On February 6, 2020 Ligand Pharmaceuticals Incorporated (NASDAQ: LGND) reported financial results for the three and 12 months ended December 31, 2019, and provided an operating forecast and program updates (Press release, Ligand, FEB 6, 2020, View Source [SID1234553957]). Ligand management will host a conference call and webcast with accompanying slides today beginning at 4:30 p.m. Eastern time to discuss this announcement and answer questions.
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"Ligand made tremendous progress during 2019 in areas that will drive our future success, including new license agreements, outstanding revenue performance driven by record revenue for Captisol and Kyprolis royalties, expansion of our proprietary technology platforms and continued investment in internal programs," said John Higgins, Chief Executive Officer of Ligand. "Last year we entered into nine OmniAb licensing transactions, reported positive Phase 1 results with Captisol-enabled Iohexol, bolstered our technology assets with the acquisition of an antigen design company, and advanced five internal immuno-oncology programs."
"Partners secured regulatory approvals during the year and we now have 13 partnered products contributing to royalty revenues, with as many as eight more potential approvals over the next three years. The first of 12 OmniAb programs currently in human trials entered pivotal testing in 2019."
"From a financial perspective, revenues exceeded the guidance we introduced last March after we monetized our Promacta assets for $827 million. That transaction was transformative for Ligand and provided significant cash for M&A activities and share repurchases. Over the past 18 months we have retired close to 25% of our outstanding shares through open-market repurchases which, all other things being equal, would result in future cash flow and profits per share increasing more than 30% given the new lower share count."
Higgins concluded, "As we move into 2020, we believe Ligand is well-positioned as a financial growth company driven by innovative technologies that enable partners to develop drugs. We are optimistic about our outlook, specifically in terms of EBITDA margin expansion, earnings growth and cash flow. For 2020 we forecast 14% organic revenue growth and 35% organic growth in adjusted diluted EPS, after factoring in the divestiture of Promacta in early 2019."
Fourth Quarter 2019 Financial Results
Total revenues for the fourth quarter of 2019 were $27.0 million, compared with $59.6 million for the same period in 2018. Royalties in the fourth quarter of 2019 were $11.0 million and primarily consisted of royalties from Kyprolis and EVOMELA. Royalties in the fourth quarter of 2018 were $40.2 million and included $31.0 million in royalties from Promacta, which was sold to Royalty Pharma as of March 6, 2019 for $827 million. Ligand did not receive any Promacta royalties in the fourth quarter of 2019 and will not receive any Promacta royalties going forward. Material sales were $7.1 million, compared with $10.1 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 $8.8 million, compared with $9.3 million for the same period in 2018.
Cost of material sales was $1.9 million for the fourth quarter of 2019, compared with $3.0 million for the same period in 2018. Amortization of intangibles was $6.3 million, compared with $3.5 million for the same period in 2018, with the increase due to accelerated amortization of the glucose receptor antagonist (GRA) asset. Research and development expense was $18.7 million, compared with $8.8 million for the same period of 2018, with the increase due to non-cash amortization of the upfront investments in the Palvella and Novan programs. General and administrative expense was $10.3 million, compared with $11.2 million for the same period in 2018, which included Vernalis acquisition-related expenses.
Net loss for the fourth quarter of 2019 was $(7.4) million, or $(0.43) per share, compared with net loss of $(42.5) million, or $(2.02) per share, for the same period in 2018. The net loss for both periods was impacted by a non-cash unrealized change in the value of Ligand’s investment in Viking Therapeutics of $8.5 million and $(74.0) million, respectively. Adjusted net income for the fourth quarter of 2019 was $12.9 million, or $0.71 per diluted share, compared with adjusted net income of $39.0 million, or $1.70 per diluted share, for the same period in 2018. See the table below for a reconciliation of net income (loss) to adjusted net income.
As of December 31, 2019, Ligand had cash, cash equivalents and short-term investments of approximately $1.0 billion. During the fourth quarter of 2019 Ligand used approximately $82 million in cash to repurchase approximately 760,000 shares.
Full Year 2019 Financial Results
Total revenues for 2019 were $120.3 million, compared with $251.5 million for 2018. Royalties were $47.0 million, compared with $128.6 million for 2018. Royalties for 2019 primarily consisted of royalties from Promacta, Kyprolis and EVOMELA and do not include contribution from Promacta after March 6, 2019, whereas 2018 royalties included the full year of Promacta royalties. Material sales were $31.5 million, compared with $29.1 million for 2018 due to the timing of Captisol purchases for use in clinical trials and commercial products. License fees, milestones and other revenues were $41.8 million, compared with $93.8 million for 2018, which included a $47 million payment from WuXi Biologics to amend its OmniAb platform license agreement as well as a $20 million upfront payment upon the licensing of Ligand’s GRA program.
Cost of material sales was $11.3 million for 2019, compared with $6.3 million for 2018, with the increase due primarily to higher sales and mix of Captisol sales in 2019. Amortization of intangibles was $16.9 million, compared with $15.8 million for 2018. Research and development expense was $55.9 million, compared with $27.9 million for 2018, with the increase due to costs associated with the VDP research team and non-cash amortization of the upfront investments in the Palvella and Novan programs. General and administrative expense was $41.9 million, compared with $37.7 million for 2018, with the increase due to costs associated with recent acquisitions and non-cash share-based compensation expense.
Net income for 2019 was $629.3 million, or $31.85 per diluted share, compared with net income of $143.3 million, or $5.96 per diluted share, for 2018. Net income for 2019 was impacted by an after-tax gain of approximately $642.6 million on the sale of Ligand’s Promacta license to Royalty Pharma. Adjusted net income for 2019 was $61.0 million, or $3.09 per diluted share, compared with adjusted net income of $166.9 million, or $7.15 per diluted share, for 2018.
2020 Financial Guidance
Ligand is providing guidance for 2020 with total revenues expected to be approximately $121 million, which includes royalties of approximately $38 million, material sales of approximately $35 million and license fees and milestones of approximately $48 million. Ligand notes that with total revenues of $121 million, adjusted earnings per diluted share would be approximately $3.40. This compares to 2019 adjusted revenue of $106.1 million and adjusted EPS of $2.52, excluding the impact of Promacta in 2019.
Fourth Quarter 2019 Highlights
Kyprolis (carfilzomib), an Amgen Product Utilizing Captisol
On December 10, Amgen announced additional results from the primary analysis of the Phase 3 CANDOR study evaluating Kyprolis in combination with dexamethasone and DARZALEX (daratumumab) compared to Kyprolis and dexamethasone alone in patients with relapsed or refractory multiple myeloma. The data were presented in a late-breaking abstract session at the 61st American Society of Hematology (ASH) (Free ASH Whitepaper) Annual Meeting & Exposition (ASH) (Free ASH Whitepaper).
Additional Pipeline and Partner Developments
Viking Therapeutics, Inc. announced the initiation of a Phase 2b clinical trial of VK2809, its novel liver-selective thyroid hormone receptor beta agonist, in patients with biopsy-confirmed non-alcoholic steatohepatitis.
Palvella Therapeutics, Inc. announced that the Phase 3 pivotal portion of the seamless Phase 2/3 VALO study of PTX-022 (QTORIN 3.9% rapamycin anhydrous gel) for the treatment of patients with Pachyonychia congenita had commenced.
Sage Therapeutics launched ZULRESSO (brexanolone) Injection, the first and only treatment specifically indicated for postpartum depression. ZULRESSO utilizes Captisol in its formulation.
Sage announced the investigational new drug (IND) application for SAGE-689, a potential therapy for disorders associated with GABA hypofunction, was cleared by U.S. FDA and Sage expects to commence dosing in a Phase 1 clinical trial in healthy volunteers in 2020.
Retrophin, Inc. announced new data from the Phase 2 DUET study examining the impact of sparsentan on quality of life in patients with focal segmental glomerulosclerosis, at the American Society of Nephrology Kidney Week 2019.
Marinus Pharmaceuticals, Inc. announced that results from its Phase 2 trial of ganaxolone in refractory status epilepticus were presented at the Neurocritical Care Society 17th annual meeting.
Verona Pharma plc announced that it has randomized the last patient in its Phase 2b dose-ranging study evaluating the effect of nebulized ensifentrine as an add-on to treatment with a long-acting bronchodilator in patients with moderate-to-severe chronic obstructive pulmonary disease.
Aptevo announced that OmniAb-derived APVO436 is being evaluated in a Phase 1/1b clinical study in patients with acute myeloid leukemia and high-grade myelodysplastic syndrome. Aptevo expects to report ongoing progress from this study over the next several quarters as clinical data emerge.
Daiichi Sankyo announced positive results from the ESAX-DN Phase 3 study in Japan of esaxerenone in patients with diabetic nephropathy in a late-breaking poster presentation at the American Society of Nephrology Kidney Week 2019.
Immunovant announced that it initiated dosing in ASCEND-GO 2, a multicenter, randomized, masked, placebo-controlled Phase 2b clinical trial evaluating IMVT-1401 in patients with moderate-to-severe active Graves’ ophthalmopathy. IMVT-1401 is a fully human monoclonal antibody that selectively binds to and inhibits the neonatal Fc receptor, and is designed to be delivered by subcutaneous injection.
Aldeyra Therapeutics announced positive topline results from Part 1 of its Adaptive Phase 3 RENEW trial of topical ocular reproxalap in patients with dry eye disease.
Marinus Pharmaceuticals, Inc. announced additional data from its open-label, dose-finding Phase 2 study evaluating intravenous ganaxolone in patients with refractory status epilepticus. The results were presented at the American Epilepsy Society annual meeting.
CStone Pharmaceuticals announced that CS1001, its anti-PD-L1 antibody, demonstrated promising antitumor activity with a complete response rate of 33.3% and a good safety profile in patients with relapsed or refractory extranodal natural killer/T-cell lymphoma.
Sanofi presented pivotal data from its Phase 3 study of sutimlimab in patients with cold agglutinin disease at ASH (Free ASH Whitepaper) in a late-breaker session.
Business Development and Corporate Highlights
Ligand presented positive results from its Phase 1 clinical trial of its Captisol-enabled (CE) Iohexol program at American Society of Nephrology Kidney Week 2019. The CE-Iohexol program was established in January 2018 to develop a Captisol-enabled, next-generation contrast agent for diagnostic imaging with a reduced risk of renal toxicity.
Ligand announced a worldwide OmniAb license agreement with Sanofi under which Sanofi will be able to use Ligand’s full OmniAb antibody discovery platform including OmniRat, OmniFlic, OmniMouse, OmniChicken and OmniClic, in addition to Ligand’s patented antigen technology.
Ligand acquired Ab Initio for $12 million. Ab Initio is an antigen-discovery company based in South San Francisco, California. Antigen design and preparation are the first steps necessary for the discovery of therapeutic antibodies.
Ligand announced that two members of its Board of Directors, Nancy Gray and Sarah Boyce, had been named to WomenInc. magazine’s 2019 Most Influential Corporate Directors list.
Ligand focused on adopting and implementing policies and practices aimed at improving its environmental sustainability, positively impacting its social community and maintaining and cultivating good corporate governance. By focusing on such environmental, social and governance (ESG) policies and practices, Ligand believes it can effect a meaningful, positive change in its community and maintain its open, collaborative corporate culture. Ligand expects to continue its proactive shareholder engagement and to refine its ESG policies and practices in 2020.
Use of Non-GAAP 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 share-based compensation expense, amortization of debt-related costs, amortization related to acquisitions and intangible assets, amortization of commercial license and other economic rights, changes in contingent liabilities, acquisition and integration costs, mark-to-market adjustments for amounts relating to its equity investments in public companies, excess tax benefit from share-based compensation, unissued shares relating to its 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, share-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 and Webcast
Ligand management will host a conference call and webcast with accompanying slides today beginning at 4:30 p.m. Eastern time (1:30 p.m. Pacific time) to discuss this announcement and answer questions. To participate in the call via telephone, please dial (833) 591-4752 from the U.S. or (720) 405-1612 from outside the U.S., using the conference ID 1150048. To participate in the call via live or replay webcast, a link is available at www.ligand.com. The conference call slides are available here.