On November 8, 2023 Ligand Pharmaceuticals Incorporated (NASDAQ: LGND) reported financial results for the three and nine months ended September 30, 2023, and provided an operating forecast and business updates (Press release, Ligand, NOV 8, 2023, View Source [SID1234637265]). Ligand management will host a conference call today beginning at 4:30 p.m. Eastern Time to discuss this announcement and answer questions.
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"We’re pleased to report another quarter of strong financial results and we are now actively executing on our investment strategy as evidenced by the recent Tolerance, Ovid, Novan and Primrose transactions, in which we collectively invested over $75 million in Q3 and early Q4 2023," said Todd Davis, CEO of Ligand. "We have a strong balance sheet and are generating positive cash flow which positions us advantageously in this market to further build a robust portfolio of assets that are expected to drive future revenue growth. We look forward to sharing our long term financial forecast at our upcoming Investor and Analyst Day scheduled for December 12th in New York City."
Third Quarter 2023 Financial Results
Total revenues for the third quarter of 2023 were $32.9 million. Revenues for the same period in 2022 excluding sales related to COVID-19 were $26.9 million. Total revenues for the third quarter of 2022 including COVID-19 related sales were $59.2 million. Royalties for the third quarter of 2023 were $23.9 million, compared with $19.3 million for the same period in 2022, with the increase primarily attributable to Amgen’s (Nasdaq: AMGN) Kyprolis, Jazz Pharmaceuticals’ (Nasdaq: JAZZ) RYLAZE, Merck and Co.’s (NYSE: MRK) Vaxneuvance and Travere Therapeutics’ (Nasdaq: TVTX) FILSPARI. Core Captisol sales were $8.6 million for the third quarter of 2023, compared with $3.6 million for the same period in 2022, with the increase due to the timing of customer orders. There were no Captisol sales related to treatments for COVID-19 for the third quarter of 2023, compared with $32.4 million for the same period in 2022. Contract revenue was $0.4 million for the third quarter of 2023, compared with $4.0 million for the same period in 2022, with the difference due to the timing of partner milestone events.
Cost of Captisol was $3.5 million for the third quarter of 2023, compared with $14.2 million for the same period in 2022, with the decrease due to lower total Captisol sales. Amortization of intangibles was $8.2 million, compared with $8.6 million for the same period in 2022. Research and development expense was $5.5 million, compared with $9.2 million for the same period in 2022, with the decrease attributed to lower stock-based compensation, employee related expenses and lab supply expenses. General and administrative expense was $14.7 million, compared with $14.9 million for the same period in 2022, with the transaction costs associated with the Novan acquisition and Pelican spin out included in the third quarter of 2023.
Net loss from continuing operations for the third quarter of 2023 was $12.8 million, or $0.74 per share, compared with net income from continuing operations of $9.6 million, or $0.56 per diluted share, for the same period in 2022. The decrease in net income from the prior year period is due primarily to the decrease in COVID-19 related Captisol sales and the non-cash unrealized loss from short-term investments associated with Viking Therapeutics (Nasdaq: VKTX) stock of $11.5 million. Adjusted net income from continuing operations for the third quarter of 2023 was $18.0 million, or $1.02 per diluted share, compared with $10.5 million, or $0.60 per diluted share, for the same period in 2022. See the table below for a reconciliation of net income from continuing operations to adjusted net income from continuing operations.
As of September 30, 2023, Ligand had cash, cash equivalents and short-term investments of $191.1 million. On October 12, 2023, Ligand entered into a credit agreement with Citibank, N.A., which provides for a $75 million revolving credit facility with a maturity date of October 12, 2026.
Year-to-Date Financial Results
Total revenues for the nine months ended September 30, 2023 were $103.2 million. Revenues for the same period in 2022 excluding sales related to COVID-19 were $81.4 million. Revenues for the nine months ended September 30, 2022 including COVID-19 related sales were $145.9 million. Royalties for the nine months ended September 30, 2023 were $61.4 million, compared with $50.5 million for the same period in 2022, with the increase primarily attributable to Kyprolis, Rylaze, Vaxnuevance, Pneumsil, and FILSPARI. Core Captisol sales were $24.5 million for the nine months ended September 30, 2023, compared with $13.1 million for the same period in 2022. The difference in sales was due to the timing of customer orders. There were no Captisol sales related to COVID-19 for the nine months ended September 30, 2023, compared with $64.5 million for the same period in 2022. Contract revenue was $17.3 million for the nine months ended September 30, 2023, compared with $17.7 million for the same period in 2022.
Cost of Captisol was $8.9 million for the nine months ended September 30, 2023, compared with $31.2 million for the same period in 2022, with the decrease due to lower total Captisol sales. Amortization of intangibles was $25.3 million for the nine months ended September 30, 2023, compared with $25.7 million for the same period in 2022. Research and development expense for the nine months ended September 30, 2023 was $19.0 million, compared with $26.9 million for the same period in 2022, with the decrease attributed to lower employee related expenses and lab supply expenses. General and administrative expense for the nine months ended September 30, 2023 was $36.8 million, compared with $38.9 million for the same period in 2022, with the decrease primarily attributable to lower legal expenses.
Net income from continuing operations for the nine months ended September 30, 2023 was $33.1 million, or $1.86 per diluted share, compared with net income from continuing operations of $9.3 million, or $0.54 per diluted share, for the same period in 2022. The increase in net income was driven by a gain from short term investments of $30.3 million in the current year period compared to a loss from short term investments of $15.7 million for the same period in 2022. Adjusted net income from continuing operations for the nine months ended September 30, 2023 was $83.0 million, or $4.71 per diluted share, compared with $28.9 million, or $1.69 per diluted share, for the same period in 2022. See the table below for a reconciliation of net income from continuing operations to adjusted net income from continuing operations.
On May 15, 2023, the maturity date of the convertible senior unsecured notes due 2023 (the 2023 Notes), we paid off the remaining balance in amount of $77.1 million (including interest). In the second quarter of 2023, Ligand put in place a $50.0 million share repurchase program that expires in April 2026. The timing and amount of repurchase transactions, if any, will be determined by the Company’s management based on its evaluation of market conditions, share price, legal requirements and other factors.
2023 Financial Guidance
Ligand is increasing its 2023 revenue guidance to be in the range of $126 million to $129 million (previously $124 million to $126 million) and is raising adjusted EPS guidance. Sales of Captisol are now expected to range from $27 million to $28 million (previously $25 million). Guidance for royalties is unchanged at $82 million to $84 million and contract revenue guidance is unchanged at $17 million. We now expect 2023 adjusted diluted EPS of $5.25 to $5.40 (previously $5.10 to $5.25). The increase in EPS guidance is driven primarily by the increase in revenue and lower operating expenses. Due to the unpredictable nature of the pandemic and related Captisol sales, Ligand excludes Captisol sales related to COVID-19 from guidance and will update investors each quarter as orders are received and shipped.
Third Quarter 2023 Business Highlights
On September 18, Ligand spun-out its Pelican subsidiary through a merger with Primordial Genetics, to form a privately held company, Primrose Bio. Ligand retained existing royalty rights from the Pelican Expression Technology, including Jazz’s Rylaze, Merck’s Vaxneuvance and V116 vaccines, Alvogen’s teriparatide, and Serum Institute of India’s Pneumosil and MenFive vaccines. Additionally, Ligand owns 49.9% of the equity of Primrose Bio. Simultaneous with the merger, Ligand entered into a Purchase and Sale Agreement with Primrose Bio and invested $15 million to acquire economic rights in future programs including two contracts previously entered into by Primordial Genetics and an economic interest in future revenue generated from PeliCRM197. Primrose Bio is a leading synthetic biology company with solutions to the industry’s protein design, formulation and expression challenges. The transaction is expected to reduce ongoing cash expenses and be immediately accretive to Ligand’s adjusted EPS.
On October 18, Ligand invested $30 million to acquire 13% of Ovid Therapeutics’ interest in the royalties and milestones owed to Ovid Therapeutics Inc. on soticlestat, a program Takeda Pharmaceutical Company is developing in two pivotal Phase 3 trials in Lennox-Gastaut and Dravet syndromes, respectively, both rare disease conditions. Under the terms of the 2021 agreement between Ovid and Takeda, Ovid is eligible to receive regulatory and commercial milestone payments of up to $660 million, as well as tiered royalties on global net sales of soticlestat at percentages ranging from the low double-digits up to 20%. If soticlestat is approved. Ligand’s 13% purchase entitles the Company to receive up to $86 million in regulatory and commercial milestones, and tiered royalties up to 2.6%.
On September 27, Ligand acquired certain assets of Novan Inc. for $12.2 million. As part of the transaction, Ligand acquired the NDA-stage berdazimer gel 10.3% program, all the assets related to the NITRICIL delivery technology platform, and the rights to the Sitavig program. Berdazimer gel 10.3% remains on track for a PDUFA goal date of January 5, 2024, as the first potential at-home treatment for molluscum contagiosum. The Novan team is preparing to commercialize berdazimer gel 10.3% in the second half of 2024. Ligand is incubating the business to prepare for a spin-out or strategic partnering.
On October 31, Ligand acquired Tolerance Therapeutics, a private company which owns a less than 1% royalty on worldwide net sales of TZIELD (teplizumab-mzwv). Ligand invested $20 million to acquire Tolerance Therapeutics and expects it to be immediately accretive to Ligand’s royalty revenue. TZIELD is the first disease-modifying therapy in type 1 diabetes ("T1D"). It is a CD3-directed antibody indicated to delay the onset of Stage 3 T1D in adults and in children ages 8 years and older with Stage 2 T1D. TZIELD was granted Breakthrough Therapy Designation in 2019 and was approved by the U.S. Food and Drug Administration ("FDA") in November 2022. TZIELD is marketed by Sanofi S.A. following its acquisition of Provention Bio, Inc., in 2023 for $2.9 billion. Sanofi recently announced new data from TZIELD’s PROTECT Phase 3 trial which showed TZIELD’s potential to slow the progression of Stage 3 type 1 diabetes in newly diagnosed children and adolescents. TZIELD met the study’s primary endpoint, significantly slowing the decline of C-peptide levels, compared to placebo.
Portfolio Updates
On November 7, 2023 Travere Therapeutics (Nasdaq: TVTX) announced that 430 new patient start forms (PSFs) were received in the third quarter and a total of 990 PSFs have been received since the accelerated approval of FILSPARI was obtained in the first quarter of 2023. Additionally, Travere previously announced topline two-year confirmatory secondary endpoint results from the pivotal Phase 3 PROTECT Study of FILSPARI versus irbesartan in IgA nephropathy ("IgAN"). FILSPARI demonstrated long-term kidney function preservation and achieved a clinically meaningful difference in estimated glomerular filtration rate ("eGFR") total and chronic slope versus irbesartan, narrowly missing statistical significance in eGFR total slope while achieving statistical significance in eGFR chronic slope for purposes of regulatory review in the EU. All topline efficacy endpoints favored FILSPARI and patients treated with FILSPARI over two years exhibited one of the slowest annual rates of kidney function decline seen in a clinical trial of IgAN patients. Travere will engage with regulators and expects to submit a supplemental New Drug Application ("sNDA") in the first half of 2024 for full approval in the U.S.
On October 26, 2023 Merck (NYSE: MRK) announced third quarter 2023 Vaxneuvance sales of $214 million. Merck previously reported Vaxneuvance sales of $168 million and $106 million in the second and first quarter of 2023, respectively. Additionally, Merck previously announced its Phase 3 clinical trial of V116, an investigational 21-valent pneumococcal conjugate vaccine, met key immunogenicity and safety endpoints in two Phase 3 trials. If approved, V116 would be the first pneumococcal conjugate vaccine specifically designed for adults. Results from the STRIDE-3 trial demonstrated statistically significant immune responses compared to PCV20 (pneumococcal 20-valent conjugate vaccine) in vaccine-naïve adults for serotypes common to both vaccines. Positive immune responses were also observed for serotypes unique to V116. Additionally, results from STRIDE-6 demonstrated that V116 was immunogenic for all 21 pneumococcal serotypes in the vaccine among adults who previously received a pneumococcal vaccine at least one year prior to the study. In both studies, V116 had a safety profile comparable to the comparator in the studies.
Jazz Pharmaceuticals announced that the European Commission has granted marketing authorization for Enrylaze for use as a component of a multi-agent chemotherapeutic regimen for the treatment of acute lymphoblastic leukemia and lymphoblastic lymphoma in adult and pediatric patients (1 month and older) who developed hypersensitivity or silent inactivation to E. coli-derived asparaginase. Enrylaze, approved as Rylaze in the US and Canada, is a new Erwinia-derived asparaginase developed using the Pfenex Expression Technology with a safety profile consistent with that of other asparaginase preparations. Enrylaze may be given by either intravenous infusion or intramuscular injection and is dosed on either alternate days (every 48 hours) or via a Monday/Wednesday/Friday dosing schedule. The use of the Pfenex Expression Technology to manufacture Enrylaze delivers a scalable supply, able to meet global demand, and a ready-to-use solution that avoids the need for reconstitution in the clinic.
Verona Pharma plc (Nasdaq: VRNA) announced that the FDA has accepted for review its New Drug Application seeking approval of ensifentrine for the maintenance treatment of patients with COPD. The FDA has assigned a PDUFA date of June 26, 2024, and is not currently planning to hold an advisory committee meeting to discuss the application.
Anebulo Pharmaceuticals Inc. (Nasdaq: ANEB) announced positive feedback from the FDA following a Type B meeting in July. The FDA indicated that a single well-controlled study of ANEB-001 in Acute Cannabinoid Intoxication patients presenting to the emergency department combined with a larger THC challenge study in volunteers could potentially provide substantial evidence to support a new drug application.
Adjusted Financial Measures
Ligand 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, changes in contingent liabilities, mark-to-market adjustments for amounts relating to its equity investments in public companies, excess tax benefit from share-based compensation, income tax affect of adjusted reconciling items and others that are listed in the itemized reconciliations between GAAP and adjusted financial measures included at the end of this press release. However, the Company 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 the 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 (888) 350-3452 using the conference ID 6501694. Callers outside the U.S. may dial 1 (646) 960-0369. To participate via live or replay webcast, a link is available at www.ligand.com.