and commercialization of a Captisol-enabled oral liquid formulation of trametinib, a kinase inhibitor currently indicated as a single agent or in combination with dabrafenib, for the treatment of patients with unresectable or metastatic melanoma with BRAF V600 mutation. Ligand will be eligible to receive royalties on future net sales and revenue from Captisol material sales. Novartis will be responsible for all costs related to the program.
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Ligand entered into a Captisol Clinical Use/Supply Agreement with Eisai.
Internal Glucagon Receptor Antagonist (GRA) Program
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Ligand announced its GRA program was featured in an article published in Nature Reviews Drug Discovery entitled Targeting hepatic glucose metabolism in the treatment of type 2 diabetes.
Adjusted Financial Measures
The Company reports adjusted results for diluted net income per share and net income, 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, changes in contingent liabilities, net losses of Viking Therapeutics, mark-to-market adjustment for amounts owed to licensors, fair value adjustments to Viking Therapeutics convertible note receivable and warrants, unissued shares relating to the Senior Convertible Note, unissued shares relating to the anti-dilutive effect of fourth quarter and fiscal year 2016 GAAP net loss and adjustments for discontinued operations, and others that are listed in the itemized reconciliations between GAAP and adjusted financial measures included in this press release. However, other than with respect to total revenue, the Company only provides 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, net losses of Viking Therapeutics, mark-to-market adjustments for amounts owed to licensors and fair value adjustments to Viking Therapeutics convertible note receivable. 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 diluted earnings per 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.