UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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x☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended December 31, 20172020
OR
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o☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File No. 001-33093
LIGAND PHARMACEUTICALS INCORPORATED
(Exact name of registrant as specified in its charter)
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| Delaware | | 77-0160744 |
(State or other jurisdiction of incorporation or organization) | | (IRS Employer Identification No.) |
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3911 Sorrento Valley Boulevard, Suite 110 San Diego, CA
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| San Diego | | |
| CA | | 92121 |
| (Address of Principal Executive Offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (858) 550-7500
Securities registered pursuant to Section 12(b) of the Act:
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| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered |
| Common Stock, par value $.001 per share | LGND | The Nasdaq Global Market of The Nasdaq Stock Market LLC |
Preferred Share Purchase Rights | The Nasdaq Global Market of The Nasdaq Stock Market LLC | |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x☒ No o☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934. Yes o☐ No x☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x☒ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
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| Large Accelerated Filer | ☒ | | Accelerated Filer | ☐ | Non-accelerated Filer | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐ |
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Large Accelerated Filer x
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| Non-accelerated Filer o
| Smaller reporting company o
| Emerging growth company o
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2 of the Exchange Act). Yes o☐ No x☒
The aggregate market value of the Registrant’s voting and non-voting stock held by non-affiliates was approximately $2.2$1.2 billion based on the last sales price of the Registrant’s Common Stock on the NASDAQNasdaq Global Market of the NASDAQNasdaq Stock Market LLC on June 30, 2017.2020. For purposes of this calculation, shares of Common Stock held by directors, officers and 10% stockholders known to the Registrant have been deemed
to be owned by affiliates which should not be construed to indicate that any such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the Registrant or that such person is controlled by or under common control with the Registrant.
As of February 26, 2018,18, 2021, the Registrant had 21,204,26416,612,422 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrant’s 20182021 Annual Meeting of Stockholders to be filed with the Commission within 120 days of December 31, 20172020 are incorporated by reference in Part III of this Annual Report on Form 10-K. With the exception of those portions that are specifically incorporated by reference in this Annual Report on Form 10-K, such Proxy Statement shall not be deemed filed as part of this Report or incorporated by reference herein.
Table of Contents
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| Part I | |
| Item 1. | | |
| Item 1A. | | |
| Item 1B. | | |
| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
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| Part II | |
| Item 5. | | |
| Item 6. | | |
| Item 7. | | |
| Item 7A. | | |
| Item 8. | | |
| Item 9. | | |
| Item 9A. | | |
| Item 9B. | | |
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| Part III | |
| Item 10. | | |
| Item 11. | | |
| Item 12. | | |
| Item 13. | | |
| Item 14. | | |
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Part IV | |
Item 15. | | |
Item 16. | Form 10K - Summary | |
Signatures | |
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| GLOSSARY OF TERMS AND ABBREVIATIONS |
| Abbreviation | Definition |
2019 Convertible Senior Notes | $245.0 million aggregate principal amount of convertible senior unsecured notes due 2019 |
ADHF2023 Notes | $750.0 million aggregate principal amount of convertible senior unsecured notes due 2023 |
| AAALAC | Accreditation of Laboratory Animal Care International |
| Ab Initio | Ab Initio Biotherapeutics, Inc. |
| Abvivo | Abvivo, LLC |
| ACOVA | ACOVA, Inc. |
| ADHF | Acute decompensated heart failure |
ESPPAldeyra | Aldeyra Therapeutics, Inc. |
| Amended Interest Purchase Agreement | Amended and Restated Interest Purchase Agreement, dated May 31, 2017, between the Company and CorMatrix Cardiovascular, Inc. |
| Amgen | Amgen, Inc. |
| ANDA | Abbreviated New Drug Application |
| API | Active pharmaceutical ingredient |
| Aptevo | Aptevo Therapeutics |
| Arcus | Arcus Biosciences, Inc. |
| ASC | Accounting Standards Codification |
| ASCO | American Society of Clinical Oncology |
| ASCT | Autologous Stem Cell Transplantation |
| ASU | Accounting Standards Update |
| Aurobindo | Aurobindo Pharma Ltd |
| Aziyo | Aziyo Med, LLC |
| Baxter | Baxter International, Inc. |
| BeiGene | BeiGene Switzerland GmbH |
| BendaRx | BendaRx Corp. |
| Bexson Biomedical | Bexson Biomedical, Inc. |
| BLA | Biologics license application |
| CStone | CStone Pharmaceuticals (Suzhou) Co., Ltd. |
| CASI | CASI Pharmaceuticals, Inc. |
| Cardioxyl | Cardioxyl Pharmaceuticals, Inc. |
| CI-AKI | Contrast-induced acute kidney injury |
| Code of Conduct | Code of Conduct and Ethics Policy |
| Coherus | Coherus Biosciences, Inc. |
| CoM | Composition of Matter |
| Company | Ligand Pharmaceuticals Incorporated, including subsidiaries |
| Convertible Note | Senior Convertible Promissory Note |
| COPD | Chronic obstructive pulmonary disease |
| Cormatrix | Cormatrix Cardiovascular, Inc. |
| Cormatrix Asset Sale | Asset sale from CorMatrix to Aziyo |
| Corvus | Corvus Pharmaceuticals, Inc. |
| COSO | Committee of Sponsoring Organizations of the Treadway Commission |
| CRO | Contract Research Organization |
| Crystal | Crystal Bioscience, Inc. |
| Cumulus | Cumulus Oncology, Ltd. |
| CVR | Contingent value right |
| | | | | |
| CyDex | CyDex Pharmaceuticals, Inc. |
| Daiichi Sankyo | Daiichi Sankyo Company, Ltd. |
| Dianomi | Dianomi Therapeutics, Inc. |
| DMF | Drug Master File |
| ESG | Environmental, Social and Governance |
| Eisai | Eisai Inc. |
| Eli Lilly | Eli Lilly and Company |
| ECM | Extracellular matrix |
| EPA | Environmental Protection Agency |
| ESPP | Employee Stock Purchase Plan, as amended and restated |
AmgenEU | Amgen, Inc.European Union |
AMLExelixis | Acute myeloid leukemiaExelixis, Inc. |
ANDAFASB | Abbreviated New Drug ApplicationFinancial Accounting Standards Board |
APIFDA | Active pharmaceutical ingredient |
ASCT | Autologous Stem Cell Transplantation |
ASU | Accounting Standards Update |
Azure | Azure Biotech, Inc. |
Baxter | Baxter International, Inc. |
BMS | Bristol Myers Squibb |
Cardioxyl | Cardioxyl Pharmaceuticals, Inc. |
CFDA | China Food and Drug Administration |
CITFSGS | Chemotherapy-induced thrombocytopeniaFocal segmental glomerulosclerosis |
Coherus BiosciencesGAAP | Coherus Biosciences, Inc.Generally accepted accounting principles in the United States |
CoMGBM | Composition of MatterGlioblastoma |
CompanyGenagon | Genagon Therapeutics AB |
| GCSF | Granulocyte-colony stimulating factor |
| GigaGen | GigaGen, Inc. |
| Gilead | Gilead Sciences, Inc. |
| GPCR | G-protein coupled receptor |
| GRA | Glucagon receptor antagonist |
| HanAll | HanAll Biopharma Co., Ltd. |
| Harbour | Harbour BioMed Shanghai Co., Ltd. |
| HBV | Hepatitis B Virus |
| HCC | Hepatocellular Carcinoma |
| Hikma | Hikma Pharmaceuticals PLC |
| HNO | Nitroxyl |
| Hovione | Hovione FarmCiencia, S.A. |
| Icagen | Icagen, Inc. |
| IPR&D | In-Process Research and Development |
| IRAK4 | Interleukin-1 Receptor Associated Kinase-4 |
| IRS | Internal Revenue Service |
| IV | Intravenous |
| iMBP | iMetabolic Biopharma Corporation |
| Immunovant | Immunovant Sciences GmbH |
| IND | Investigational New Drug |
| Kira Pharma | Kira Pharmaceuticals Ltd. |
| KSQ Therapeutics | KSQ Therapeutics, Inc. |
| Ligand | Ligand Pharmaceuticals Incorporated, including subsidiaries |
COSOLTP | Committee of Sponsoring Organizations of the Treadway CommissionLiver targeting prodrug |
CROLundbeck | Contract Research OrganizationLundbeck A/S |
CrystalMarinus | Crystal Bioscience,Marinus Pharmaceuticals, Inc. |
CURxMCM | CURx Pharmaceuticals, Inc.Mineral Coated Microparticle |
CVRMelinta | Contingent value right |
CyDex | CyDex Pharmaceuticals, Inc. |
DMF | Drug Master File |
Eli Lilly | Eli Lilly and Company |
EPOR | Erythropoietin receptor |
EU | European Union |
FASB | Financial Accounting Standards Board |
FDA | Food and Drug Administration |
FSGS | Focal segmental glomerulosclerosis |
GCSF | Granulocyte-colony stimulating factor |
Hovione | Hovione FarmCiencia |
IPR&D | In-Process Research and Development |
IRAK4 | Interleukin-1 Receptor Associated Kinase-4 |
ITP | Chronic immune (idiopathic) thrombocytopenic purpura |
IV | Intravenous |
Ligand | Ligand Pharmaceuticals Incorporated, including subsidiaries |
LSA | Loan and Security Agreement |
LTP | Liver-targeted prodrug |
Lundbeck | Lundbeck A/S |
MDS | Myelodysplastic syndromes |
Melinta | Melinta Therapeutics, Inc. |
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| Merck | |
Merck | Merck & Co., Inc. |
| | | | | |
| Merrimack | Merrimack Pharmaceuticals, Inc. |
MLAMetabasis | Metabasis Therapeutics, Inc. |
| Metavant | Metavant Sciences Ltd. |
| Millennium | Millennium Pharmaceuticals, Inc. |
| MLA | Master License Agreement |
| MRSA | Methicillin-resistant Staphylococcus aureu |
| NASH | Non-alcoholic steatohepatitis |
| NDA | New Drug Application |
| NOLs | Net Operating Losses |
NovartisNovan | Novartis AGNovan, Inc. |
OMTNovartis | Novartis AG |
| Nucorion | Nucorion Pharmaceuticals, Inc. |
| OMT | Open Monoclonal Technology, Inc. |
OmtheraOno | Omthera Pharmaceuticals, Inc.Ono Pharmaceutical Co., Ltd. |
| Opthea | Opthea Limited |
| Orange Book | Publication identifying drug products approved by the FDA based on safety and effectiveness |
ParOriginal Interest Purchase Agreement | Interest Purchase Agreement, dated May 3, 2016, between the Company and CorMatrix Cardiovascular, Inc. |
| Palvella | Palvella Therapeutics, Inc. |
| Par | Par Pharmaceutical, Inc. |
PfizerPfenex | PfizerPfenex Inc. |
PPDPfizer | Post-Partum DepressionPfizer, Inc. |
RetrophinPFS | Retrophin Inc.Progression-free Survival |
SAAPharmacopeia | Severe Aplastic AnemiaPharmacopeia, Inc. |
SAGEPhoenix Tissue | Phoenix Tissue Repair |
| PhoreMost | PhoreMost Limited |
| PPD | Post-Partum Depression |
| PSU | Performance stock unit |
| R&D | Research and Development |
| Roivant | Roivant Sciences GMBH |
| RSU | Restricted stock unit |
| SAGE | Sage Therapeutics, Inc. |
| SARM | Selective Androgen Receptor Modulator |
SedorSEC | Securities and Exchange Commission |
| Sedor | Sedor Pharmaceuticals, Inc., or RODES, Inc. |
SelexisSeelos | Selexis, SASeelos Therapeutics, Inc. |
SermonixSelexis | Selexis, SA |
| Sermonix | Sermonix Pharmaceuticals, LLC |
SpectrumSII | Serum Institute of India |
| Spectrum | Spectrum Pharmaceuticals, Inc. |
TakedaSQ Innovation | SQ Innovation, Inc. |
| Sunshine Lake Pharma | Sunshine Lake Pharma Co., Ltd. |
| Takeda | Takeda Pharmaceuticals Company Limited |
| Talem | Talem Therapeutics LLC |
| Taurus | Taurus Biosciences LLC |
| Tax Act | The Tax Cuts and Jobs Act |
T2DMTeva | Type 2 Diabetes MellitisTeva Pharmaceuticals USA, Inc., Teva Pharmaceutical Industries Ltd. and Actavis, LLC |
| | | | | |
| TG Therapeutics | TG Therapeutics, Inc. |
TPETravere | Third-party evidenceTravere Inc. |
| TR-Beta | Thyroid hormone receptor beta |
VentiRxValanbio | Valanbio Therapeutics, Inc. |
| VDP | Vernalis Design Platform |
| VentiRx | VentiRx Pharmaceuticals, Inc. |
VIEVernalis | Variable interest entityVernalis plc |
VikingVerona | Viking TherapeuticsVerona Pharma plc |
VireoViking | Vireo HealthViking Therapeutics |
X-ALDVireo | X-linked adrenoleukodystrophyVireo Health |
| WuXi | WuXi Biologics Ireland Limited |
| WuXi Agreement | The Platform License Agreement, dated March 23, 2015, by and between Ligand and WuXi, as amended |
| Xi'an Xintong | Xi'an Xintong Medicine Research |
| X-ALD | X-linked adrenoleukodystrophy |
| xCella Biosciences | xCella Biosciences, Inc. |
| Zydus Cadila | Zydus Cadila Healthcare, Ltd |
PART I
Cautionary Note Regarding Forward-Looking Statements:
You should read the following report together with the more detailed information regarding our company, our common stock and our financial statements and notes to those statements appearing elsewhere in this document.
This report contains forward-looking statements that involve a number of risks and uncertainties. Although our forward-looking statements reflect the good faith judgment of our management, these statements can only be based on facts and factors currently known by us. Consequently, these forward-looking statements are inherently subject to risks and uncertainties, and actual results and outcomes may differ materially from results and outcomes discussed in the forward-looking statements.
Forward-looking statements can be identified by the use of forward-looking words such as “believes,” “expects,” “may,” “will,” “plan,” “intends,” “estimates,” “would,” “continue,” “seeks,” “pro forma,” or “anticipates,” or other similar words (including their use in the negative), or by discussions of future matters such as those related to our future results of operations and financial position, royalties and milestones under license agreements, CapitsolCaptisol material sales, product development, and product regulatory filings and approvals, and the timing thereof, as well as other statements that are not historical. You should be aware that the occurrence of any of the events discussed under the caption “Risk Factors” could negatively affect our results of operations and financial condition and the trading price of our stock.
The cautionary statements made in this report are intended to be applicable to all related forward-looking statements wherever they may appear in this report. We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Except as required by law, we assume no obligation to update our forward-looking statements, even if new information becomes available in the future. This caution is made under the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended.
References to “Ligand Pharmaceuticals Incorporated,” “Ligand,” the “Company,” “we,” “our” and “us” include Ligand Pharmaceuticals Incorporated and our wholly-owned subsidiaries.
Partner Information
Information regarding partnered products and programs comes from information publicly released by our partners and licensees.
Trademarks
Our trademarks, trade names and service marks referenced herein include Ligand®, Captisol®, Captisol-enabled™LTPTM, LTP technology™Technology™, OmniAb®, OmniMouse®, OmniRat®, OmniFlic®, OmniClic™, OmniChicken®, xCella®, xCella Biosciences®, xPloration®, Icagen™, Pfenex Expression Technology®and OmniChickenTM.XRPro® which are protected under applicable intellectual property laws and are our property. All other trademarks, trade names and service marks including Kyprolis®, Evomela®, Veklury®, Livogiva®, Zulresso®, Minnebro®, BaxdelaTM®, CarnexivTM, Conbriza®, Duavee®, Evomela®,Kyprolis®, Promacta®, Revolade®, SUREtechnology Platform™, Viviant®, Vivitra®, Bryxta®TM, and ExemptiaDuavee®, are the property of their respective owners. Solely for convenience, trademarks, trade names and service marks referred to in this report may appear without the ®, ™ or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to such trademarks, trade names and service marks. Use or display by us of other parties’ trademarks, trade dress or products is not intended to and does not imply a relationship with, or endorsement or sponsorship of, us by the trademark or trade dress owners.
Overview
We are a biopharmaceutical company focused on developing andor acquiring technologies that help pharmaceutical companies discover and develop medicines. Over our more than 30 year history, we have employedWe employ research technologies such as nuclear receptor assays, high throughput computer screening,antibody discovery technologies, ion channel discovery technology, Pseudomonas fluorescens protein expression technology, formulation science and liver targeted pro-drug technologies and antibody discovery technologies to assist companies in their work toward securing prescription drug and biologic approvals. We currently have partnerships and license agreements with over 95130 pharmaceutical and biotechnology companies, and over 165 differentcompanies. Over 300 programs under license with us are currently in various stages of commercialization, development or research and development.are fully funded by our collaboration partners and licensees. We have contributed novel research and technologies for approved medicines that treat cancer, osteoporosis, fungal infections and low blood platelets,postpartum depression, among others. Our collaboration partners and licensees have programs currently in clinical development targeting cancer, seizure, coma, cancer, diabetes, cardiovascular disease, muscle wasting, liver disease, and kidney disease, among others. We have over 8001,400 issued patents worldwide.
We have assembled our large portfolio of fully-funded programs either by licensing our own proprietary drug development programs, licensing our platform technologies such as Captisol or OmniAb to partners for use with their proprietary programs, or acquiring existing partnered programs from other companies. Fully-funded programs, which we refer to as "shots on goal," are those for which our partners pay all of the development and commercialization costs. For our internal programs, we generally plan to advance drug candidates through early-stage drug development or clinical proof-of-concept.proof-of-concept and then seek partners to continue development and potential commercialization.
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 management and commercialization) to ultimately generate our revenue. We believe that focusing on discovery and early-stage drug development while benefiting from our partners’ development and commercialization expertise will reduce our internal expenses and allow us to have a larger number of drug candidates progress to later stages of drug development.
Our revenue consists of three primary elements: royalties from commercialized products, license and milestone payments and sale of Captisol material.material, and contract revenue from license, milestone and other service payments. In addition to discovering and developing our own proprietary drugs, we selectively pursue acquisitions to bring in new assets, pipelines, and technologies to aid in generating additional potential new revenue streams.
2017
Impact of COVID-19 Pandemic
Please see impact of COVID-19 pandemic described in Item 8. Consolidated Financial Statements -Note 1, “Basis of Presentation and Summary of Significant Accounting Policies”. For additional information on the various risks posed by COVID-19 pandemic, please read Item 1A. Risk Factors included in this report.
2020 and Recent Major Business Highlights
Major AcquisitionsTransactions and Strategic Investments
Consistent with our business model, we pursued novel investments to augment our technology platforms and assets.
In April 2020, we closed the acquisition of the core assets, partnered programs and ion channel technology from Icagen for $15.1 million in cash. Icagen will also be entitled to receive up to an additional contingent earn-out payment of $25 million based on certain revenue achievements.
In September 2020, we acquired two privately held companies that strengthen and complement our OmniAb platform's technology stack. We acquired xCella Biosciences, Inc. for $7.1 million in cash plus potential earnouts, and acquired Taurus Biosciences LLC for $5.1 million in cash plus non-transferable CVRs. In addition, we invested $2.5 million in a new company,
Minotaur Therapeutics, which is led by Taurus Biosciences’ founder, in exchange for royalties on products from future programs.
In October 2017, Ligand2020, we acquired Crystal BiosciencePfenex Inc. including its proprietary protein expression technology and its OmniChicken antibody discovery technology for $25 million in cash at closing, up to $10.5 millionexisting collaboration contracts with Jazz Pharmaceuticals, Merck, Serum Institute of success-based milestonesIndia and revenue sharing from existing licensees for a defined period. The acquisition initially added four Shots on Goal to Ligand’s portfolio, and the OmniChicken technology, withAlvogen, each of which has the potential be utilized by multiple current OmniAb partners as they seek to develop antibodies for difficult-to-address targets.
Selected Late-Stage Clinical Developments
Sage Therapeuticspay royalties. In October 2020, our partner Merck announced additional positive top-line resultsdata from two Phase 3 trialsstudies with V114, which uses the protein expression technology, evaluating the safety, tolerability and immunogenicity of brexanolonethe investigational 15-valent pneumococcal conjugate vaccine. In November 2020, Merck announced they had submitted applications to the U.S. FDA and European Medicines Agency (EMA) for licensure of V114 for use in severe PPDadults 18 years of age and in moderate PPD. Sage plansolder. Merck announced on January 12, 2021 that FDA accepted the BLA for V114 for priority review with a Prescription Drug User Fee Act (PDUFA) date of July 18, 2021. In December 2020, Jazz Pharmaceuticals initiated the submission of a BLA to file an NDA with the FDA seeking market approval for JZP-458, which is a recombinant Erwinia asparaginase produced using the protein expression platform that has resulted in 2018.a robust process showing manufacturing consistency and efficiency. The BLA was initiated and will be reviewed under the Real-Time Oncology Review (RTOR) pilot program, an initiative of the FDA's Oncology Center of Excellence designed to expedite the delivery of safe and effective cancer treatments to patients.
Viking
In December 2020, we sold the Vernalis research operations and internal programs to HitGen Inc. for $26.7 million in cash. Under the terms of the agreement, we retained economic rights on completed collaboration licenses as well as a share of the economic rights on current research collaboration contracts.
Corporate and Governance Highlights
We are committed to policies and practices focused on environmental sustainability, positively impacting our social community and maintaining and cultivating good corporate governance. By focusing on such ESG policies and practices, we believe we can affect a meaningful and positive change in our community and maintain our open, collaborative corporate culture. We will continue our proactive shareholder and employee engagement in 2021. See www.ligand.com for information about our ESG policies and practices.
OmniAb Technology Platform Updates
We continue to invest in and expand the OmniAb Technology platform. We entered into four new OmniAb platform license agreements in 2020 with Pandion Therapeutics, Adept Therapeutics, The Wistar Institute and RubrYc Therapeutics. In addition to the four platform license deals completed in 2020, we estimate that we and our partners initiated over 50 new programs in 2020.Our scientists and our partners presented data highlighting the utility of the OmniAb platform at multiple conferences throughout the year, and we published multiple papers in peer-reviewed journals.
Development-stage OmniAb partners continue to report progress clinically; notable advancements include:
•Janssen presented safety and response data of the OmniAb-derived teclistamab (anti-BCMA x CD3 T cell redirecting bispecific antibody) Phase 1 dose escalation trial for relapsed/refractory multiple myeloma at the 2020 American Society for Hematology (ASH) conference. Teclistamab showed a manageable safety profile with an overall response rate (ORR) of 73 percent (16/22) at the recommended subcutaneous (SC) Phase 2 dose. In addition, updated results for the intravenous formulation demonstrate the durability of responses. Janssen announced that it has chosen the recommended Phase 2 dose for the SC formulation.
•Gloria Biosciences submitted an application for marketing approval in China for OmniAb-derived zimberelimab for the treatment of classical Hodgkin lymphoma, marking multiple OmniAb drug applications filed seeking approval.
•Arcus Biosciences and Taiho Pharmaceutical announced Taiho’s exercise of its option for an exclusive license to zimberelimab (also known as AB122) for Japan and other Asian countries, excluding China.
•CStone announced an agreement to out-license ex-Greater China rights for sugemalimab (CStone licensed worldwide rights from our licensee WuXi) and CS1003 (anti-PD-1) to EQRx. Under the terms of the agreement, CStone will receive an upfront payment of $150 million and is eligible to receive up to $1.15 billion in milestone payments as well as separate tiered royalties. EQRx will obtain exclusive rights to lead development and commercialization worldwide, excluding certain territories in Asia. In October 2020, CStone entered into a major partnership with Pfizer for the commercialization of sugemalimab in greater China. As part of the partnership, Pfizer invested $200 million in CStone shares, and CStone is eligible to receive up to $280 million in milestone payments and additional royalties.
•CStone announced that China’s National Medical Products Administration accepted CStone’s New Drug Application for sugemalimab combined with chemotherapy for the first-line treatment of advanced squamous and non-squamous
non-small cell lung cancer (NSCLC). CStone previously announced updated results from two clinical studies of sugemalimab at the 2020 Chinese Society of Clinical Oncology Annual Meeting and announced that sugemalimab met the primary endpoint as first-line treatment in stage IV squamous and non-squamous NSCLC.
•CStone and Blueprint Medicines initiated a Phase 1b/2 clinical trial of fisogatinib in combination with OmniAb-derived CS1001 for patients with hepatocellular carcinoma. CStone announced the first patient was dosed in a proof-of-concept study of OmniAb-derived CS1001 in combination with Bayer's regorafenib in patients with advanced solid tumors.
•Aptevo announced two complete remissions in the ongoing APVO436 Phase 1/1b clinical trial for the treatment of acute myeloid leukemia (AML) and myelodysplastic syndrome (MDS). Preliminary data indicating that OmniAb-derived APVO436 was well tolerated with a manageable safety profile were presented at the 2020 ASH conference.
•Immunovant announced positive results from its Phase 2a proof-of-concept study of OmniAb-derived IMVT-1401 (also known as batoclimab, HL161, or HBM9161) in thyroid eye disease. IMVT-1401 is a 12-week,novel investigational anti-FcRn antibody delivered by subcutaneous injection. The results showed a 65% mean reduction in total IgG observed from baseline to end of treatment, with a pharmacodynamic response nearly identical to modeled predictions for the dosing regimen tested in the trial. In February 2021, Immunovant announced a voluntary pause in its ongoing clinical trials of IMVT-1401 due to elevated total cholesterol and LDL levels in Phase 2b trial of thyroid eye disease. Immunovant announced that it plans to continue development of IMVT-1401 following discussions with regulators and protocol modifications. In addition, Immunovant announced positive topline results from a multicenter, placebo-controlled Phase 2a trial (ASCEND MG) of IMVT-1401, in patients with myasthenia gravis (MG).
•Harbour announced first patient dosing of Phase 1b/2a study of Batoclimab for treating neuromyelitis optica spectrum disorder. On January 27, 2021 Harbour announced that China Center for Drug Evaluation granted Breakthrough Therapy designation to Batoclimab for the treatment of adult patients with MG. This designation indicates that the development and review of Batoclimab in adults with MG will be expedited.
Captisol Technology Updates
Our Captisol business unit achieved its highest sales ever in 2020 and we anticipate substantial continued demand for Captisol. We are investing to significantly expand annual manufacturing capacity for Captisol.
Gilead utilizes Captisol to solubilize the active ingredient for Veklury® (remdesivir), the first FDA approved anti-viral treatment for severe COVID-19. The drug has now been authorized or approved for use in numerous countries around the world. Gilead announced the formation of a consortium of generic pharmaceutical companies to manufacture remdesivir for the developing world. We have supplied, established initial agreements or are in supply discussions with those companies, and are prepared to meet the Captisol needs of all companies manufacturing remdesivir as well as the needs from our other Captisol partners.
We made the decision to conduct a Phase 2 trial for Captisol-enabled Iohexol that we believe could serve as the basis for potential registration of the product candidate. CE-Iohexol is an iodine-based contrast agent for hospital-based imaging procedures. The market for iodinated contrast agents is substantial, with approximately 20 million imaging procedures per year in the U.S., representing an estimated $1.5 billion in sales. The objective of the CE-Iohexol clinical trial will be to demonstrate a reduction in the incidence of contrast-induced acute kidney injury and an equivalent image quality compared to GE’s Omnipaque®.
Vernalis Design Platform (VDP) Updates
In December 2020, we sold our Vernalis research operations and internal programs to HitGen Inc. for $26.7 million in cash. Under the terms of the agreement, we retain economic rights on completed collaboration licenses as well as a share of the economic rights on current research collaboration contracts. We continued to expand our portfolio of VDP-derived partnerships during 2020, prior to the sale. Notable VDP developments include:
•We entered into an exclusive worldwide license agreement with Neuritek Therapeutics to develop and commercialize V158866, a novel oral, selective fatty acid amide hydrolase inhibitor that was discovered using the Vernalis Design Platform. Neuritek plans to develop V158866 for post-traumatic stress disorder and other CNS diseases. Under the terms of the agreement, we received an upfront license fee and are eligible to receive over $240 million in milestones and tiered royalties on net sales of six to eight percent. Neuritek has secured approximately $27 million in a capital commitment from GEM Global Yield LLC SCS.
•In February 2021, Verona Pharma announced ensifentrine delivered by a pressurized metered-dose inhaler (pMDI) met all of the primary and secondary lung function endpoints in the 7 day, Phase 2 clinical trial of VK5211 in patients who recently suffered a hip fracture. Top-line data demonstratedwith moderate to severe chronic obstructive pulmonary disease (COPD). The magnitude of improvement in lung function was dose-ordered and highly statistically significant dose-dependent increasesat peak and over the 12-hour dosing interval compared with placebo, and supports twice-daily dosing of ensifentrine via pMDI for the treatment of COPD. Verona is evaluating nebulized ensifentrine in lean body mass rangingthe pivotal Phase 3 ENHANCE-1 and 2 clinical trials for COPD maintenance treatment.
Icagen Technology Platform Updates
We continue to advance partnership programs following our 2020 acquisition of the core assets from 4.8%Icagen Inc. The following developments occurred in 2020:
•In May of 2020 we expanded our license with Roche by adding a second program to 9.1% following treatmentour agreement initiated in December 2018. This new program incorporates Icagen’s ion channel technology and is directed at a specific ion channel target relevant to neurodegenerative disease. Roche made a cash upfront payment and provides research funding to Icagen for this second program. In addition, Icagen is eligible to receive development and commercialization milestones up to $274 million for each program and royalty payments should a drug be commercialized from any of the collaboration’s programs.
•In December 2020, we signed a collaboration agreement with VK5211. Viking intendsGlaxoSmithKline to present additionalidentify and develop inhibitors of specific genetically-validated molecular targets relevant to neurological diseases. Under the terms of this agreement we received an upfront payment of $7 million and could receive development, regulatory and commercialization milestones up to $155 million. We will also receive tiered royalties on net sales should any drug from the collaboration be commercialized.
•We continue to advance other programs including our collaboration with the Cystic Fibrosis Foundation targeting nonsense suppression as well as multiple internal programs which potentially offer future partnering opportunities.
Other Business Updates
On February 2, 2021, our partner, Travere, announced that sparsentan achieved its pre-specified interim FSGS partial remission of proteinuria endpoint (FPRE) in the DUPLEX study after 36 weeks of treatment. Sparsentan demonstrated a statistically significant response on FPRE compared to the active control, irbesartan (p=0.0094). Preliminary results from the study at an upcoming scientific conference.
Retrophin presented newinterim analysis suggest that sparsentan has been generally well-tolerated and has shown a comparable safety profile to irbesartan. Based on the data from the open-label extension portioninterim analysis, Travere intends to pursue submissions for accelerated approval of sparsentan for FSGS in the Phase 2 DUET studysecond half of 2021. In January the FDA granted sparsentan Orphan Drug Designation for the treatment of IgA nephropathy, and on February 18, 2021, Travere announced the European Commission (EC) had granted orphan designation to sparsentan for the treatment of FSGS atIgA nephropathy. Topline efficacy data from the American Society of Nephrology Kidney Week 2017. Retrophin also announced that it is
conducting feasibility analyses and engaging regulatory agencies with the expectation of initiating a clinical trial for sparsentanongoing pivotal Phase 3 PROTECT Study in IgA nephropathy, (IgAN), an immune-complex mediated glomerulonephritis, in 2018.
Merrimack announced that it had enrolledand the last patient36-week interim proteinuria endpoint analysis, are anticipated in the ongoing CARRIE study, a Phase 2, double-blind, placebo-controlled, randomized trial evaluating MM-141 (istiratumab) in combination with standardthird quarter of care in previously untreated patients with metastatic pancreatic cancer.2021.
Marinus Pharmaceuticals announced that it had initiated a Phase 2 double-blind, placebo-controlled clinical trial to evaluate the safety, efficacy and pharmacokinetics of ganaxolone IV in women diagnosed with severe postpartum depression.
Exelixis announced that Daiichi Sankyo reported positive top-line results from a Phase 3 pivotal trial of esaxerenone in patients with essential hypertension in Japan and that a Japanese regulatory application is expected to be submitted in 2018.
Takeda Pharmaceuticals announced the Phase 3 initiation of pevonedistat plus Azacitidine versus single-agent azacitidine as first-line treatment for patients with higher-risk myelodysplastic syndromes, chronic myelomonocytic leukemia, or low-blast acute myelogenous leukemia.
Aldeyra announced the following for reproxalap (ADX-102):
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◦ | The last patient had completed dosing in their multicenter, double-blind, randomized Phase 2b clinical trial of reproxalap (ADX-102) in allergic conjunctivitis; |
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◦ | Enrollment of the first patient in a Phase 2b clinical trial of topical ocular reproxalap for the treatment of dry eye disease; |
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◦ | Presentation of data from its Phase 2 clinical trial of reproxalap in noninfectious anterior uveitis at the American Uveitis Society Fall Meeting. |
Opthea announced the dosing of the first patient in the Phase 2b trial of OPT-302 for wet age-related macular degeneration (AMD) and the commencement a Phase 1b/2a trial evaluating the safety and efficacy of OPT-302 in patients with center-involved diabetic macular edema.
Merck announced it stopped the Phase 2/3 EPOCH and Phase 3 APECS studies evaluating verubecestat in people with mild-to-moderate and prodromal Alzheimer’s disease due to the conclusion that the efficacy endpoint could not be achieved.
Selected Regulatory Developments
Melinta Therapeutics announced that the FDA approved both IV and oral Baxdela™ (delafloxacin) for the treatment of adults with acute bacterial skin and skin structure infections (ABSSSI) caused by susceptible bacteria. As a result of the approval, Ligand earned a $1.5 million milestone payment and will earn a 2.5% royalty on Baxdela IV sales. Following approval, Melinta Therapeutics entered into a $90 million loan and securities financing agreement with Oberland Capital Management, LLC to fund commercialization activities and indication expansion of Baxdela.
CASI Pharmaceuticals announced that China’s Food and Drug Administration granted priority review for CASI’s import drug registration clinical trial application for EVOMELA.
Zydus Cadila announced that it received approval to market its bevacizumab biosimilar in India and subsequently launched the drug, which is marketed as Bryxta.
CStone Pharmaceuticals announced that it received Clinical Trial Application approval from the China Food and Drug Administration to conduct clinical trials in China with CS1001, an OmniAb-derived full-length anti-PDL1 monoclonal antibody.
Janssen filed an IND application for an antibody discovered using Ligand’s OmniAb technology. The IND filing resulted in a $1 million milestone payment to Ligand. Janssen has a royalty-free license to the OmniAb technology (entered into with OMT in October of 2013), but will potentially pay Ligand further development and commercial milestones upon clinical success and regulatory approval of any therapeutic developed using the OmniAb technology.
Novartis announced that Promacta received Breakthrough Therapy designation for first-line use in SAA from the FDA.
Amgen announced at ASH in December and published in the Journal of Clinical Oncology in January the positive overall survival results of the Kyprolis ASPIRE trial. Amgen has submitted the data to the FDA for inclusion in the label.
Amgen announced that the overall survival data from the ENDEAVOR trial was added to the Kyprolis label.
Disclosed Licensing Deals Entered into or Expanded
OmniAb Technology
Worldwide license agreements with Surface Oncology, xCella Biosciences, Ferring Pharmaceuticals and Glenmark Pharmaceuticals 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.
Worldwide platform license agreement with bluebird bio, Inc. Under the license, bluebird will be able to use the OmniRat®, OmniMouse® and OmniFlic® platforms to discover fully human mono- and bispecific antibodies and antibody fragments. Ligand is eligible to receive annual platform access payments, development milestone payments and royalties for each product incorporating an OmniAb antibody. Ligand previously disclosed rights to a single-antibody partnership had been licensed to bluebird, but this new agreement gives bluebird full access to the OmniAb platform.
Receipt of a $2 million payment from WuXi Biologics subsequent to their licensing of exclusive rights to the anti-PD-1 antibody GLS-010 to Arcus Biosciences in North America, Europe, Japan and certain other territories. Ligand is also entitled to future milestones and royalties from this antibody.
Captisol Technology
Commercial license and supply agreement with Amgen granting rights to use Captisol in the formulation of AMG 330, an anti-CD33 x anti-CD3 (BiTE®) bispecific antibody construct. Ligand is eligible to receive milestone payments, royalties and revenue from Captisol material sales related to AMG 330.
Commercial license and supply agreement with Marinus Pharmaceuticals granting rights to use Captisol in the formulation of IV ganaxolone. Ligand is entitled to milestone payments, royalties and revenue from Captisol material sales related to IV ganaxolone.
Commercial license and supply agreement with Interventional AnalgesiX granting rights to use Captisol in the formulation of an undisclosed compound. Ligand is eligible to receive milestone payments, tiered royalties of 5%-10% and revenue from Captisol material sales.
Commercial license and supply agreements with both Par Pharmaceuticals and Meridian Labs granting each rights to use Captisol in the formulation of separate undisclosed compounds.
Captisol Clinical Use Agreements with Eisai, Syros Pharmaceuticals and Vaxxas Inc.
New Chemical Entities
Expansion of Ligand’s license with Sermonix Pharmaceuticals to include worldwide rights to develop and commercialize oral lasofoxifene. Ligand originally licensed U.S. rights to oral lasofoxifene to Sermonix in February of 2015, and expanded the agreement to include the rest of the world. Ligand is entitled to commercial milestones and royalties on net sales ranging from 6-10% upon commercialization of oral lasofoxifene.
Internal Pipeline Highlights
Ligand announced positive top-line results from its Phase 2 clinical study evaluating the efficacy and safety of LGD-6972, as an adjunct to diet and exercise, in subjects with T2DM inadequately controlled on metformin monotherapy. The study achieved statistical significance (p < 0.0001) in the primary endpoint of change from baseline in hemoglobin A1c (HbA1c) after 12 weeks of treatment at all doses tested, demonstrating a robust, dose-dependent reduction in HbA1c of 0.90%, 0.92% and 1.20% with 5 mg, 10 mg and 15 mg of LGD-6972, respectively, compared to a 0.15% reduction with placebo. LGD-6972 was safe and well tolerated, with no drug-related serious adverse events and no dose-dependent changes in lipids (including total cholesterol, LDL cholesterol, HDL cholesterol and triglycerides), body weight or blood pressure after 12 weeks of treatment.
Ligand announced initiation of an internally-funded program to develop contrast agents with reduced renal toxicity for diagnostic imaging procedures through proof-of-concept, followed by sale or out-license for further development and commercialization. This development program will leverage Ligand’s Captisol technology, as well as intellectual property obtained through its acquisition of Verrow Pharmaceuticals for $2 million in cash plus earn outs.
Technologies
A variety of technology platforms that enable elements of drug discovery or development form the basis of our portfolio of fully-funded Shotsshots on Goal.goal. Platform technologies or individual drugs discovered by Ligand are related to a broad estate of intellectual property that includes over 8001,400 patents issued patents.
worldwide.
OmniAb Technologies
The OmniAb antibody discovery platform provides our biopharmaceutical industry partners access to the most advanced antibody repertoires and state-of-the-art screening technologies to enable efficient discovery of next-generation novel therapeutics and to deliver the highest quality therapeutic antibody candidates for a wide range of human diseases.
OurAt the heart of the OmniAb Technology Stack is the Biological Intelligence™ (BI) of our proprietary and validated transgenic animals, including OmniRat, OmniChicken and OmniMouse, each capable of generating high quality fully human antibodies that have been optimized naturally through in vivo affinity maturation. OmniFlic (transgenic rat) and OmniClic (transgenic chicken) address industry needs for bispecific antibody applications though a common light chain approach, and OmniTaur features unique structural attributes of cow antibodies for complex targets. Our transgenic animals comprise the most diverse host systems available in the industry and they are optimally leveraged within the OmniAb Technology Stack through AI-enhanced antigen design and immunization methods, paired with high-throughput and microfluidic-based single B cell
screening and deep computational analysis of next-generation sequencing datasets to identify fully human antibodies with superior performance and developability characteristics. The OmniAb stack of technologies and differentiating AI and BI features have been combined to offer a highly efficient, scalable and customizable solution for the growing antibody discovery needs of the global biopharmaceutical industry.
We acquired the technologies in the OmniAb technology includes our OmniRat, OmniMouse, OmniFlic and OmniChicken technology platforms for use in discovering fully human antibodies. These platforms consist of genetically-engineered transgenic rodents that produce a broadly diversified repertoire of antibodies and enable novel fully-human antibody drug discovery and development by our OmniAb partners. Fully-human OmniAb antibodies provide advantages to our partners in that fully-human antibodies have reduced immunogenicity, streamline development timelines and costs, and accelerate novel antibody discovery. The OmniChicken platform consists of genetically-engineered transgenic chickens which enable the generation of novel antibodies against targets that are not immunogenic in mammals like mice and rats, the core species of Ligand’s existing OmniAb platform. Currently, more than 30 partners are utilizing OmniAb animals in their drug discovery and development efforts. incoLigand acquired these technologiesstack through the acquisition of OMT in January 2016, and Crystal in October 2017,
Ab Initio in July 2019, xCella Biosciences in September 2020 and Taurus Biosciences in September 2020. As of December 31, 2020, we had entered into OmniAb platform license agreements with more than 40 collaboration partners, including 7 partners who have rights through our partnership with WuXi. Our OmniAb partners were working on approximately 170 active programs, of which 15 were in various stages of clinical trials as of December 31, 2020.
Captisol Technology
Captisol is Ligand’s patented, uniquely-modifieda patent-protected, chemically modified cyclodextrin that is specificallywith a structure designed to maximize safety, while improvingoptimize the solubility and stability of drugs. Captisol was invented and bioavailabilityinitially developed by scientists in the laboratories of APIs.Dr. Valentino Stella, University Distinguished Professor at the University of Kansas’ Higuchi Biosciences Center for specific use in drug development and formulation. This unique technology has enabled several FDA-approved products, including Gilead’s Veklury®, Amgen’s Kyprolis®, Baxter International’s Nexterone®, Acrotech Biopharma L.L.C.’s and CASI Pharmaceuticals’ Evomela®, Melinta Therapeutics’ Baxdela™ and Sage Therapeutics’ Zulresso™. There are many Captisol-enabled products currently in various stages of development. We maintain a broad global patent portfolio for Captisol can enable fasterwith more than 400 issued patents worldwide relating to the technology (including over 40 in the U.S.) and more efficient development paths forwith the latest expiration date in 2033. Other patent applications covering methods of making Captisol, if issued, extend to 2040.
In addition to solid Captisol powder, we offer our partners given its known regulatory acceptance. Ligand maintainsaccess to cGMP manufactured aqueous Captisol concentrate. This product offering was established in 2017 to reduce cycle time and increase Captisol production capacity for large volume drug products. We maintain both Type IV and Type V DMFs with the FDA. These DMFs contain manufacturing and safety information relating to Captisol that our licensees can reference when developing Captisol-enabled drugs. LigandWe also filed a DMFhave active DMFs in Japan, in 2015.China and Canada. As of December 31, 2020, Captisol-enabled drugs arewere being marketed in more than 6070 countries, and over 4550 partners havehad Captisol-enabled drugs in development.
Protein Expression Technology Platform
The Protein Expression Technology Platform is a robust, validated, cost-effective and scalable platform for recombinant protein production, and is especially well-suited for complex, large-scale protein production where traditional systems are not suitable. Multiple global manufacturers have demonstrated consistent success with the platform and the technology is currently out-licensed for numerous commercial and development-stage programs. The versatility of the platform has been demonstrated in the production of enzymes, peptides, antibody derivatives and engineered non-natural proteins. Partners seek the platform as it can contribute significant value to biopharmaceutical development programs by reducing development timelines and costs for manufacturing therapeutics and vaccines. Given pharmaceutical industry trends toward large molecules with increasing structural complexities, the Protein Expression Technology Platform is well positioned to meet these growing needs as the most comprehensive broadly available protein production platform in the industry.
We acquired the Protein Expression Technology through our acquisition of Pfenex in October 2020. Former stockholders of Pfenex received a CVR which would result in payment if FDA determines that teriparatide injection (also referred to as PF708 or Bonsity) is therapeutically equivalent (as will be indicated by assignment of a therapeutic equivalence code that begins with an “A” in the FDA publication, Approved Drug Products with Therapeutic Equivalence Evaluations) with respect to the listed product, FORTEO® (teriparatide injection). We estimate that up to an additional $77.8 million in the aggregate will be payable to holders of the CVRs in the event that the CVR payment milestone is timely achieved. As of December 31, 2020, we have agreements with 15 partners for active research collaboration using this technology on more than 25 active programs.
Icagen Technology Platform
The Icagen Technology Platform is a novel drug discovery platform which uses primarily ion channels and transporters which are key components in a wide variety of biological processes that involve rapid changes in cells and we believe have broad therapeutic applicability including cancer, metabolic disease, pain, neurological diseases, infectious diseases and others. The Icagen Technology Platform leverages proprietary expertise in the combination of biological assays, medicinal chemistry, and in silico and computational chemistry applications. Partners in the pharmaceutical industry have leveraged our platform to develop therapeutic candidates to address unmet medical needs. We typically work closely with our partners through therapeutic candidate selection and, our partners are typically responsible for clinical development and commercialization. Our Icagen Technology Platform collaboration agreements typically include developmental milestone payments and royalties based on the net sales of any commercialized therapies. Royalties range from low to high single digits. The royalty terms typically expire upon the last to expire patents on a product-by-product basis.
We acquired the Icagen Technology Platform through our acquisition of the core assets of Icagen in April 2020 for $15.1 million in cash. Icagen is entitled to receive up to an additional $25.0 million based on certain revenue achievements. As of December 31, 2020, we have agreements with seven partners for active research collaboration using this technology on a total of 10 active programs.
HepDirect/LTP Technology Platform
The LTP TechnologyHepDirect platform is a novelfirst generation liver-targeting prodrug technology designed to selectively deliver certain phosphorus-containing drugs to the liver by using a proprietary chemical modification that renders an API biologically inactive until cleaved by a liver-specific enzyme. The HepDirect™ technology may improve the efficacy and/or safety of certain drugs and can be applied to marketed or new drug products to treat liver diseases or diseases caused by hemostasis imbalance of circulating molecules controlled by the liver.
Our LTP platform is a broad range of pharmaceutical agentssecond generation liver-targeting prodrug technology that has an activation mechanism similar to the liver. A prodrug is a biologically inactive compound that can be metabolized in the body to produce an active drug.HepDirect but with broader applications and many improved features. The LTP Technology works by chemically modifying biologically active molecules into an inactive prodrug, which will be administered to a patient and later activated by specific enzymes in the liver. The technologyproprietary chemical modifications can be used with many chemical classes of drugs in addition to phosphorus-containing compounds and have multiple chemistry strategies, designed to improve flexibility and success rates. In addition, the safety and/or activitysecond generation technology eliminates the undesirable by-products released during activation of existing drugs, develop new agents to treat certain liver-related diseases, and treat diseases caused by imbalancesthe first generation prodrugs. As of circulating molecules that are controlled by the liver. TheDecember 31, 2020, we had active HepDirect/LTP programs with three partners, using this technology is especially applicable to metabolic and cardiovascular indications, among others. Currently 3 partners are utilizing the LTP Technology or related platform(s).
across five programs.
SUREtechnology Platform (owned by Selexis)
LigandWe acquired economic rights to over 30various SUREtechnology Platform programs from Selexis in two separate transactions in 2013 and 2015, granting Ligand rights to downstream economics on novel biologics and biosimilars programs.Selexis. The SUREtechnology Platform, developed and owned by Selexis, is a novel technology that improves the way that cells are utilized in the development and manufacturing of recombinant proteins and drugs. The technology is based on novel DNA-based elements that control the dynamic organizationAs of chromatin within mammalian cells and allow for higher and more stable expression of recombinant proteins. The technology creates advantages over traditional approaches including accelerated development and manufacturing times, high yields and increased compound stability.December 31, 2020, we are entitled to certain economic rights to SUREtechnology Platform license agreements with 12 partners developing or having commercialized 20 programs.
Partners and Licensees
The followingWe currently have partnerships and license agreements with over 130 pharmaceutical and biotechnology companies. In addition to the table lists our disclosedbelow, we also have more than 10 undisclosed partners and licensees.
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| Big Pharma | Ticker | | Biotech | Ticker | | Biotech, continued | Ticker | | |
| Abbott | ABT | | ABBA | Private | | MEI | MEIP | | |
| AbbVie | ABBV | | ABL Bio | 298380 | | Melinta | Private | | |
| AstraZeneca | AZN | | Abvivo | Private | | Menarini | Private | | |
| Baxter | BAX | | Adept | Private | | Meridian Labs | Private | | |
| Boehringer Ingelheim | Private | | Aldeyra | ALDX | | Metavant | Private | | |
| Daiichi Sankyo | DSKY | | Amgen | AMGN | | Merrimack | MACK | | |
| Eli Lilly | LLY | | Anebulo | Private | | Nanjing King-Friend | 603707 | | |
| Eisai | 4523 | | Aptevo | APVO | | Neuritek | Private | | |
| GSK | GSK | | Arcellx | Private | | Novan | NOVN | | |
| Janssen | JNJ | | Arcus | RCUS | | Novogen | NVGN | | |
| Jazz | JAZZ | | Asahi Kasei | 3407 | | Nucorion | Private | | |
| Merck | MRK | | Ascella | Private | | Oncternal | Private | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Merck KGaA | MRK.DE | | BendaRx | Private | | OnKure | Private | | |
| Novartis | NVS | | Bexson Biomedical | Private | | Opthea | OPT | | |
| Ono | 4528 | | Cantex | Private | | Outlook | OTLK | | |
| Otsuka | 4768 | | Corvus | CRVS | | Palvella | Private | | |
| Pfizer | PFE | | CR Double-Crane | 600062 | | Pandion | PAND | | |
| Roche | RHHBY | | CStone | 2616.HK | | Phoenix Tissue | Private | | |
| Sanofi | SNY | | Cumulus | Private | | Precision Biologics | Private | | |
| Takeda | 4502 | | Electra | Private | | Protagonist | PTGX | | |
| Teva | TEVA | | Elevation | Private | | Revision | Private | | |
| Specialty Pharma | Ticker | | Exelixis | EXEL | | RubrYc | Private | | |
| Acrotech (Aurobindo) | AUROPHARMA | | Five Prime | FRPX | | SAGE | SAGE | | |
| Aldevron | Private | | Foghorn | Private | | Seagen | SGEN | | |
| Aytu Bioscience | AYTU | | Genmab | GEN | | Seelos | SEEL | | |
| Aziyo | AZYO | | Genagon | Private | | Servier | Private | | |
| Beloteca | Private | | Genekey Biotech | Private | | Serum Inst. of India | Private | | |
| CASI | CASI | | Genentech (Roche) | RHHBY | | Softkemo | Private | | |
| CorMatrix | Private | | Genovac | Private | | Sunshine Lake | Private | | |
| CTI Biopharma | CTIC | | GigaGen | Private | | Talem | Private | | |
| Ferring | Private | | Gilead Sciences | GILD | | Teneobio | Private | | |
| Gloria | 2437 | | Gordian | Private | | TG Therapeutics | TGTX | | |
| Lundbeck | LUN | | HanAll | 9420 | | Tizona | Private | | |
| Sedor | Private | | Harbour | 2142 | | Travere | TVTX | | |
| Sermonix | Private | | IBC Generium | Private | | Tremeau | Private | | |
| SQ Innovation | Private | | Ichnos | Private | | Unity | UBX | | |
| Vireo Health | VREOF | | iMetabolic | Private | | Valanbio | Private | | |
| | | Immunovant | IMVT | | Vaxxas | Private | | |
| Generics | Ticker | | Interventional Analgesix | Private | | Vega | Private | | |
| Alvogen | Private | | J-Pharma | Private | | VenBio | Private | | |
| Apotex | Private | | Jupiter | Private | | VentiRx | Private | | |
| BioCad | Private | | Kangchen | Private | | Verona | VRNA | | |
| Gedeon Richter | GEDSF | | Kira | Private | | Viking | VKTX | | |
| Hikma | HIK | | KSQ | Private | | Virtuoso | Private | | |
| Mylan | VTRS | | Marinus | MRNS | | Xi'an Xintong | Private | | |
| Par | Private | | | | | WuXi | 603259 | | |
| Zydus Cadila | CADILAHC | | | | | Zhilkang Hongyi | Private | | |
| | | | | | | |
Big Pharma | Ticker | | Generics | Ticker | | Biotech, continued | Ticker |
Baxter | BAX | | Alvogen | Private | | Gilead Sciences | GILD |
BMS | BMY | | Avion | Private | | Hanall | 9420 |
Boehringer Ingelheim | Private | | Beloteca | Private | | Harbour | Private |
Daiichi Sankyo | DSKY | | BioCad | Private | | Interventional Analgesix | Private |
Eli Lilly | LLY | | Coherus | CHRS | | J-Pharma | Private |
GSK | GSK | | Gedeon Richter | GEDSF | | Marinus | MRNS |
Janssen | JNJ | | IBC Generium | Private | | MEI | MEIP |
Merck | MRK | | Oncobiologics | ONS | | Melinta | MLNT |
Merck KGaA | MRK.DE | | Par Pharmaceuticals | PRX | | Meridian Labs | Private |
Novartis | NVS | | Zydus Cadila | CADILAHC | | Millennium | 4502 |
Otsuka | 4768 | | | | | Merrimack | MACK |
Pfizer | PFE | | Biotech | Ticker | | Nucorion | Private |
Takeda | 4502 | | ABBA | Private | | Opthea | OPT |
Teva | TEVA | | Abbvie | ABBV | | Precision Biologics | Private |
| | | Achaogen | AKAO | | Retrophin | RTRX |
Specialty Pharma | Ticker | | AiCuris | Private | | Roivant | Private |
Aziyo | Private | | Aldeyra | ALDX | | SAGE | SAGE |
CorMatrix | Private | | Alexo | Private | | Seattle Genetics | SGEN |
Cuda | Private | | Amgen | AMGN | | Seelos | Private |
Eisai | 4523 | | Arcus | Private | | Surface Oncology | Private |
Glenmark | GLENMARK | | ARMO | ARMO | | Symphogen | Private |
Gloria | 002437 | | Azure | Private | | Syros | SYRS |
Hikma | HIK | | bluebird bio | BLUE | | Teneobio | Private |
Lundbeck | LUN | | Celgene | CELG | | Tetragenics | Private |
Ono | 4528 | | Chiva | Private | | TG Therapeutics | TGTX |
Sedor | Private | | CSL | CSL | | Tizona | Private |
Sermonix | Private | | C-Stone | Private | | Vaxxas | Private |
Shire | SHPG | | CURx | Private | | VentiRx | Private |
Spectrum | SPPI | | Aptevo | APVO | | Vertex | VRTX |
Vireo Health | Private | | Exelixis | EXEL | | Viking | VKTX |
Upsher-Smith | Private | | Ferring | Private | | xCella | Private |
| | | Five Prime | FRPX | | XTL Bio | XTLB |
| | | ForSight Vision | Private | | WuXi | 2269 |
| | | F-Star | Private | | | |
| | | Genmab | GEN | | | |
| | | Genekey Biotech | Private | | | |
Commercial and Clinical Stage Partnered Portfolio
Portfolio
We have a large portfolio of current and future potential revenue-generating programs, including over 165 of which are300 fully-funded by our partners. In addition to the table below, we also have more than 48100 undisclosed preclinical programs.
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| Approved |
| Partner Name | Program | | | | | | | Therapeutic Area |
| Blood Disorders | | Cardiovascular | | CNS |
| Acrotech/CASI | Evomela | |
| Novartis | Promacta | | Baxter | Nexterone | | Lundbeck | Carnexiv |
| | | | | | | | |
| Cancer | | Medical Device/Cardiology |
| |
| Amgen | Kyprolis | | Zydus Cadila | Vivitra | | Aziyo Base Business | Aziyo |
| Spectrum | Evomela | | Zydus Cadila | Bryxta | | Cangaroo Envelope | Aziyo |
| | | | | | | |
| Infectious Disease | | Inflammatory/Metabolic |
| |
| Alvogen | Voriconazole | | Melinta | Baxdela | | Pfizer | Viviant/Conbriza |
| Hikma | Voriconazole | | Par Pharmaceuticals | Posaconazole | | Pfizer | Duavee |
| Merck | Noxafil-IV | | Pfizer | Vfend-IV | | Zydus Cadila | Exemptia |
| | | | | | | | |
| Phase 3 or Regulatory Submission Stage |
| | | | | | | | |
| Blood Disorders | | Cardiovascular | | Inflammatory/Metabolic |
| | |
| Biocad | BCD-066 | | Exelixis/Daiichi-Sankyo | CS-3150 | | Coherus | CHS-0214 |
| | | | | | | | |
| Cancer | | CNS |
| |
| Oncobiologics | ONS-3010 | | Takeda | Pevonedistat | | SAGE | Brexanolone |
| Oncobiologics | ONS-1045 | | | Sedor | CE-Fosphenytoin |
| | | | | | | | |
| Phase 2 |
| | | | | | | | |
| Blood Disorders | | Infectious Disease | | Inflammatory/Metabolic |
| | |
| Novartis | KLM465 | | Gilead | GS-5734 | | Coherus | CHS-0214 |
| | | | | | | | |
| Cancer |
|
| VentiRx Pharma | VTX-2337 | | Merrimack Pharma | MM-121 | | Novartis | Lubricin |
| Eli Lilly | Merestinib | | |
| Eli Lilly | Prexasertib | | Merrimack Pharma | MM-141 | | Precision Biologics | Ensituximab |
| | | | | | |
| Cardiovascular | | Other / Undisclosed | | CNS |
| | |
| Cardioxyl / BMS | CXL-1427 | | Aldeyra Therapeutics | Reproxalab | | Marinus Pharma | Ganaxalone IV |
| Retrophin | Sparsentan | | Opthea Ltd | OPT-302 | | Seelos | Aplindore |
| XTL Bio | hCDR1 | | |
|
| | | | | | | | |
| Alvogen/Adalvo | Phase 1Teriparatide | Women's Health |
| Alvogen/Hikma/Nanjing King-Friend | Voriconazole | | | | | | | Infectious Disease |
| Amgen/Ono | Kyprolis | Cancer |
| Aytu | Tuzistra | Infectious Disease |
| Aziyo | AmgenECM portfolio | AMG-330 | | Gloria | PD-1 | | Meridian | ML-061Medical device/Cardiology |
| Baxter | Chiva PharmaNexterone | MB07133 | | IBC Generium | Deplera | | Novartis | Mekinist POSCardiovascular |
| Biocad | C-StoneTeberif | PDL-1 | | J-Pharma | JPH-203 (Injection) | | Upsher-Smith | CXCR4Inflammatory/Metabolic |
| Exelixis/Daiichi-Sankyo | F-StarMinnebro | F-102 | | Janssen | BCMAxCD3 | | VentiRx Pharma | VTX-1463Cardiovascular |
| Gilead | Gedeon RichterVeklury | Trastuzumab | | MEI Pharma | ME-344 | Infectious Disease |
| Lundbeck | Carnexiv | | | | | | | Central Nervous System |
| Melinta | Baxdela | Infectious Disease | | Cardiovascular | | CNS |
| Menarini | Frovatriptan | Central Nervous System |
| Merck | Chiva PharmaNoxafil-IV | Pradefovir | | IBC Generium | GNR-008 | | Cuda Pharma | CudafolInfectious Disease |
| Par | Posaconazole | Otsuka | OPC-108459 | | CURx Pharma | IV TopiramateInfectious Disease |
| Pfizer | Viviant/Conbriza | | | | | | | Inflammatory/Metabolic |
| Pfizer | Duavee | Inflammatory/Metabolic | | Blood Disorders |
| Pfizer | Vfend-IV | Infectious Disease |
| SAGE | Gedeon RichterZulresso | RGB-03 | | Hanall | anti-FcRN | | Novartis | KLM465Central Nervous System |
| Sedor | Genekey BiotechSesquient | PCSK-9Central Nervous System |
| Serum Institute of India | Pneumosil | TakedaInfectious Disease |
| Zydus Cadila | TAK-020Vivitra | Cancer |
| Zydus Cadila | Bryxta/ZyBev | Cancer |
| Zydus Cadila | Exemptia | Inflammatory/Metabolic |
| Zydus Cadila | Vortuxi | Inflammatory/Metabolic |
| | |
| | |
| Phase 3/Pivotal or Regulatory Submission Stage |
| Partner Name | Program | Therapeutic Area |
| | |
| Various | Teriparatide | Women's Health |
| Aldeyra | Reproxalap | Other/Undisclosed |
| Biocad | BCD-066 | Blood Disorders |
| CStone | Sugemalimab | Cancer |
| Gloria | Zimberelimab | Cancer |
| IBC Generium | GNR-008 | Severe and Rare |
| Jazz | JZP-458 | Cancer |
| Marinus | Ganaxalone IV | Central Nervous System |
| Merck | V114 | Infectious Disease |
| Novan | SB206 | Infectious Disease |
| Novartis | Mekinist (CE-Trametinib) | Cancer |
| Outlook Therapeutics | ONS-5010 | Other/Undisclosed |
| Palvella | PTX-022 | Other/Undisclosed |
| Sage | Zulresso | Infectious disease |
| Sanofi | Sutimlimab | Blood Disorders |
| Sedor | CE-Fosphenytoin | Central Nervous System |
|
| | | | | | | | |
| Serum Institute | Pre-ClinicalCRM197 | Infectious Disease |
| Sunshine Lake | Vilazodone | | | | | | | Central Nervous System |
| Takeda | Other / UndisclosedPevonedistat | Cancer |
| Travere | Sparsentan | Severe and Rare |
| Verona | ABBAEnsifentrine (RPL554) | OmniAb | | Ferring | OmniAb | | Pfizer | OmniAbRespiratory Disease |
| Xi'an Xintong | AbbViePradefovir | OmniAb | | Five Prime Therapeutics | OmniAb | | Seattle Genetics | OmniAbInfectious Disease |
| Achaogen | OmniAb | | F-Star | OmniAb | | Surface Oncology | OmniAb |
| Alexo | OmniAb | | Genmab | OmniAb | | Symphogen | OmniAb |
| Amgen | OmniAb | | Gilead | OmniAb | | Teneobio | OmniAbPhase 2 |
| Partner Name | AptevoProgram | OmniAb | | Glenmark | OmniAb | | Tetragenics | OmniAbTherapeutic Area |
| ARMO Biosciences | OmniAb | | Hanall Biopharma | OmniAb | | Teva | OmniAb |
| Arcus | AvionZimberelimab | CE programs | | Interventional Analgesix | CE-program | | Tizona | OmniAbCancer |
| Cantex | BluebirdCX-01 | OmniAb | | Janssen | OmniAb | | WuXi | OmniAbCancer |
| CTI Biopharma | Boehringer IngelheimTosedostat | OmniAb | | Merck KGaA | OmniAb | | xCella | OmniAbCancer |
| Elevation Oncology | CelgeneSeribantumab | OmniAb | | Ono Pharmaceuticals | OmniAb | Cancer |
| Eisai | FYCOMPA | | | | | | | Central Nervous System |
| Genmab | Inflammatory/MetabolicGen1046 | Cancer |
| Harbour | Batoclimab | Inflammatory/Metabolic |
| Immunovant | AzureBatoclimab | Lasofoxifene | | Roivant | anti-FcRN | | Seelos | H3 Receptor AntagonistInflammatory/Metabolic |
| Janssen | HarbourTeclistimab | anti-FcRN | | Sedor | CE-Budesonide | | Viking | DGAT-1 InhibitorCancer |
| J-Pharma | Omthera/AstraZenecaJPH-203 | LTP-O3FA | | Seelos | CRTH2 Antagonist | | Vireo Health | CE-CannabinoidsCancer |
| Merck | M6620 | | | | | | Cancer |
| Merck | CRM197 | Infectious Disease | | CNS |
| Novartis | ECF843 | Inflammatory/Metabolic |
| Opthea | AiCuris GmBHOPT-302 | Other/Undisclosed | | Beloteca | CE-Ziprasodone | | SAGE | SAGE-689 |
| Precision Biologics | NucorionNPC-1C | NUC-101 | | CURx Pharma | IV Lamotrigine | | Seelos | CE-AcetaminophenCancer |
| Seelos | NucorionAplindore | NUC-202 | | Central Nervous System |
| Sermonix | Lasofoxifene | | | | | | | Cancer |
| VentiRx | CancerMotolimod | | Blood Disorders | | | Cancer |
| Viking | VK5211 | | | Inflammatory/Metabolic |
| Viking | ArcusVK2809 | PD-1Inflammatory/Metabolic |
| Viking | VK0214 | Inflammatory/Metabolic |
| Viking | EPOR AgonistVK0612 | Inflammatory/Metabolic |
| | |
| Phase 1 |
| Partner Name | Program | Therapeutic Area |
| | |
| Amgen | AMG-330 | Cancer |
| Apotex | Meloxicam | Migraine |
| Aptevo | APVO436 | Cancer |
| Exelixis | ROR | Inflammatory/Metabolic |
| Gedeon Richter | Bevacizumab | Cancer |
| Genmab | Gen1046 | Cancer |
| Janssen | JNJ-67371244 | Cancer |
| Janssen | JNJ-70218902 | Cancer |
| Jupiter Bioscience | Viright | Cancer |
| | | | | | | | |
| MEI Pharma | ME-344 | Cancer |
| Merck | M6233 | Cancer |
| Novartis | MIK-665 | Cancer |
| Novartis | BCL-201 | Cancer |
| Phoenix Tissue | PTR-01 | Other/Undisclosed |
| Protagonist Therapeutics | PTG300 | Hematology |
| Revision Therapeutics | Rev0100 | Ophthalmology |
| Servier | S55746/S64315 | Cancer |
| Symphogen/Servier | SYM022/SYM023/SYM024/SYM025 | Cancer |
| Takeda | TAK-020 | Inflammatory/Metabolic |
| Takeda | TAK-925 | Severe and Rare |
| Takeda | TAK-243 | Cancer |
| Vaxxas | Nanopatch | Infectious Disease |
| VentiRx Pharma | VTX-1463 | Cancer |
| Xi'an Xintong | MB07133 | Cancer |
Selected Commercial Programs
We have multiple programs under license with other companies that have products that are already being commercialized. The following programs represent components of our current portfolio of revenue-generating assets and potential for near-term growth in royalty and other revenue. For information about the royalties owed to Ligandus for these programs, see “Royalties” later in this business section.
Promacta (Novartis)
We are party to a license agreement with Novartis related to Promacta, which is an oral medicine that increases the number of platelets in the blood. Platelets are one of the three components of blood and facilitate clotting in the blood. Individuals with low platelets can be at significant risk of bleeding or death. Because of the importance of having a sufficient number of platelets, Promacta has broad potential applicability to a number of medical situations where low platelets exist.
Promacta is currently approved for three indications: (1) the treatment of thrombocytopenia in adult and pediatric patients 1 year and older with ITP who have had an insufficient response to corticosteroids, immunoglobulins or splenectomy; (2) thrombocytopenia in patients with chronic hepatitis C to allow the initiation and maintenance of interferon-based therapy; and (3) patients with SAA who have had an insufficient response to immunosuppressive therapy. Promacta was initially approved in 2008, and the product has been generating royalty revenue for Ligand since 2009. Promacta is known as Revolade in the EU and other non-US markets.
Novartis has been and continues to pursue globalization of the brand and currently markets Promacta in multiple countries for the three approved indications. Specifically, ITP is currently approved in more than 100 countries, the Hepatitis C-related indication is currently approved in more than 50 countries, and the SAA indication is approved in more than 45 counties.
Beyond the currently-approved indications, Novartis is also performing or supporting development activities to expand the brand into new indications, including first-line use in SAA and oncology-related indications. As of February 2018, there are 24 open clinical trials related to Promacta (listed as recruiting or open, and not yet recruiting) on the clinicaltrials.gov website.
We are entitled to receive royalties related to Promacta during the life of the relevant patents or following patent expiry, at a reduced rate for ten years from the first commercial sale, whichever is longer, on a country-by-country basis. Novartis has listed a patent in the FDA’s, Orange Book for Promacta with an expiration date in 2029, and absent early termination for bankruptcy or material breach, the term of the agreement expires upon expiration of the obligation to pay royalties. There are no remaining milestones to be paid under the agreement.
Kyprolis (Amgen)
Ligand supplies
We supply Captisol to Amgen for use with carfilzomib,Kyprolis (carfilzomib), and granted Amgen an exclusive product-specific license under our patent rights with respect to Captisol. Kyprolis is formulated with Ligand’s Captisol technology and is approved in the U.S.United States for the following:
•In combination with dexamethasone, lenalidomide plus dexamethasone, or with lenalidomidedaratumumab plus dexamethasone for the treatment of patients with relapsed or refractory multiple myeloma who have received one to three lines of therapy.
•As a single agent for the treatment of patients with relapsed or refractory multiple myeloma who have received one or more lines of therapy.
| | | | | | | | | | | | | | |
| Kyprolis is also approved in multiple countries outside the U.S. and Amgen continues to invest significantly in Kyprolis to further expand its label and geography. Amgen’s obligation to pay royalties does not expire until four years after the expiration of the last-to-expire patent covering Captisol. Our patents and applications relating to the Captisol component of Kyprolis are not expected to expire until 2033. | Kyprolis (Amgen) |
| < $250 million | 1.5% |
| $250 to $500 million | 2.0% |
| $500 to $750 million | 2.5% |
| >$750 million | 3.0% |
Kyprolis is also approved in multiple countries outside the U.S. and Amgen continues to invest significantly in Kyprolis to further expand its label and geography. Amgen’s obligation to pay royalties does not expire until four years after the expiration of the last-to-expire patent covering Captisol. Our patents and applications relating to the Captisol component of Kyprolis are not expected to expire until 2033. Our agreement with Amgen may be terminated by either party in the event of material breach or bankruptcy, or unilaterally by Amgen with prior written notice, subject to certain surviving obligations. Absent early termination, the agreement will terminate upon expiration of the obligation to pay royalties. Under this agreement, we are entitled to receive remaining milestones of up to $2 million, revenue from clinical and commercial Captisol material sales and royalties on annual net sales of Kyprolis.
Veklury® (Gilead)
We supply Captisol to Gilead for sales of Veklury® (remdesivir). Gilead received marketing approval in the US in October 2020. Veklury is the first and only antiviral treatment of Covid-19 that is FDA approved. The product has regulatory approvals for the treatment of moderate or severe COVID-19 in over 50 countries and is included in more than 30 ongoing clinical trials. We are supplying Captisol to Gilead under a recently signed 10-year supply agreement. We are also supplying Captisol to Gilead’s voluntary licensing generic partners who are manufacturing remdesivir for 127 low- and middle-income countries. We receive our commercial compensation for this program through the sale of Captisol.
Teriparatide Injection Product (PF708) (Alvogen/Adalvo)
We acquired the Teriparatide Injection product with the acquisition of Pfenex Inc. in October 2020. Teriparatide Injection is a drug indicated for uses including the treatment of osteoporosis in certain patients at high risk for fracture. Teriparatide Injection was developed using our Protein Expression Technology and was approved by the FDA in 2019 in accordance with the 505(b)(2) regulatory pathway, with FORTEO as the reference product. Our partner, Alvogen launched the product in June 2020 in the United States.
Outside the U.S., PF708 received marketing authorization throughout the European Union in August 2020 under the tradename Livogiva®, was approved in Saudi Arabia in December 2020 under the name Bonteo, and is in various stages of regulatory and marketing application processes around the globe and, upon approval, may be marketed as Teriparatide Injection or under various tradenames, such as Bonsity® or Livogiva®.
Our partner Alvogen has exclusively licensed the rights to commercialize and manufacture the teriparatide injection product in the United States, while their Adalvo business has the rights to commercialize in the European Union (EU), certain countries in the Middle East and North Africa (MENA), and the rest of world (ROW) territories (the latter defined as all countries outside of the EU, US and MENA, excluding Mainland China, Hong Kong, Singapore, Malaysia and Thailand). Kangchen has exclusively licensed to commercialize PF708, upon receipt of applicable marketing authorizations, in Mainland China, Hong Kong, Singapore, Malaysia and Thailand and granted a non-exclusive right to conduct development activities in such countries with respect to PF708. Kangchen is responsible for all regulatory submissions, development costs and costs associated with regulatory approvals in these countries.
In accordance with our agreements with Alvogen/Adlavo, we are eligible to receive additional payments of up to $9.0 million based on the achievement of certain development, regulatory, and sales-related milestones. In addition, we may be eligible to receive tiered royalties on net sales between 25% and 40% prior to an “A” therapeutic equivalence designation, which increases to a flat 50% if an “A” rating is achieved.
In accordance with our EU, MENA and ROW agreements with Alvogen’s Adalvo subsidiary, we may be eligible to receive additional upfront and milestone payments of $1.5 million and may also be eligible to receive up to 60% of Alvogen’s gross profit derived from product sales and regional license fees, if approved, depending on geography, cost of goods sold and sublicense fees.
In accordance with our agreement with Kangchen, we may be eligible to receive additional payments of up to $22.5 million upon the achievement of certain development, regulatory, and sales-related milestones. We may be eligible to receive double-digit royalties on any net sales of PF708 in Kangchen’s territory.
Evomela (Spectrum)(Acrotech and CASI)
Ligand suppliesWe supply Captisol to SpectrumAcrotech Biopharma for use withsales of Evomela whichin the U.S. and to CASI Pharmaceuticals for sales of Evomela in China. Evomela received market approval by the China National Medical Products Administration (NMPA). It is the only approved and commercially available melphalan product in China. Evomela is a Captisol-enabled melphalan IV formulation. Theformulation which is approved by the FDA approved Evomela for use in two indications:
•A high-dose conditioning treatment prior to ASCT in patients with multiple myelomamyeloma.
•For the palliative treatment of patients with multiple myeloma for whom oral therapy is not appropriate
appropriate.
Evomela has been granted Orphan Designation by the FDA for use as a high-dose conditioning regimen for patients with multiple myeloma undergoing ASCT. The Evomela formulation avoids the use of propylene glycol, which has been reported to cause renal and cardiac side-effects that limit the ability to deliver higher quantities of therapeutic compounds. The use of the Captisol technology to reformulate melphalan is anticipated to allow for longer administration durations and slower infusion rates, potentially enabling clinicians to safely achieve a higher dose intensity of pre-transplant chemotherapy.
Under the terms of the license agreement, we granted an exclusive license to Spectrum under our patentAcrotech Biopharma has marketing rights worldwide excluding China and CASI Pharmaceuticals has rights to Captisol relating to the product.market in China. We are eligible to receive over $50 million in potential milestone payments under this agreement and royalties on futureglobal net sales of the Captisol-enabled melphalan product. Spectrum’sAcrotech and CASI’s obligation to pay royalties will expire at the end of the life of the relevant patents or when a competing product is launched, whichever is earlier, but in no event within ten years of the commercial launch. Our patents and applications relating to the Captisol component of melphalan are not expected to expire until 2033. As described herein, we have entered into a settlement agreement with Teva and Acrotech Biopharma (the holder of the NDA for Evomela) which will allow Teva to market a generic version of Evomela in the United States on June 1, 2026, or earlier under certain circumstances. Absent early termination, the agreement will terminate upon expiration of the obligation to pay royalties. The agreement may be terminated by either party for an uncured material breach or unilaterally by SpectrumAcrotech and CASI by prior written notice.
Baxdela (Melinta)
Melinta’s Baxdela is a Captisol-enabled delafloxacin-IV that was approved by the FDA in June 2017 for the treatment of acute bacterial skin and skin structure infections. Delafloxacin is a novel hospital-focused fluoroquinolone antibiotic candidate with potency against a variety of disease-causing bacteria-gram-positives, gram-negatives, atypicals and anaerobes, including quinolone-resistant MRSA. Under the terms of the agreement, we may be entitled to regulatory milestones, as well as a royalty on potential future sales by Melinta, and revenue from Captisol material sales.
Nexterone (Baxter)
We have a license agreement with Baxter, related to Baxter's Nexterone, a Captisol-enabled formulation of amiodarone, which is marketed in the United States and Canada. We supply Captisol to Baxter for use in accordance with the terms of the license agreement under a separate supply agreement. Under the terms of the license agreement we will continue to earn milestone payments, royalties, and revenue from Captisol material sales. We are entitled to earn royalties on sales of Nexterone through early 2033.
Zulresso (SAGE)
We have a license agreement with SAGE, related to SAGE's Zulresso, a Captisol-enabled formulation of brexanolone for the treatment of PPD. Under the terms of the agreement, we receive royalties and revenue from Captisol material sales.
Noxafil-IV (Merck)
We have a supply agreement with Merck related to Merck’s NOXAFIL-IV, a Captisol-enabled formulation of posaconazole for IV use. NOXAFIL-IV is marketed in the United States, EU and Canada. We receive our commercial compensation for this program through the sale of Captisol, and we do not receive a royalty on this program.
Carnexiv (Lundbeck)
Lundbeck's Carnexiv is a Captisol-enabled carbamazepine-IV that was approved by the FDA in October 2016. Carnexiv is indicated as replacement therapy for oral carbamazepine formulations, when oral administration is temporarily no feasible, in adults with certain seizure types. Under the terms of our agreement with Lundbeck, we may be entitled to development and regulatory milestones, royalties on potential future sales by Lundbeck and revenue from Captisol material sales. Lundbeck is responsible for all development costs related to the program.
Duavee or Duavive (bazedoxifene/conjugated estrogens) and Viviant/Conbriza (Pfizer)
Pfizer is marketing bazedoxifene, a selective estrogen receptor modulator, under the brand names Viviantand Conbriza in various territories for the treatment of postmenopausal osteoporosis. Pfizer is responsible for the registration and worldwide marketing of bazedoxifene, a synthetic drug specifically designed to reduce the risk of osteoporotic fractures while also protecting uterine tissue. Pfizer has combined bazedoxifene with the active ingredient in Premarin to create a combination therapy for the treatment of post-menopausal symptoms in women. Pfizer is marketing the combination treatment under the brand names Duavee and Duavive in various territories. Net royalties on annual net sales of Viviant/Conbriza and Duavee/Duavive are each payable to us through the life of the relevant patents or ten years from the first commercial sale, whichever is longer, on a country by country basis.
Aziyo Portfolio (Aziyo)
Ligand receivesWe receive a share of revenue from the currently marketed Aziyo portfolio of commercial pericardial repair and CanGaroo® Envelope extracellular matrix (ECM)ECM products. In addition, Ligand haswe have the potential to receive a share of revenue and potential milestones from the currently marketed CanGaroo® ECM Envelope for cardiac implantable electronic devices. Aziyo’s products are medical devices that are designed to permit the development and regrowth of human tissue.
Exemptia, Vivitra, Zybev and Bryxta (Zydus Cadila)
Zydus Cadila’s Exemptia (adalimumab biosimilar) is marketed in India for autoimmune diseases. Zydus Cadila uses the Selexis technology platform for Exemptia. We are entitled to earn royalties on sales by Zydus Cadila for ten years following the first commercial sale.
Vivitra (Zydus Cadila)
Zydus Cadila’s Vivitra (trastuzumab biosimilar) is marketed in India for breast cancer. Zydus Cadila uses the Selexis technology platform for Vivitra. We are entitled to earn royalties on sales by Zydus Cadila for ten years following the first commercial sale.
Bryxta (Zydus Cadila)
Zydus Cadila’s Bryxta and Zybev (bevacizumab biosimilar) is marketed in India for non-small cell lung cancer.various indications. Zydus Cadila uses the Selexis technology platform for Bryxta.Bryxta and Zybev. We are entitled to earn royalties on sales by Zydus Cadila for ten years following the first commercial sale.
Minnebro (Exelixis)
Minnebro is marketed in Japan for the treatment of hypertension. Our partner, Exelixis, entered into a collaboration agreement with Daiichi Sankyo for the development of esaxerenone, a mineralocorticoid receptor antagonist. Under the terms of the agreement with Exelixis, we are entitled to receive a royalty on future sales.
Summary of Selected Development-stageDevelopment Stage Programs
We have multiple fully-funded partnered programs that are either in or nearing the regulatory approval process, or given the area of research or value of the license terms, we consider particularly noteworthy. We are eligible to receive milestone payments and royalties off ofon these programs. This list does not include all of our partnered programs. For information about the royalties owed to Ligand for these programs, see “Royalties” later in this business section. In the case of Captisol-related programs, we are also eligible to receive revenue for the sale of Captisol material supply.
Brexanolone-SAGE-547 (SAGE)Sparsentan (Travere)
Our partner, SAGE, is developing novel medicines to treat life altering central nervous system disorders. In November 2017 SAGE announced positive top-line results from two Phase 3 clinical trials with its proprietary IV formulation of brexanolone (formerly SAGE-547); Study 202B in severe PPD and Study 202C in moderate PPD. SAGE believes these data will be sufficient to support submissions of regulatory applications seeking approval of brexanolone for PPD. SAGE has received Breakthrough Therapy Designation from the FDA and PRIority MEdicines (PRIME) designation by the EMA for SAGE-547 in PPD, which are intended to offer a potentially expedited development path and review for promising drug candidates. This includes increased interaction and guidance from the FDA and EMA. SAGE plans to file a NDA with the FDA in 2018. Ligand has the potential to receive milestone payments, royalties and revenue from Captisol material sales for Captisol-enabled programs. SAGE is responsible for all development costs related to the program.
Sparsentan (Retrophin)
Our partner, Retrophin,Travere, is developing sparsentan for orphan indications of severe kidney diseases, and has completed ais running an on-going global pivotal Phase 23 clinical trial (DUPLEX) for sparsentan for the treatment of FSGS. Additionally, Travere is running
a global pivotal Phase 3 clinical trial (PROTECT) evaluating the long-term nephroprotective potential of sparsentan for the treatment of FSGS. Retrophin announced plans to initiateIgA nephropathy, a single Phase 3 clinical trial to enable an NDA filing for sparsentan fo the treatment of FSGS. The trial will include an interim analysis of proteinura as a surrogate endpoint to serve as the basis for an NDA filing for Subpart H accelerated approval of sparsentan.rare, immune complex mediated chronic glomerular disease. Certain patient groups with severely compromised renal function, including those with FSGS and IgA nephropathy, exhibit extreme proteinuria resulting in progression to dialysis and a high mortality rate. Sparsentan, with its unique dual blockade of angiotensin and endothelin receptors, is expected to provide meaningful clinical benefits in mitigating proteinuria in indications where there are no approved therapies.
In February of 2021, Travere announced that sparsentan achieved its pre-specified interim FSGS partial remission of proteinuria endpoint (FPRE) in the DUPLEX Phase 3 study after 36 weeks of treatment. Sparsentan demonstrated a statistically significant response on FPRE compared to the active control, irbesartan (p=0.0094). Preliminary results from the interim analysis suggest that sparsentan has been generally well-tolerated and has shown a comparable safety profile to irbesartan. Based on the data from the interim analysis, Travere intends to pursue submissions for accelerated approval of sparsentan for FSGS in the second half of 2021.
Travere has stated that topline efficacy data from the ongoing pivotal Phase 3 PROTECT Study in IgA nephropathy, and the 36-week interim proteinuria endpoint analysis, are anticipated in the third quarter of 2021.
Under our license agreement with RetrophinTravere, we aremay be entitled to receive potential net milestones of over $75$70 million in the future and net royalties on future worldwide sales by Retrophin.Travere. The royalty term is expected to be 10 years following the first commercial sale. RetrophinTravere is responsible for all development costs related to the program.
TR-Beta - VK2809 and VK0214 (Viking)
| | | | | | | | |
| Our partner, Viking, is developing VK2809, a novel selective TR-Beta agonist with potential in multiple indications, including hypercholesterolemia, dyslipidemia and NASH. VK2809 is currently in a Phase 2b clinical trial (the VOYAGE study) in patients with biopsy-confirmed NASH. Viking has previously announced positive results from a Phase 2a trial of VK2809 in hypercholesterolemia and fatty liver disease. VK0214 is currently in Phase 1 clinical development, and had been granted orphan drug study by the FDA for the treatment of X-ALD. Under the terms of the agreement with Viking, we may be entitled to up to $375 million of development, regulatory and commercial milestones and tiered royalties on potential future sales. Our TR Beta programs partnered with Viking are subject to CVR sharing and a portion of the cash received will be paid out to CVR holders. | TR-Beta - VK2809 and VK0214 (Viking) |
| < $500 million | 3.5% |
| $500 to $750 million | 5.5% |
| >$750 million | 7.5% |
Prexasertib- LY2606368 (Eli Lilly)Batoclimab (Immunovant, HanAll and Harbour)
Our partner, Eli LillyHanAll has granted Immunovant an exclusive license for the development, manufacture and marketing of Batoclimab for the treatment of pathogenic IgG-mediated autoimmune diseases in the U.S., Canada, Mexico, the EU, the United Kingdom, Switzerland, Latin America, the Middle East and North Africa. Immunovant is currently conducting a Phase 2 clinical trialstrial in myasthenia gravis and other inflammatory diseases. Additionally, HanAll and Harbour BioMed, are collaborating to develop Batoclimab for Captisol-enabled LY2606368 (Chk 1/2 inhibitor) for solid tumors. Under the terms of the agreement, we may be entitled to regulatory milestones, royalties on potential future sales by Eli Lillysimilar treatment in China and revenue from Captisol material sales.
BMS986231 (BMS)
Our partner, BMS, isKorea and are currently conducting a Phase 2 clinical trials for Captisol-enabled CXL-1427 (nitroxyl donor prodrug) for ADHF. Undertrial in China. HanAll retains the termsrights to Batoclimab in Korea and Harbour will control the marketing in China. As part of theour agreement with HanAll, we may beare entitled to development and regulatory milestones and royalties on potential future sales from HanAll and sublicense revenues from Immunovant and Harbour based on amounts received by BMSHanAll.
V114 (Merck)
Merck’s 15-valent pneumococcal conjugate vaccine, PCV-15 (V114) is in late stage clinical development with 17 Phase 3 clinical trials. In October 2020, Merck released additional positive data from two Phase 3 studies evaluating the safety, tolerability and revenue from Captisol material sales.
Lasofoxifene (Sermonix,immunogenicity of V114 and Azure Biotech)
Lasofoxifene is an estrogen partial agonist for osteoporosis treatment and other diseases, discovered through the research collaboration between us and Pfizer. Under the terms of the license agreement with Azure, we retained the rightssubmitted applications in November 2020 to the oral formulationFDA and EMA for licensure of lasofoxifene originally developed by Pfizer.
Our partner, Sermonix hasV114. On January 12, 2021, Merck announced the FDA accepted the BLA for V114 for priority review with a licensePDUFA of July 18, 2021. V114 previously received Breakthrough Therapy Designation from the FDA for the developmentprevention of oral lasofoxifeneinvasive pneumococcal disease in pediatric patients 6 weeks to 18 years of age and adults 18 years of age and older. Pneumococcal disease in adults is on the rise in many countries, and V114 consists of pneumococcal polysaccharides from 15 serotypes conjugated to CRM197carrier protein, including serotypes 22F and 33F, which are commonly associated with invasive pneumococcal disease in older adults and are not contained in the currently licensed vaccine for the United States and additional territories. Under the terms of the agreement,adults.
In accordance with our CRM197 commercial license agreements, we are entitledeligible to receive up to $45earn an additional $11.5 million in potential regulatory and commercial milestone payments as well as royalties on future net sales.
Our partner Azure is developing a novel formulation of lasofoxifene targeting an underserved market in women’s health. Under the terms of our agreement with Azure, we are entitled to receive up to $2.6 million in potential development and regulatory milestones as well asand may also be eligible to receive low single digit royalties on futurederived from net sales, throughdepending on territory.
Pneumosil® (Serum Institute of India, SII)
SII began commercialization of its 10-valent pneumococcal conjugate vaccine, Pneumosil® in the latersecond quarter of 2020. Pneumosil is designed primarily to help fight against pneumococcal pneumonia among children, with an advantage of targeting the most prevalent serotypes of the lifebacterium causing serious illness in developing countries. Pneumosil achieved WHO Prequalification in December 2019, allowing the product to be procured by United Nations agencies and Gavi, the Vaccine Alliance, and subsequently achieved Indian Marketing Authorization in July 2020, and announced commercial launch of the relevant patents (currently expected to be at least until 2027) or 10 years after regulatory approval. Azure may terminate the license agreement at any time upon six months’ prior notice.
TR-Beta - VK2809 (Viking)
Vikingproduct in India in December 2020. Additionally, SII is developing VK2809,currently testing a novel selective TR-Beta agonist with potentialmeningococcal conjugate vaccine in multiple indications, including hypercholesterolemia, dyslipidemia, NASH, and X-ALD. Viking initiated a Phase 2 trial3 study in India.
JZP-458 and JZP-341 (Jazz Pharmaceuticals)
We are developing hematologic oncology products with our partner Jazz Pharmaceuticals Ireland Limited (Jazz) including PF743 (JZP-458), a recombinant Erwinia asparaginase, PF745 (JZP-341), a long-acting Erwinia asparaginase, and PF690, a pegaspargase. Both PF743 and PF745 are being developed for VK2809 in hypercholesterolemiathe treatment of acute lymphoblastic leukemia and fatty liver disease in 2016other hematological malignancies. Jazz has worldwide rights to develop and expects primary outcome readout this year. Undercommercialize PF743 and PF745 and an exclusive option to license PF690 subject to certain option triggers.
In accordance with the termsJazz agreement, we are eligible to earn remaining milestones of the agreement with Viking, we$162.5 million. We may also be entitledeligible to up to $375 million of development, regulatory and commercial milestones andreceive tiered royalties on potential future sales.worldwide sales of any product resulting from the collaboration.
SARM - VK5211 (Viking)CRM197
CRM197 is a non-toxic mutant of diphtheria toxin. It is a well characterized protein and functions as a carrier for polysaccharides and haptens, making them immunogenic. CRM197 is used in prophylactic and therapeutic vaccine candidates. We have developed CRM197 production strains using our Protein Expression Technology platform and supply preclinical grade and cGMP CRM197 to several vaccine development focused pharmaceutical customers. Our partner, Viking,partners Merck & Co., Inc. (Merck) and Serum Institute of India Private Limited (SII) have exclusively licensed unique production strains for use in their conjugate vaccine products and candidates for pneumococcal and meningitis bacterial infections. Pneumococcus bacterium (Streptococcus pneumoniae) is developing VK5211, a novel, potentially best-in-class SARM for patients recovering from hip-fracture. SARMs retain the beneficial propertiesleading cause of androgens without undesired side-effectssevere pneumonia and major cause of steroids or other less selective androgens. Viking announced positive results from its Phase 2 trial in patients who suffered hip fracture in the fourth quarter of 2017. Under the terms of the agreement with Viking, we may be entitled to up to $270 million of development, regulatorymorbidity and commercial milestones as well as tiered royalties on potential future sales.
Merestinib- LY2801653 (Eli Lilly)
Our partner, Eli Lilly is conducting Phase 2 clinical trials for Captisol-enabled merestinib (LY2801653, formerly known as c-Met inhibitor) for treatment of cancer. Under the terms of the agreement, we may be entitled to regulatory milestones, royalties on potential future sales by Eli Lilly and revenue from Captisol material sales.mortality worldwide.
Pevonedistat - MLN-4924TAK-924 (Millennium/Takeda)
Our partner, Millennium/Takeda, is currently conducting Phase 23 trials for the development of pevonedistat (MLN-4924) for the treatment of hematological malignancies and solid tumors. Pevonedistat is a Captisol-enabled Nedd8-Activating Enzyme Inhibitor. Under the terms of the clinical-stage agreement, we may be entitled to over $25 million in regulatory and development milestones from Millennium/Takeda, and revenue from Captisol material sales, and royalties on potential future net sales.
Ensifentrine – RPL554 (Verona)
Our partner, Verona, is currently conducting a comprehensive Phase 3 clinical trial to evaluate the efficacy and safety of nebulized ensifentrine in patients with moderate to severe COPD. Under the terms of our agreement with Verona, we are entitled to development and regulatory milestones, including a £5.0 million payment upon the first approval of any regulatory authority, and royalties on potential future sales.
BCMAxCD3Teclistamab (Janssen)
Our partner, Janssen, is developing Teclistamab, a BCMAxCD3 bispecific antibody discovered in part with the OmniAb platform technology. Janssen is currently conducting two Phase 2 trials, as a single agent and in combination with daratumumab in multiple myeloma. We are entitled to earn development and regulatory milestones based on the development of Teclistamab.
JNJ-67371244 (Janssen)
Janssen is also developing JNJ-67371244, an anti-CD33xCD3 antibody discovered in part with the OmniAb platform technology. Janssen is currently conducting a Phase I trial for cancer therapy. We are entitled to earn development and regulatory milestones based on the development of BCMAxCD3.JNJ-67371244.
AM0001-PD-1 (ARMO Biosciences)JNJ-70218902 (Janssen)
Janssen is also developing JNJ-70218902, a T-cell redirecting agent antibody discovered in part with the OmniAb platform technology. Janssen is currently conducting a Phase I trial for cancer therapy for patients with metastatic castration resistant prostate cancer. We are entitled to earn development and regulatory milestones based on the development of JNJ-70218902.
M6223 (Merck KGaA)
Our partner, ARMO Biosciences,Merck KGaA, is developingcurrently conducting a Phase 1 trial of M6223, an anti-PD-1anti-TIGIT antibody discovered with the OmniAb platform, technology. AM0001+PD-1 is a therapeutic target for cancer therapy. We are entitled to earn regulatory milestones and royalties on future sales.
Seribantumab-MM-121 (Merrimack Pharmaceuticals)
Merrimack Pharmaceuticals is currently conducting a Phase 2 trial of seribantumab (MM-121) in patients with heregulin-positive,metastatic or locally advanced or metastatic non-small cell lung cancer whose disease has progressed following immunotherapy. The FDA has granted fast track designation to facilitate and expedite the development. Seribantumab is an antibody-drug that targets ErbB3 that was developed using the Selexis SUREtechnology Platform. Under the terms of the agreement, we may be entitled to development and commercial milestones, royalties on potential future sales.
CHS-0214 (Coherus Biosciences)
Coherus Biosciences has conducted Phase 3 / MAA-enabling clinical trials for CHS-0214 (etanercept biosimilar) for rheumatoid arthritis and psoriasis. Coherus uses the Selexis’ technology platform for CHS-0214. We are entitled to earn regulatory and sales milestones, and royalties on potential future sales through at least 2026.
Reproxalab (Aldeyra)
Our partner, Aldeyra, is conducting a Phase 2 study for ADX-102 for the treatment of ocular inflammation. ADX-102 is a Captisol-enabled ophthalmic solution for the treatment of allergic conjunctivitis that could be activesolid unresectable tumors in a broad array of inflammatory ocular diseases. Under the terms of our agreementcombination with Aldeyra, we are entitled to receive regulatory milestones and royalties on future sales.
Esaxerenone (Exelixis)
Our partner, Exelixis, entered into a collaboration agreement with Daiichi Sankyo and is conducting a Phase 3 pivotal trial (ESAX-HTN) to evaluate esaxerenone (CS-3150) versus eplerenone for essential hypertension in Japanese patients. Under the terms of the agreement with Exelixis, we are entitled to receive a royalty on future sales.
AMG-330 (Amgen)
Our licensee, Amgen, is developing AMG 330 for use in humans for a wide variety of therapeutic indications.bintrafusp alfa. Under the terms of the agreement, we are entitled to sublicense revenues, milestones and royalties on potential future sales of AMG 330 formulated with Captisol.net sales.
SARM - VK5211 (Viking)
| | | | | | | | |
| Viking is also developing VK5211, a novel, potentially best-in-class SARM for patients recovering from hip-fracture. SARMs retain the beneficial properties of androgens without undesired side-effects of steroids or other less selective androgens. In the fourth quarter of 2017, Viking announced positive results from its Phase 2 trial in patients who suffered hip fracture. Under the terms of the agreement with Viking, we may be entitled to up to $270 million of development, regulatory and commercial milestones as well as tiered royalties on potential future sales. | SARM - VK5211 (Viking) |
| < $500 million | 7.25% |
| $500 to $750 million | 8.25% |
| >$750 million | 9.25% |
Ganaxalone IV (Marinus)
Our partner, Marinus, is preparing to initiateconducting Phase 3 clinical trials with Captisol-enabled ganaxolone IV in patients with postpartum depression (PPD)PPD and refractory status epilepticus (SE).epilepticus. Marinus has exclusive worldwide rights to Captisol-enabled ganaxolone, a GABAA receptor modulator, for use in humans. We are entitled to development and regulatory milestones, revenue from Captisol material sales, and royalties on potential future sales.
APVO436 (Aptevo)
Our partner, Aptevo, is developingcurrently conducting a Phase 1 trial of APVO436 for the treatment of acute myeloid leukemia.leukemia and high-grade myelodysplastic syndrome. There is a high unmet medical need for targeted immunotherapies such as APVO436, that can potentially treat patients with relapsed or refractory disease, or patients who cannot tolerate traditional chemotherapy. Under the terms of the agreement with Aptevo, we are entitled to development and regulatory milestones and royalties on potential future net sales.
Gen1046 (GenMab)
Our partner, GenMab, is currently conducting a Phase 1/2 trial of Gen1046 for use in patients with malignant solid tumors. Under the terms of the agreement with GenMab, we are entitled to clinical and regulatory milestones and royalties on potential future sales.
SYM022 and SYM023 (Symphogen/Servier)
Our partner, Symphogen (acquired by Servier), is currently conducting Phase 1 trials of SYM022 and SYM023 to determine if it is safe and tolerable for patients with locally advanced/unresectable or metastatic solid tumor malignancies or lymphomas that are refractory to available therapy for which no standard therapy is available. Under the terms of the agreement with Symphogen, we are entitled to sublicense revenues, milestones and royalties on potential future net sales.
WuXi Partnership
Pursuant to the WuXi Agreement, we have granted WuXi a non-exclusive license to use our OmniRat, OmniMouse and OmniFlic platforms solely to research, develop and make antibodies, and we have agreed to use commercially reasonable efforts to deliver to WuXi animals from such platforms to support WuXi’s licensing rights under the WuXi Agreement. Further, WuXi has the right to out-license antibodies it discovers (whether for itself or at the direction of out-licensees) under the WuXi Agreement to out-licensees worldwide. We are entitled to royalties in the low single digits on net sales of products. Unless earlier terminated, the term of the WuXi Agreement shall continue indefinitely. Either party may terminate the WuXi Agreement upon specified notice of the other party's uncured material breach of the WuXi Agreement. In addition, we have the right to terminate the WuXi Agreement if WuXi or one of its out-licensees challenges the validity of one of our patents covering the platform and WuXi has the right to terminate the WuXi Agreement for convenience following a specified period after notice of termination.
In addition to other earlier stage programs, the following programs have been licensed pursuant to the WuXi Agreement:
Zimberelimab AB122/GLS010/WBP3055 (Arcus and Gloria)
Our partner, WuXi, has outlicensed the rights to certain programs using the OmniAb technology to Arcus and Gloria. Arcus is conducting multiple Phase 1 trials and a Phase 2 trial to evaluate the safety and tolerability of Zimberelimab in subjects with advanced solid tumors. Additionally, Gloria, has submitted an NDA in China for the treatment of recurrent or refractory classical Hodgkin’s lymphoma. Under the terms of our agreement with WuXi, we are entitled to royalties on potential future sales.
Sugemalimab CS1001 (CStone)
WuXi has also outlicensed the rights to certain programs using the OmniAb technology to CStone. CStone is currently conducting a Phase 3 trial to evaluate the efficacy and safety of CS1001 to treat patients with natural killer cell/T-cell lymphoma and classical Hodgkin’s lymphoma. Under the terms of our agreement with WuXi, we are entitled to royalties on potential future sales.
Ciforadenant – CPI-444 (Corvus)
Our partner, Corvus, is conducting a Phase 1b/2 clinical trial in patients with renal cell carcinoma and metastatic castration resistant prostate cancer to evaluate Ciforadenant, an antagonist of adenosine A2A, in combination with the immunotherapy drug atezolizumab. Positive preliminary data was presented in February at ASCO 2020 Genitourinary Cancers Symposium (ASCO-GU) and additional data was presented at ASCO 2020 in May/June. Ciforadenant is also being evaluated in a Phase 1b/2 trial in combination with atezolizumab in patients with non-small cell lung cancer who have failed no more than two prior regimens. Under the terms of our agreement with Corvus, we are entitled to development and regulatory milestones and tiered royalties on potential future sales. The aggregate potential milestone payments from Corvus are approximately $220 million for all indications.
FYCOMPA IV (Eisai)
Our partner, Eisai, recently completed an open-label, single group assignment, multicenter, Phase 2 study in Japan to evaluate the safety and tolerability of intravenous perampanel, formulated with Captisol, as substitute for oral tablets as an adjunctive therapy in patients with partial onset seizures (including secondarily generalized seizures) or primary generalized tonic-clonic seizures. The primary endpoint was the number of patients with adverse events and serious adverse events. We are entitled to revenue from Captisol material sales and tiered royalties on potential future sales.
SB206 (Novan)
We acquired certain economic rights to SB206 from Novan in May 2019. SB206 is a topical nitric-oxide antiviral gel for the treatment of viral skin infections, including molluscum contagiosum (MC). MC is an infection which causes skin lesions that affect approximately 6 million people in the United States annually, with the greatest incidence in children aged one to 14 years. During the first quarter of 2020, Novan announced that it did not achieve statistically significant results for its primary end point from its Phase 3 pivotal trials of SB206 in MC. Novan continues to explore financial as well as strategic options in order to progress SB206.
PTX - 022 (Palvella)
| | | | | | | | |
| We acquired the economic rights to PTX-022 from Palvella in December 2018. PTX-022 is a novel, topical formulation comprising high-strength rapamycin in development to treat pachyonychia congenita (PC). PC is a serious, chronically debilitating lifelong monogenic rare skin disease with no approved treatment. Palvella announced top line results of the Phase 2/3 VALOR study in late 2020. The Phase 3 portion of the study missed the primary endpoint, but significant improvement in the primary endpoint was achieved in the open-label, Phase 2 portion. Palvella plans to share the results with the FDA in the first quarter of 2021. | PTX - 022 (Palvella) |
| < $50 million | 5.00% |
| $50 to $100 million | 7.50% |
| >$100 million | 9.80% |
| |
Lasofoxifene (Sermonix)
Lasofoxifene is a selective estrogen receptor modulator for osteoporosis treatment and other diseases, discovered through the research collaboration between Pfizer and us.
Our partner, Sermonix has a license for the development of oral lasofoxifene for the United States and additional territories. Under the terms of the agreement, we are entitled to receive over $45 million in potential regulatory and commercial milestone payments as well as royalties on potential future net sales.
Sermonix announced in October 2020 the enrollment and dosing of the first patient into the Phase 2 ELAINE 2 clinical trial of lasofoxifene in combination with Eli Lilly’s FDA-approved CDK 4 and 6 inhibitor, abemaciclib for the treatment of pre- and postmenopausal women with locally advanced metastatic estrogen receptor-positive (ER+)/HER2- breast cancer and an ESR1 mutation. The Phase 2 ELAINE 1 trial, which began enrollment in September 2019, is assessing the efficacy of oral lasofoxifene versus intramuscular fulvestrant for the treatment of postmenopausal women with locally advanced or metastatic ER+/HER2- breast cancer with an ESR1 mutation.
Pradefovir (Xi'an Xintong)
Our Chinese licensee, Xi'an Xintong Medicine Research (following its acquisition of Chiva Pharmaceuticals), is developing pradefovir, an oral liver-targeting prodrug of the HBV DNA polymerase/reverse transcriptase inhibitor adefovir, for the potential treatment of hepatitis B virus (HBV) infection. Pradefovir was developed using Ligand’s HepDirect technology. In September 2019, Xi'an Xintong Medicine Research reported positive results from a Phase 2 trial of pradefovir, showing good efficacy, safety and tolerability. At the dose of 75 mg, the reduction of DNA viral load, the percentage of no viral load detected, and HBeAg negative conversion rate were better than tenofovir disoproxil fumarate (TDF) after 24 weeks of treatment. Overall incidence of side effects was less than TDF and there was no renal or skeletal toxicity. Xi'an Xintong Medicine Research is planning for a Phase 3 trial. We are entitled to an annual licensing maintenance fee and royalties on potential future sales.
MB07133 (Xi'an Xintong)
Chinese licensee Xi'an Xintong Medicine Research is also developing MB07133, a liver specific, HepDirect prodrug of cytarabine monophosphate, for the potential treatment of hepatocellular carcinoma (HCC) and intrahepatic cholangiocarcinoma. MB07133 is currently in Phase 1 in China. We are entitled to an annual licensing maintenance fee and royalties on potential future sales.
Summary of Selected Collaborations
GSK Collaboration
In December 2020, we entered into a license and collaboration agreement with GSK to leverage our unique expertise in small molecule therapeutics targeting transmembrane proteins. The goal of this collaboration is to identify and develop inhibitors of a specific, genetically validated molecular target relevant to neurological diseases. Under the terms of the agreement, we received an upfront payment of $7.0 million and could receive additional development, regulatory and commercialization milestones of up to $154.5 million. We are also entitled to receive tiered royalties should any drug from the collaboration be commercialized. We will be responsible for the majority of preclinical activities up to lead optimization with both Ligand and GSK collaborating to identify candidates of IND-enabling studies. GSK has the exclusive option to license any identified inhibitors and will be responsible for further development and commercialization of any drug candidates identified through the collaboration.
Roche Collaboration
In December 2018, prior to the acquisition by Ligand, Icagen entered into a license and collaboration agreement with Roche to develop and commercialize small molecule ion channel modulators for the treatment of neurological disorders and in May 2020 amended the license and collaboration agreement to include a second target. These programs incorporate our technology platform for ion channel drug discovery and are directed at specific ion channel targets expressed in neurons. Under the terms of the agreement, Roche paid us on a per target basis an upfront payment for program exclusivity and research funding. In addition, we are eligible to potentially receive development and commercial milestone payments of up to $274 million per program and royalty payments if a drug is commercialized. We will be responsible for most preclinical activities up to lead optimization with both us and Roche applying resources to identify candidates for entry into late stage preclinical and IND enabling studies. Thereafter, Roche will be responsible for the further development and commercialization of the programs.
Cystic Fibrosis Foundation Collaboration
In May 2018, prior to the acquisition by Ligand, Icagen announced an award of up to $11 million from the Cystic Fibrosis Foundation for a project focused on the discovery of therapeutics to treat patients with cystic fibrosis (CF) caused by nonsense mutations. Nonsense mutations in the Cystic Fibrosis Transmembrane Conductance Regulator (“CFTR”) gene result in the premature termination of protein synthesis and the formation of truncated, non-functional CFTR. Patients with these mutations in both copies of their CFTR genes currently have no therapies that treat the underlying cause of their disease. The aim of this program is to provide these patients with a transformative therapeutic that will markedly improve their quality of life and lifespan. The award is to support an integrated, multi-year drug discovery initiative. At the North American Cystic Fibrosis Conference in October 2020, we reported the identification and characterization of a class of small molecule agents that enhance CFTR-PTC mutant readthrough and enable functional CFTR currents in combination with aminoglycosides.
Royalties
We have multiple programs under license with other companies that have products that are already being commercialized. In addition to the table below, we have generally described a typical Captisol and OmniAb royalty arrangement as low- to mid-single digit royalties. The following table represents substantially all of the disclosed information about our royalty arrangements:
|
| | | | | | | | | | |
| Ligand Licenses With Tiered Royalties, Tiers Disclosed* |
| Promacta (Novartis) | | Kyprolis (Amgen) | | Duavee (Pfizer) | | Viviant/Conbriza (Pfizer) |
| < $100 million | 4.7% | | < $250 million | 1.5% | | <$400 million | 0.5% | | <$400 million | 0.5% |
| $100 to $200 million | 6.6% | | $250 to $500 million | 2.0% | | $400 million to $1.0 billion | 1.5% | | $400 million to $1.0 billion | 1.5% |
| $200 to $400 million | 7.5% | | $500 to $750 million | 2.5% | | >$1.0 billion | 2.5% | | >$1.0 billion | 2.5% |
| $400 million to $1.5 billion | 9.4% | | >$750 million | 3.0% | | | | | | |
| >$1.5 billion | 9.3% | | | | | | | | | |
|
| | | | | | | |
| CE-Topiramate (CURx) | | CE-Budesonide (Sedor) | | CE-Meloxicam (Sedor) |
| < $50 million | 6.0% | | < $25 million | 8.0% | | < $25 million | 8.0% |
| $50 to $100 million | 6.8% | | > $25 million | 10.0% | | > $25 million | 10.0% |
| >$100 million | 7.5% | | | | | | |
| | | | | | | | |
| Ligand Licenses With Tiered Royalties |
| Program | Licensee | Royalty Rate |
| CE-Meloxicam | Sedor | 8.0% - 10.0% |
| Ciforadenant | Corvus | Mid-single digit to low-teen royalty |
| DGAT-1 | Viking | 3.0% - 7.0% |
| Duavee | Pfizer | 0.5% - 2.5% |
| Ensifentrine (RPL554) | Verona | Low to mid-single digit royalty |
| FBPase Inhibitor (VK0612) | Viking | 7.5% - 9.5% |
| Kyprolis | Amgen | 1.5% - 3.0% |
| Lasofoxifene | Sermonix | 6.0% - 10.0% |
| Mineral Coated Microparticle | Dianomi | 2.0% - 3.0% |
| OmniAb-Genagon | Genagon | 4.0% - 6.0% |
| OmniAb-GigaGen | GigaGen | Mid-single digit royalty |
| OmniAb-iMetabolic | iMetabolic | <6% |
| OmniAb-Kira | Kira | Low to mid-single digit royalty |
| OmniAb-Takeda | Takeda | Low single digit royalty |
| Oral EPO | Viking | 4.5% - 8.5% |
| PTX-022 | Palvella | 5.0% - 9.8% |
| SARM (VK5211) | Viking | 7.25% - 9.25% |
| SB206 | Novan | 7.0% - 10.0% |
| TR Beta (VK2809 and VK0214) | Viking | 3.5% - 7.5% |
| Viviant/Conbriza | Pfizer | 0.5% - 2.5% |
| Various | Nucorion | 4.0% - 9.0% |
| Various | Seelos | 4.0% - 10.0% |
| | | | | | | | |
| Ligand Licenses With Fixed Royalties |
| Program | Licensee | Royalty Rate |
| 4-1BB | Zhilkang Hongyi | Low single digit royalty |
| AB122 | Arcus | Low single digit royalty |
| Baxdela | Melinta | 2.5% |
| CE-Fosphenytoin | Sedor | 11% |
| Sugemalimab | CStone | 3% |
| Evomela | Acrotech/CASI | 20% |
| V114 | Merck | Low single digit royalty |
| Pneumosil | Serum Institute | Low single digit royalty |
| MB07133 | Xi'an Xintong | 6% |
| ME-344 | MEI Pharma | Low single digit royalty |
| OmniAb-KSQ Therapeutics | KSQ Therapeutics | Single digit royalty |
| PCSK-9 | Genekey | Low single digit royalty |
| Pradefovir | Xi'an Xintong | 9% |
| Reproxalap | Aldeyra Therapeutics | Low single digit royalty |
| Sparsentan | Travere | 9% |
| Various | Gloria | Low single digit royalty |
| Zulresso | SAGE | 3% |
Contract Payments (Milestones)
Many of our programs under license with our partners will generate contract payments to us if our partners reach certain development, regulatory and commercial milestones. The following table represents the potential maximum value of our contract payment pipeline on milestones by development stage, technology and partner (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Technology* | | Stage* | | Partner* |
| OmniAb | > $800,000 | | Preclinical | > $25,000 | | Viking | $1,500,000 |
| Icagen | >$750,000 | | Clinical | > $600,000 | | Roche | $543,000 |
| PET | >$500,000 | | Regulatory | > $2,100,000 | | Janssen | $355,000 |
| Vernalis | > $350,000 | | Commercial | > $1,800,000 | | Merck | $296,000 |
| Captisol | > $150,000 | | Other | > $75,000 | | Neuritek | $246,000 |
| LTP/Hep Direct | > $250,000 | | Total | >$4,600,000 | | Jazz | $170,000 |
| NCE/Other | > $1,800,000 | | | | | Seelos | $139,000 |
| Total | >$4,600,000 | | | | | Travere | $70,000 |
| | |
Ligand Licenses With Tiered Royalties, Tiers Undisclosed* |
Program | Licensee | Royalty Rate |
IRAK4 | TG TherapeuticsOther | 6.0% - 9.5% |
CE-Lamotrigine | CURx | 4.0% - 7.0% |
Lasofoxifene | Sermonix | 6.0% - 10.0% |
FBPase Inhibitor (VK0612) | Viking | 7.5% - 9.5% |
SARM (VK5211) | Viking | 7.25% - 9.25% |
TR Beta (VK2809 and VK0214) | Viking | 3.5% - 7.5% |
Oral EPO | Viking | 4.5% - 8.5% |
DGAT-1 | Viking | 3.0% - 7.0% |
Various | Nucorion | 4.0%-9.0% |
Various | Seelos | 4.0%-10.0% |
| >$1,281,000 |
| | |
Ligand Licenses With Fixed Royalties* |
Program | Licensee | Royalty Rate |
Evomela | Spectrum PharmaTotal | 20% |
Baxdela | Melinta | 2.5% |
Brexalalone (SAGE-547) | SAGE | 3% |
Sparsentan | Retrophin | 9% |
CE-Fosphenytoin | Sedor | 11% |
Pradefovir | Chiva Pharma | 9% |
MB07133 | Chiva Pharma | 6% |
KLM465 | Novartis | 14.5% (6.5% in year one) |
Topical lasofoxifene | Azure Biotech | 5% |
MM-121 | Merrimack Pharma | <1.0% |
MM-141 | Merrimack Pharma | <1.0% |
ME-143 | MEI Pharma | Low single digit royalty |
ME-344 | MEI Pharma | Low single digit royalty |
Reproxalab | Aldeyra Therapeutics | Low single digit royalty>$4,600,000 |
*All tables exclude our annual access fees and collaboration revenue for development work.
*Royalty rates are shown net of sublicense payments. Royalty tier references for specific rates notated in the table are for up to and including the dollar amount referenced. Higher tiers are only applicable for the dollar ranges specified in the table.
Primary Internal Development Program - Glucagon Receptor Antagonist Program
Programs
We have a number of internal development or unpartnered programs focused on a wide-range of potential indications or disease.
The Captisol-enabled (CE)-Iohexol program was established in January 2018 to develop a next-generation contrast agent for diagnostic imaging with a reduced risk of renal toxicity. Contrast-induced acute kidney injury (CI-AKI) is the acute impairment of renal function following intravascular administration of an iodinated contrast agent, and occurs most frequently following coronary angiography, percutaneous coronary intervention and contrast-enhanced computed tomography, especially among patients at risk of renal injury such as those with advanced age, diabetes or heart failure. Currently no products are currently developingapproved to prevent or treat CI-AKI in this setting, and therefore we believe a small molecule glucagon receptor antagonistsignificant opportunity exists for a safer formulation of contrast agents. The goal is for CE-Iohexol to improve upon the treatmentlimitations of T2 DM. Compounds that block the action of glucagon may reduce the hyperglycemia that is characteristic of the disease. Glucagon stimulates the production of glucose by the liverexisting contrast agents and its release into the blood stream.enable a future partner to gain meaningful market share. In diabetic patients, glucagon secretion is abnormally elevated and contributes to hyperglycemia in these patients. WeJuly 2019, we announced results in 2016 from two Phase 1 clinical trials which demonstrated favorable safety, tolerability and pharmacokinetics in normal healthy volunteers and in subjects with T2 DM. The trial results also demonstrate a robust, dose-dependent reduction of fasting plasma glucose. In September 2017, we presented positive top-line results from a Phase 21 clinical study evaluatingtrial CE-Iohexol conducted in Canada. The trial achieved the efficacyprimary endpoint by demonstrating pharmacokinetic bioequivalence of CE-Iohexol injection and safety of LGD-6972, as an adjunct to diet and exercise,a reference Iohexol injection (OMNIPAQUE™) after IV administration in subjects with T2DM inadequately controlled on metformin monotherapy. LGD-6972healthy adults. CE-Iohexol injection was safe and well tolerated, with no drug-related seriousand adverse events were in line with the known safety profile of OMNIPAQUE. We submitted an IND with the FDA in November and no dose dependent changesreceived a “Study May Proceed” letter in lipids, body weightDecember 2020 along with feedback from the FDA on the clinical plan. We plan to initiate a Phase 2 study in the U.S. in the first quarter of 2021.
The Luminespib/Hsp90 Inhibitor is a Phase 2-ready Hsp90 inhibitor, previously investigated in clinical trials for cancer. Third-party academic drug analyses suggest a potential role for heat shock protein 90 (Hsp90) inhibitors in treating COVID-19 infection. Based on these studies, we are evaluating potential collaborations or blood pressure after 12 weeks of treatment.partnerships relating to intravenous luminespib (AUY-922) as a potential treatment for patients with COVID-19.
Our primary research and development efforts are led by our teams in Emeryville, California, San Diego, California, and Durham, North Carolina,. The following table represents other internal programs eligible for further development funding, either through Ligand or a partner:partnership:
|
| | | | | | | | | | | | | |
| Program | | Development Stage | | Targeted Indication or Disease |
CCR1 AntagonistCE-Iohexol | | PreclinicalPhase 2 | | OncologyDiagnostics |
CCR5 AntagonistLuminespib/Hsp90 Inhibitor | | PreclinicalPhase 2 | | Anti-infectiveOncology |
CE-Busulfan | | Preclinical | | Oncology |
CE-Cetirizine Injection | | Preclinical | | Allergy |
CE-Clopidogrel | | Phase 3 | | Anti-coagulant |
| CE-Sertraline, Oral Concentrate | | Phase 1 | | Depression |
| PF530 Interferon Beta | | Phase 1 | | Immunomodulatory |
| PF582 Ranibizumab | | Phase 1 | | Ocular |
| CCR1 Antagonist | | Preclinical | | Oncology |
| CE-Busulfan | | Preclinical | | Oncology |
| CE-Cetirizine Injection | | Preclinical | | Allergy |
CE-Silymarin for Topical Formulationformulation | | Preclinical | | Sun damage |
CE-Iohexol | | Preclinical | | Injectable diagnostic contrast agent |
| FLT3 Kinase Inhibitors | | Preclinical | | Oncology |
| GCSF Receptor Agonist | | Preclinical | | Blood disorders |
Liver Specific Glucokinase ActivatorAnti-B7-H3 | | Preclinical | | DiabetesOncology |
LTP-statinAnti-TIM3 | | Preclinical | | DyslipidemiaOncology |
| Anti-TIGIT | | Preclinical | | Oncology |
| Anti-CD38 | | Preclinical | | Oncology |
| Anti-BDNF | | Preclinical | | Oncology |
| PF529 Pegfilgrastim | | Preclinical | | Oncology |
| PF810 Recombinant Peptide | | Preclinical | | Endocrine System |
Manufacturing
We contract with a third party manufacturer, Hovione, for Captisol production. Hovione is a global supplier with over 50 years of experience in the development and manufacture of APIs and Drug Product Intermediates. Hovione operates FDA-inspected sites in the United States, Macau, Ireland and Portugal. Manufacturing and distribution operations for Captisol are currently performed primarily at two sites, in both of Hovione's Portugal and Ireland facilities with distribution operations also performed from Hovione's Portugal and Ireland sites. Additionally, we also store and distribute Captisol from a subterranean warehouse controlled by Ligand and located in Kansas.facilities. We believe we maintain adequate inventory of Captisol to meet our current and future partner needs.
In the event of a Captisol supply interruption, we are permitted to designate and, with Hovione’s assistance, qualify one or more alternate suppliers. If the supply interruption continues beyond a designated period, we may terminate the agreement. In addition, if Hovione cannot supply our requirements of Captisol due to an uncured force majeure event, we may also obtain Captisol from a third party and have previously identified such parties.
The current term of the agreement with Hovione is through December 2024. The agreement will automatically renew for successive two year renewal terms unless either party gives written notice of its intention to terminate the agreement no less than two years prior to the expiration of the initial term or renewal term. In addition, either party may terminate the agreement for the uncured material breach or bankruptcy of the other party or an extended force majeure event. We may terminate the agreement for extended supply interruption, regulatory action related to Captisol or other specified events. We have ongoing minimum purchase commitments under the agreement.
For further discussion of these items, see below under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Competition
Some of the drugs we and our licensees and partners are developing may compete with existing therapies or other drugs in development by other companies. Furthermore, academic institutions, government agencies and other public and private organizations conducting research may seek patent protection with respect to potentially competing products or technologies and may establish collaborative arrangements with our competitors.
Our Captisol business may face competition from other suppliers of similar cyclodextrin excipients or other technologies that are aimed to increase solubility or stability of APIs. Our OmniAb antibody technology faces competition from suppliers of other transgenic animal systems that are also available for antibody drug discovery.discovery such as AbCellera Biologics.
Our competitive position also depends upon our ability to obtain patent protection or otherwise develop proprietary products or processes. For a discussion of the risks associated with competition, see below under “Item“Item 1A. Risk Factors.”
Environmental, Health and Safety (EHS)
We are committed to providing a safe and healthy workplace, promoting environmental excellence in our communities, and complying with all relevant regulations and industry standards. We establish and monitor programs to reduce pollution, prevent injuries, and maintain compliance with applicable regulations. By focusing on such practices, we believe we can affect a meaningful, positive change in our community and maintain a healthy and safe environment. Our animal health facility in Emeryville, California, has accreditation from Association for Assessment and Accreditation of Laboratory Animal Care International (AAALAC), a nonprofit organization that promotes the humane treatment of animals in science through voluntary accreditation and assessment programs. We expect to continue our effort and to refine our EHS policies and practices in 2021.
Government Regulation
The research and development, manufacturing and marketing of pharmaceutical products are subject to regulation by numerous governmental authorities in the United States and other countries. We and our partners, depending on specific activities performed, are subject to these regulations. In the United States, pharmaceuticals are subject to regulation by both federal and various state authorities, including the FDA. The Federal Food, Drug and Cosmetic Act and the Public Health Service Act govern the testing, manufacture, safety, efficacy, labeling, storage, record keeping, approval, advertising and promotion of pharmaceutical products and thereproducts. These activities are often comparablesubject to additional regulations that apply at the state level. There are similar regulations in other countries as well. For both currently marketed products and products in development, failure to comply with applicable regulatory requirements can, among other things, result in delays, the suspension of regulatory approvals, as well as possible civil and criminal sanctions. In addition, changes in existing regulations could have a material adverse effect on us or our partners. For a discussion of the risks associated with government regulations, see below under “Item“Item 1A. Risk Factors.”
Patents and Proprietary Rights
We believe that patents and other proprietary rights are important to our business. Our policy is to file patent applications to protect technology, inventions and improvements to our inventions that are considered important to the development of our business. We also rely upon trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain our competitive position.
Patents are issued or pending for the following key products or product families. The scope and type of patent protection provided by each patent family is defined by the claims in the various patents. The nominal patent expiration dates have been provided. The actual patentPatent term may vary by jurisdiction and depend on a number of factors including potential patent term adjustments, patent term extensions, and terminal disclaimers. For each product or product family, the patents and/or applications referred to are in force in at least the United States, and for most products and product families, the patents and/or applications are also in force in European jurisdictions, Japan and other jurisdictions.
Promacta
Patents covering Promacta are owned by Novartis. The United States patent listed in the FDA’s Orange Book relating to Promacta with the latest expiration date is not expected to expire until 2027. Six months of additional exclusivity has been granted due to pediatric studies conducted by GSK. The type of patent protection (e.g., composition of matter or use) for each patent listed in the Orange Book and the expiration date for each patent listed in the Orange Book are provided in the following table. In addition, certain related patents in the commercially important jurisdictions of Europe and Japan are identified in the following table.
|
| | | | | |
| Promacta |
| United States | Corresponding Foreign |
| Type of Protection | U.S. Patent No. | U.S. Expiration Date | Jurisdiction | Patent Number | Expiration Date‡ |
| CoM / Use | 6,280,959 | 10/30/2018 | N/A | | |
| CoM / Use | 7,160,870 | 11/20/2022 | EU | 1,864,981 | 5/24/2021 |
| EU | 1,294,378 | 5/24/2021 |
| Japan | 3,813,875 | 5/24/2021 |
| Use | 7,332,481 | 5/24/2021 | EU | 1,889,838 | 5/24/2021 |
| Japan | 4,546,919 | 5/24/2021 |
| CoM / Use | 7,452,874 | 5/24/2021 | EU | 1,889,838 | 5/24/2021 |
| Japan | 4,546,919 | 5/24/2021 |
| CoM / Use | 7,473,686 | 5/24/2021 | EU | 1,864,981 | 5/24/2021 |
| EU | 1,294,378 | 5/24/2021 |
| Japan | 3,813,875 | 5/24/2021 |
| CoM / Use | 7,547,719 | 7/13/2025 | EU | 1,534,390 | 5/21/2023 |
| Japan | 4,612,414 | 5/21/2023 |
| Use | 7,790,704 | 5/24/2021 | N/A | | |
| Use | 7,795,293 | 5/21/2023 | N/A | | |
| CoM / Use | 8,052,993 | 8/1/2027 | EU | 2,152,237 | 8/1/2027 |
| Japan | 5,419,866 | 8/1/2027 |
| Japan | 5,735,078 | 8/1/2027 |
| CoM / Use | 8,052,994 | 8/1/2027 | EU | 2,152,237 | 8/1/2027 |
| Japan | 5,419,866 | 8/1/2027 |
| Japan | 5,735,078 | 8/1/2027 |
| CoM / Use | 8,052,995 | 8/1/2027 | EU | 2,152,237 | 8/1/2027 |
| Japan | 5,419,866 | 8/1/2027 |
| Japan | 5,735,078 | 8/1/2027 |
| CoM / Use | 8,062,665 | 8/1/2027 | EU | 2,152,237 | 8/1/2027 |
| Japan | 5,419,866 | 8/1/2027 |
| Japan | 5,735,078 | 8/1/2027 |
| CoM / Use | 8,071,129 | 8/1/2027 | EU | 2,152,237 | 8/1/2027 |
| Japan | 5,419,866 | 8/1/2027 |
| Japan | 5,735,078 | 8/1/2027 |
| CoM / Use | 8,828,430 | 8/1/2027 | EU | 2,152,237 | 8/1/2027 |
| Japan | 5,419,866 | 8/1/2027 |
| Japan | 5,735,078 | 8/1/2027 |
‡Expiration dates of European and Japanese patents are calculated as 20 years from the earliest nonprovisional filing date to which priority is claimed, and do not take into account extensions that are or may be available in these jurisdictions.
Kyprolis
Patents protecting Kyprolis include those owned by Amgen and those owned by us. The United States patent listed in the Orange Book relating to Kyprolis with the latest expiration date is not expected to expire until 2029. Patents and applications owned by Ligand relating to the Captisol component of Kyprolis are not expected to expire until 2033. Amgen has filed suit against several generic drug companies over their applications to make generic versions of Kyprolis. Several generics have settled with Amgen on confidential terms. However, it has been publicly reported that the U.S. launch date for at least Breckenridge Pharmaceuticals’ generic product will be on a date that is held as confidential in 2027 or sooner, depending on certain occurrences. One generic company, Cipla Limited/Cipla USA, Inc. chose not to settle the litigation with Amgen, and proceeded to trial. The District Court upheld the validity of patent claims from three of the patents and Cipla has appealed. The type of patent protection (e.g., composition of matter or use) for each patent listed in the Orange Book and the expiration dates for each patent listed in the Orange Book are provided in the following table. In addition, certain related patents in the commercially important jurisdictions of Europe and Japan are identified in the following table.
| | | | | | | | | | | | | | | | | |
| Kyprolis |
| United States | Corresponding Foreign |
| Type of Protection | U.S. Patent No. | U.S. Expiration Date | Jurisdiction | Patent Number | Expiration Date‡ |
| | | Kyprolis | |
| United States | Corresponding Foreign | |
| Type of Protection | U.S. Patent No. | U.S. Expiration Date | Jurisdiction | Patent Number | Expiration Date‡ | |
| CoM | 7,232,818 | 4/14/2025 | EU | 1,745,064 | 4/14/2025 | CoM | 7,232,818 | 4/14/2025 | EU | 1,745,064 | 4/14/2025 |
| Japan | 5,394,423 | 4/14/2025 | EU | 1,781,688 | 8/8/2025 |
| CoM | 7,417,042 | 7/20/2026 | EU | 1,781,688 | 8/8/2025 | EU | 2,266,999 | 8/8/2025 |
| Japan | 4,743,720 | 8/8/2025 | EU | 2,270,026 | 8/8/2025 |
| CoM | | EU | 3,101,026 | 8/8/2025 |
| Japan | 4,743,720 | 8/8/2025 |
| Japan | 5,394,423 | 4/14/2025 |
| CoM | 7,417,042 | 7/20/2026 | EU | 1,781,688 | 8/8/2025 |
| EU | 2,266,999 | 8/8/2025 |
| EU | 2,270,026 | 8/8/2025 |
| EU | 3,101,026 | 8/8/2025 |
| CoM | | Japan | 4,743,720 | 8/8/2025 |
| Japan | 5,394,423 | 4/14/2025 |
| Use | 7,491,704 | 4/14/2025 | EU | 1,745,064 | 4/14/2025 |
| EU | 1,781,688 | 8/8/2025 |
| EU | 2,266,999 | 8/8/2025 |
| EU | 2,270,026 | 8/8/2025 |
| Use | | EU | 3,101,026 | 8/8/2025 |
| 7,491,704 | 4/14/2025 | EU | 1,745,064 | 4/14/2025 | Japan | 4,743,720 | 8/8/2025 |
| Japan | 5,394,423 | 4/14/2025 | Japan | 5,394,423 | 4/14/2025 |
| 7,737,112 | 12/7/2027 | EU | 1,819,353 | 12/7/2025 | CoM | 7,737,112 | 12/7/2027 | EU | 1,819,353 | 12/7/2025 |
| EU | 2,260,835 | 12/7/2025 | EU | 2,260,835 | 12/7/2025 |
| EU | 2,261,236 | 12/7/2025 | EU | 2,261,236 | 12/7/2025 |
| Japan | 4,990,155 | 12/7/2025 | Japan | 4,990,155 | 12/7/2025 |
| CoM | Japan | 5,108,509 | 5/9/2025 | Japan | 5,108,509 | 5/9/2025 |
| 8,129,346 | 4/14/2025 | EU | 1,745,064 | 4/14/2025 | Use | 8,129,346 | 4/14/2025 | EU | 1,745,064 | 4/14/2025 |
| Japan | 5,394,423 | 4/14/2025 | Japan | 5,394,423 | 4/14/2025 |
| Japan | 5,616,569 | 4/14/2025 |
| CoM | 8,207,125 | 4/14/2025 | EU | 1,781,688 | 8/8/2025 |
| CoM | | EU | 1,745,064 | 4/14/2025 |
| Japan | 5,394,423 | 4/14/2025 |
| 8,207,125 | 4/14/2025 | EU | 1,781,688 | 8/8/2025 | Japan | 5,616,569 | 4/14/2025 |
| Japan | 4,743,720 | 8/8/2025 | Japan | 4,743,720 | 8/8/2025 |
| 8,207,126 | 4/14/2025 | N/A | | CoM / Use | 8,207,126 | 4/14/2025 | EU | 1,745,064 | 4/14/2025 |
| CoM / Use | | Japan | 5,394,423 | 4/14/2025 |
| Japan | 5,616,569 | 4/14/2025 |
| Use | 8,207,127 | 4/14/2025 | EU | 1,745,064 | 4/14/2025 |
| Use | | Japan | 5,394,423 | 4/14/2025 |
| 8,207,127 | 4/14/2025 | N/A | | Japan | 5,616,569 | 4/14/2025 |
| 8,207,297 | 4/14/2025 | N/A | | CoM / Use | 8,207,297 | 4/14/2025 | EU | 1,745,064 | 4/14/2025 |
| CoM / Use | | Japan | 5,394,423 | 4/14/2025 |
| Japan | 5,616,569 | 4/14/2025 |
| CoM | 9,493,582 | 2/27/2033 | Japan | 6,517,725 | 2/27/2033 |
| Use | 9,511,109 | 10/21/2029 | Japan | 5,675,629 | 10/21/2029 | Use | 9,511,109 | 10/21/2029 | EU | 2,796,134 | 10/21/2029 |
| Use | | Japan | 5,675,629 | 10/21/2029 |
| Japan | 6,081,964 | 10/21/2029 |
| Japan | 6,714,664 | 10/21/2029 |
‡Expiration dates of European and Japanese patents are calculated as 20 years from the earliest nonprovisional filing date to which priority is claimed, and do not take into account extensions that are or may be available in these jurisdictions.
Captisol
Patents and pending patent applications covering Captisol are owned by us. Other patents and pending patent applications covering methods of making Captisol are owned by Ligand or by Pfizer.us. The patents covering the Captisol product, if issued, with the latest expiration date would not be set to expire until 2033 (see, e.g., U.S. Patent No. 9,493,582 (expires Feb. 27, 2033)). Other patent applications covering methods of making Captisol, if issued,
potentially have terms to 2040. We have asserted U.S. Patents 8,410,077, 9,200,088, and 9,493,582 against Teva in connection with their attempt to obtain FDA approval to manufacture and sell a generic version of EVOMELA®. We also own several patents and pending patent applications covering drug products containing Captisol as a component. The type of patent protection (e.g., composition of matter or use) and the expiration dates for several issued patents covering Captisol are provided in the following table. In addition, certain related patents and applications in the commercially important jurisdictions of Europe and Japan are listed in the following table.
| | | | | | | | | | | | | | | | | |
| Captisol |
| United States | Corresponding Foreign |
| Type of Protection | U.S. Patent No. | U.S. Expiration Date | Jurisdiction | Patent Number | Expiration Date‡ |
| CoM | 8,114,438 | 10/26/2025 | EU | 2,708,225 | 4/22/2025 |
| Japan | 6,141,906 | 4/22/2025 |
| Japan | 6,538,739 | 4/22/2025 |
| CoM | 10,117,940 | 4/22/2025 | EU | 2,708,225 | 4/22/2025 |
| Japan | 6,141,906 | 4/22/2025 |
| Japan | 6,538,739 | 4/22/2025 |
| CoM | 10,668,160 | 12/19/2026 | EU | 2,708,225 | 4/22/2025 |
| Japan | 6,141,906 | 4/22/2025 |
| Japan | 6,538,739 | 4/22/2025 |
| CoM | 7,629,331 | 10/26/2025 | EU | 1,945,228 | 10/26/2025 |
| EU | 2,335,707 | 10/26/2025 |
| EU | 2,581,078 | 10/26/2025 |
| Japan | 5,465,432 | 10/26/2026 |
| Use | 8,049,003 | 12/19/2026 | EU | 2,583,668 | 10/26/2025 |
| CoM | 8,846,901 | 10/26/2025 | EU | 1,945,228 | 10/26/2025 |
| EU | 2,335,707 | 10/26/2025 |
| EU | 2,581,078 | 10/26/2025 |
| Japan | 5,465,432 | 10/26/2026 |
| CoM | 8,829,182 | 10/26/2025 | EU | 1,945,228 | 10/26/2025 |
| EU | 2,335,707 | 10/26/2025 |
| EU | 2,581,078 | 10/26/2025 |
| EU | 2,952,197 | 10/26/2025 |
| Japan | 5,465,432 | 10/26/2026 |
| CoM/Use/MoM | 9,617,352 | 6/8/2026 | EU | 2,583,668 | 10/26/2025 |
| EU | 1,945,228 | 10/26/2025 |
| EU | 2,335,707 | 10/26/2025 |
| EU | 2,581,078 | 10/26/2025 |
| EU | 2,952,197 | 10/26/2025 |
| Japan | 5,465,432 | 10/26/2026 |
| CoM/MoM | 10,202,468 | 10/26/2025 | EU | 2,583,668 | 10/26/2025 |
| EU | 1,945,228 | 10/26/2025 |
| EU | 2,335,707 | 10/26/2025 |
| EU | 2,581,078 | 10/26/2025 |
| EU | 2,952,197 | 10/26/2025 |
| Japan | 5,465,432 | 10/26/2026 |
| | | Captisol | |
| United States | Corresponding Foreign | |
| Type of Protection | U.S. Patent No. | U.S. Expiration Date | Jurisdiction | Patent Number | Expiration Date‡ | |
| CoM | 8,114,438 | 3/19/2028 | EU | 2,708,225 | pending | |
| Japan | 2015-163634 | pending | |
| CoM | 7,629,331 | 10/26/2025 | EU | 1,945,228 | 10/26/2025 | |
| EU | 2,335,707 | 10/26/2025 | |
| EU | 2,581,078 | 10/26/2025 | |
| Use | 8,049,003 | 12/19/2026 | EU | 2,583,668 | 10/26/2025 | |
| CoM | 8,846,901 | 10/26/2025 | EU | 1,945,228 | 10/26/2025 | |
| EU | 2,335,707 | 10/26/2025 | CoM | 10,703,826 | 10/26/2025 | EU | 2,583,668 | 10/26/2025 |
| EU | 2,581,078 | 10/26/2025 | EU | 1,945,228 | 10/26/2025 |
| CoM | 8,829,182 | 10/26/2025 | EU | 1,945,228 | 10/26/2025 | EU | 2,335,707 | 10/26/2025 |
| EU | 2,335,707 | 10/26/2025 | EU | 2,581,078 | 10/26/2025 |
| EU | 2,581,078 | 10/26/2025 | Japan | 5,465,432 | 10/26/2026 |
| CoM / Use | 7,635,773 | 3/13/2029 | EU | 2,268,269 | pending | CoM / Use | 7,635,773 | 3/13/2029 | Japan | 4,923,144 | 4/28/2029 |
| Japan | 4,923,144 | 4/28/2029 | Japan | 6,039,721 | 4/28/2029 |
| Japan | 6,039,721 | 4/28/2029 | Japan | 6,276,828 | 4/28/2029 |
| | | Japan | 2016-216021 | pending | |
| CoM / Use | | CoM / Use | 7,635,773 | 3/13/2029 | Japan | 6,444,548 | 4/28/2029 |
| 8,410,077 | 3/13/2029 | EU | 2,268,269 | pending | Japan | 4,923,144 | 4/28/2029 |
| Japan | 4,923,144 | 4/28/2029 | Japan | 6,039,721 | 4/28/2029 |
| Japan | 6,039,721 | 4/28/2029 | Japan | 6,276,828 | 4/28/2029 |
| | | Japan | 2016-216021 | pending | |
| CoM | 9,200,088 | 3/13/2029 | EU | 2,268,269 | pending | CoM | 8,410,077 | 3/13/2029 | Japan | 6,444,548 | 4/28/2029 |
| Japan | 4,923,144 | 4/28/2029 | Japan | 4,923,144 | 4/28/2029 |
| Japan | 6,039,721 | 4/28/2029 | Japan | 6,039,721 | 4/28/2029 |
| CoM | | Japan | 6,276,828 | 4/28/2029 |
| CoM | 9,200,088 | 3/13/2029 | Japan | 6,444,548 | 4/28/2029 |
| Japan | 4,923,144 | 4/28/2029 |
| Japan | 6,039,721 | 4/28/2029 |
| CoM | | Japan | 6,276,828 | 4/28/2029 |
| CoM | 9,750,822 | 3/13/2029 | Japan | 6,444,548 | 4/28/2029 |
| Japan | 4,923,144 | 4/28/2029 |
| Japan | 6,039,721 | 4/28/2029 |
| CoM | | Japan | 6,276,828 | 4/28/2029 |
| CoM | 10,117,951 | 3/13/2029 | Japan | 6,444,548 | 4/28/2029 |
| Japan | 4,923,144 | 4/28/2029 |
| Japan | 6,039,721 | 4/28/2029 |
| CoM | | Japan | 6,276,828 | 4/28/2029 |
| CoM | 10,780,177 | 3/13/2029 | Japan | 6,444,548 | 4/28/2029 |
| EU | 2,814,849 | 2/14/2033 |
| Japan | 6,508,944 | 2/14/2033 |
| MoM | | EU | 2,814,849 | 2/14/2033 |
| MoM | 10,633,462 | 2/14/2033 | Japan | 6,508,944 | 2/14/2033 |
| CoM | | Japan | 6,517,725 | 2/27/2033 |
| MoM | | MoM | 10,323,103 | 2/27/2033 | Japan | 6,517,725 | 2/27/2033 |
| CoM/MoM | | CoM/MoM | 10,040,872 | 2/27/2033 | Japan | 6,557,144 | 10/21/2033 |
| MoM | | MoM | 10,800,861 | 2/27/2033 | Japan | 6,557,144 | 10/21/2033 |
| | | Japan | 2016-216021 | pending | |
| CoM | 9,493,582 | 2/27/2033 | EU | 2,748,205 | pending | |
| | | Japan | 2016-166368 | pending | |
‡Expiration date of European and Japanese patents are calculated as 20 years from the earliest nonprovisional filing date to which priority is claimed, and do not take into account extensions that are or may be available in these jurisdictions.
Subject to compliance with the terms of the respective agreements, our rights to receive royalty payments under our licenses with our exclusive licensors typically extend for the life of the patents covering such developments. For a discussion of the risks associated with patent and proprietary rights, see below under “Item“Item 1A. Risk Factors.”
OmniAb &Technology Stack
Our OmniAb therapeutic antibody platforms, including OmniRat, OmniMouse and OmniChicken,
Ligand has produce naturally optimized, fully human antibodies in animals. We have received patent protection on OmniAb animals and methods in 27 countries,over 40 jurisdictions, including the United States, multiple countries throughout Europe, Japan and China (see selected cases listed in
the table below) and has 19 patent applications pending worldwide.. The patents and applications owned by Ligandus are expected to expire between 2028 and 20332039 and partners are able to use the OMTOmniAb patented technology to generate novel antibodies, which may be entitled to additional patent protection.
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| OmniAb in OmniMouse and OmniRat |
| United States | Corresponding Foreign |
| Type of Protection | U.S. Patent No. | U.S. Expiration Date | Jurisdiction | Patent Number | Expiration Date‡ |
| CoM | 8,703,485 | 10/10/2031 | EU | 2,152,880 | 5/30/2028 |
| EU | 2,336,329 | 5/30/2028 |
| EU | 2,603,323 | 5/30/2028 |
| Japan | 5,823,690 | 5/30/2028 |
| Japan | 6,220,827 | 5/30/2028 |
| CoM | 9,388,233 | 5/30/2028 | EU | 2,152,880 | 5/30/2028 |
| EU | 2,336,329 | 5/30/2028 |
| EU | 2,602,323 | 5/30/2028 |
| Japan | 5,823,690 | 5/30/2028 |
| Japan | 6,220,827 | 5/30/2028 |
| CoM | 10,072,069 | 5/30/2028 | EU | 2,152,880 | 5/30/2028 |
| EU | 2,336,329 | 5/30/2028 |
| EU | 2,602,323 | 5/30/2028 |
| Japan | 5,823,690 | 5/30/2028 |
| Japan | 6,220,827 | 5/30/2028 |
| Use/MoM | 8,907,157 | 5/30/2028 | N/A | | |
| CoM/Use | 9,475,859 | 4/15/2034 | EU | 2,931,030 | 12/13/2033 |
| Japan | 6,705,650 | 12/13/2033 |
| CoM | 10,385,132 | 1/8/2034 | EU | 2,931,030 | 12/13/2033 |
| Japan | 6,705,650 | 12/13/2033 |
| | | | | | | | | | | | | | | | | |
| OmniAb in OmniChicken |
| United States | Corresponding Foreign |
| Type of Protection | U.S. Patent No. | U.S. Expiration Date | Jurisdiction | Patent Number | Expiration Date‡ |
| CoM/Use | 8,030,095 | 12/23/2029 | Europe | 2,271,657 | 3/2/2029 |
| Japan | 5,737,707 | 3/2/2029 |
| MoM | 8,415,173 | 3/2/2029 | Europe | 2,271,657 | 3/2/2029 |
| Japan | 5,737,707 | 3/2/2029 |
| CoM | 8,592,644 | 8/30/2030 | Japan | 5,756,802 | 8/11/2030 |
| CoM | 9,404,125 | 12/29/2030 | Japan | 5,756,802 | 8/11/2030 |
| Use | 9,549,538 | 8/11/2030 | Japan | 5,756,802 | 8/11/2030 |
| CoM/Use | 10,010,058 | 8/11/2030 | Japan | 5,756,802 | 8/11/2030 |
| CoM/Use | 10,172,334 | 8/11/2030 | Japan | 5,756,802 | 8/11/2030 |
| CoM/Use | 10,687,519 | 8/11/2030 | Japan | 5,756,802 | 8/11/2030 |
| CoM/Use | 10,362,770 | 8/11/2030 | N/A | 5,756,802 | 8/11/2030 |
| CoM/MoM/Use | 8,865,462 | 5/8/2032 | N/A | | |
| CoM | 10,689,433 | 5/23/2032 | N/A | | |
| Com/MoM/Use | 9,644,178 | 1/7/2031 | N/A | | |
| CoM | 9,380,769 | 5/23/2032 | EU | 2,713,712 | 5/23/2032 |
| CoM | 9,809,642 | 5/23/2032 | N/A | | |
| CoM/Use | 9,394,372 | 10/16/2032 | N/A | | |
| CoM | 9,982,062 | 10/16/2032 | N/A | | |
| CoM/Use | 10,555,508 | 10/16/2032 | N/A | | |
|
| | | | | |
| OmniAb |
| United States | Corresponding Foreign |
| Type of Protection | U.S. Patent No. | U.S. Expiration Date | Jurisdiction | Patent Number | Expiration Date‡ |
| | | | EU | 2,152,880 | 5/30/2028 |
| | | | EU | 2,336,329 | 5/30/2028 |
| CoM | 8,703,485 | 10/10/2031 | Japan | 5,823,690 | 5/30/2028 |
| | 9,388,233 | 5/30/2028 | N/A | | |
| Use | 8,907,157 | 5/30/2028 | N/A | | |
| CoM / Use | 9,475,859 | 4/15/2034 | N/A | | |
|
| | | | | |
| OmniChicken |
| United States | Corresponding Foreign |
| Type of Protection | U.S. Patent No. | U.S. Expiration Date | Jurisdiction | Patent Number | Expiration Date‡ |
| CoM/Use | 8,030,095 | 12/23/2029 | Europe | 2,271,657 | 3/2/2029 |
| MoM | 8,415,173 | 3/2/2029 | Japan | 5,737,707 | 3/2/2029 |
| CoM | 8,592,644 | 8/30/2030 | Japan | 5,756,802 | 8/11/2030 |
| | | | | | |
| CoM | 9,404,125 | 12/29/2030 | | | |
| Use | 9,549,538 | 8/11/2030 | | | |
| CoM/MoM/Use | 8,865,462 | 5/8/2032 | N/A | | |
| Com/MoM/Use | 9,644,178 | 1/7/2031 | | | |
| CoM | 9,380,769 | 5/23/2032 | Europe | 2,713,712 | 5/23/2032 |
| CoM | 9,809,642 | 5/23/2032 | | | |
| CoM/Use | 9,394,372 | 10/16/2032 | N/A | | |
‡Expiration date of European and Japanese patents are calculated as 20 years from the earliest nonprovisional filing date to which priority is claimed, and do not take into account extensions that are or may be available in these jurisdictions.
LGD-6972 (Glucagon Receptor Antagonist)Vernalis
PatentsUnder the terms of our sale of Vernalis (R&D) Limited to HitGen in December 2020, Ligand retained a portfolio of fully-funded shots on goal, which now include RPL554, a Phase 2, novel treatment for COPD, which is partnered with Verona; Ciforadenant, a Phase 1 adenosine A2A receptor antagonist for treatment of solid tumors, partnered with Corvus; Tosedostat, an aminopeptidase inhibitor for treatment of blood cancers, partnered with Cell Therapeutics, Inc. (CTI), S65487, a Bcl-2 inhibitor, and pending patent applications covering LGD-6972S64315, an Mcl-1 inhibitor for treatment of cancers, both of which are partnered with Servier in collaboration with Novartis, and VER250840 (an oral, selective Chk1 inhibitor for treatment of cancer). These programs and their IP are now owned by Ligand. Patents covering various formsLigand UK Development Limited, which has a worldwide patent portfolio of LGD-6972, if issued, withover 200 granted patents in over 60 countries.
Protein Expression Technology Platform
We acquired the latest expiration date would not be expectedProtein Expression Technology Platform through acquisition of Pfenex Inc. in October 2020. This acquisition brought a robust product patent portfolio in the areas of biosimilars, microbial toxin, and vaccine antigen production, as well as a growing number of patents that cover our platform technology (including promoters, secretion leader sequences, methods for high throughput screening, protein expression, strain engineering, marker systems, etc.) useful to expire until 2039. The type of patent protection (e.g., composition of matter or use) and the expiration dates for severalcore business. Together there are over 200 issued patents covering LGD-6972 are providedworldwide, and nearly 50 pending applications.
Icagen Technology Platform
In April 2020, we acquired the core assets of Icagen, Inc., an early-stage drug discovery company focused on ion channel and transporter targets. Icagen has a portfolio of over 75 issued patents worldwide and ten pending applications relating to micro X-ray fluorescence-based detection of binding events and transport across barriers.
xCella Biosciences
In September 2020, we acquired xCella Biosciences, Inc.. xCella’s platform is a proprietary microcapillary platform that can screen single B cells for specificity and bioactivity which expand our existing single- B cell assay capabilities in the following table. OmniAb technology stack. We acquired one issued patent directed to xCella’s assay platform, and nearly 20 pending applications, along with access to several technologies owned by Stanford University.
Taurus Bioscience
In addition, certain relatedSeptember 2020, we acquired Taurus Biosciences which added technologies for discovery and humanization of antibodies from immunized cows or cow-derived libraries in our OmniAb platform technology stack. These antibodies feature some of the longest CDRH3s of any species, with unique genetic and structural diversity that can enable binding to challenging antigens with application in therapeutics, diagnostics and research. We acquired over 15 issued patents and applications in the commercially important jurisdictions of Europe and Japan are listed in the following table.
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| | | | | |
| LGD-6972 |
| United States | Corresponding Foreign |
| Type of Protection | U.S. Patent No. | U.S. Expiration Date | Jurisdiction | Patent Number | Expiration Date‡ |
| CoM | 8,710,236 | 2/11/2028 | EU | 2,129,654 | 2/11/2028 |
| EU | 2,786,985 | pending |
| Japan | 5,322,951 | 2/11/2028 |
| Japan | 2015-196171 | pending |
| CoM | 9,169,201 | 2/11/2028 | EU | 2,129,654 | 2/11/2028 |
| EU | 2,786,985 | pending |
| Japan | 5,322,951 | 2/11/2028 |
| Japan | 2015-196171 | pending |
| Use | 9,701,626 | 2/11/2028 | EU | 2,129,654 | 2/11/2028 |
| EU | 2,786,985 | pending |
| Japan | 5,322,951 | 2/11/2028 |
| CoM / Use | 8,907,103 | 1/2/2031 | EU | 2,326,618 | 8/13/2029 |
| EU | 2,799,428 | 8/13/2029 |
| EU | 3,153,501 | pending |
| Japan | 5,684,126 | 8/13/2029 |
| Japan | 2016-251460 | pending |
| Japan | 2018-006976 | pending |
| Com | 9,783,494 | 8/13/2029 | EU | 2,326,618 | 8/13/2029 |
| EU | 2,799,428 | 8/13/2029 |
| EU | 3,153,501 | pending |
| Japan | 5,684,126 | 8/13/2029 |
‡ Expiration date of European and Japanese patents are calculated as 20 years from the earliest nonprovisional filing datealong with access to which priority is claimed, and do not take into account extensions that are or may be available in these jurisdictions.technology owned by The Scripps Research Institute.
Human ResourcesCapital Management
We recognize and take care of our employees by offering a wide range of competitive pay, recognition, and benefit programs. We are proud to provide our employees the opportunity to grow and advance as we invest in their education and career development. As of February 16, 2018,December 31, 2020, we had 39 full-timehave 155 employees, of whom 25118 are involved directly in scientific research and development activities.
We rely on skilled, experienced, and innovative employees to conduct the operations of our company. Our key human capital objectives include identifying, recruiting, retaining, incentivizing and integrating our existing and new employees. We frequently benchmark our compensation practices and benefits programs against those of comparable industries and in the geographic areas where our facilities are located. We believe that our compensation and employee benefits are competitive and allow us to attract and retain skilled labor throughout our organization. Our notable health, welfare and retirement benefits include:
•equity awards through our 2002 Stock Incentive Plan;
•subsidized health insurance;
•401(k) Plan with matching contributions;
•tuition assistance program; and
•paid time off.
We strive to maintain an inclusive environment free from discrimination of any kind, including sexual or other discriminatory harassment. Our employees have multiple avenues available through which inappropriate behavior can be reported, including a confidential hotline. All reports of inappropriate behavior are promptly investigated with appropriate action taken to stop such behavior.
Investor Information
Financial and other information about us is available on our website at www.ligand.com. We make available on our website, without charge, copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, current reportsCurrent Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission, or SEC. In addition, we have previously filed registration statements and otherYou may obtain copies of these documents with the SEC. Any document we file may be inspected, atby visiting the SEC’s public reference room at 100 F Street NE, Washington, DC 20549, or at the SEC’s internet addresswebsite at www.sec.gov. These website addresses are not intended to function as hyperlinks, and the information contained in our website and in the SEC’s website is not intended to be a part of this filing. Information related to the operation of the SEC’s public reference room may be obtained by calling the SEC at 800-SEC-0330.
The following is a summary description of some of the many risks we face in our business. You should carefully review these risks in evaluating our business, including the businesses of our subsidiaries. You should also consider the other information described in this report. Additional risk norisks not presently known to us or that we currently deem immaterial also may impair our business.
Risks Related to Our Business Operations and Reliance on Third Parties:
Our business is subject to risks arising from epidemic diseases, such as the recent COVID-19 pandemic, which has impacted and could continue to impact our business.
The current COVID-19 worldwide pandemic has presented substantial public health and economic challenges and is affecting our employees and partners, patients, communities and business operations, as well as the U.S. and global economy and financial markets. International and U.S. governmental authorities in impacted regions are taking actions in an effort to slow the spread of COVID-19, including issuing varying forms of “stay-at-home” orders, and restricting business functions outside of one’s home. In response, we have restricted in-person access to our executive offices, our administrative employees are mostly working remotely, and we have limited the number of staff in our research and development laboratories and other facilities.
Several of our partners have reported that their operations have been impacted including delays in research and development programs and deprioritizing clinical trials in favor of treating patients who have contracted the virus or to prevent the spread of the virus. This may lead to clinical trial protocol deviations or to discontinuation of treatment for patients who are currently enrolled in the clinical trials being conducted by us or our partners. In addition, certain of our partners have reported negative impacts on product sales which will impact our royalty revenues. As the COVID-19 pandemic continues to spread around the globe, we may experience disruptions that could severely impact our business, drug manufacturing and supply chain, nonclinical activities and clinical trials and our partners’ business may be impacted in similar ways, including due to:
•delays or difficulties in enrolling patients in clinical trials;
•delays or difficulties in clinical site initiation, including difficulties in recruiting or supporting clinical site investigators and clinical site staff;
•diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as clinical trial sites and hospital staff supporting the conduct of clinical trials;
•interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others or interruption of clinical trial subject visits and study procedures, which may impact the integrity of subject data and clinical study endpoints;
•interruption or delays in the operations of the FDA or other regulatory authorities, which may impact review and approval timelines;
•interruption of, or delays in receiving, supplies of Captisol or other product or product candidates from contract manufacturing organizations due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems, which may result in cancellations of Captisol orders or refunds if we fail to deliver Captisol timely;
•delays in clinical sites receiving the supplies and materials needed to conduct clinical trials and interruption in global shipping that may affect the transport of clinical trial materials;
•interruptions in nonclinical studies due to restricted or limited operations at laboratory facility or those of outsourced service providers;
•limitations on employee resources that would otherwise be focused on the conduct of nonclinical studies or clinical trials, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people;
•delays in receiving approval from local regulatory authorities to initiate planned clinical trials;
•changes in local regulations as part of a response to COVID-19 which may require us to change the ways in which clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether;
•delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees;
•refusal of the FDA to accept data from clinical trials in affected geographies outside the United States;
•interruption or delays to discovery and development pipelines; and
•difficulties launching or commercializing products, including due to reduced access to doctors as a result of social distancing protocols.
In addition, if COVID-19 infects our genetically modified animals which form the basis of our OmniAb platform, or if there is an outbreak among our employees who maintain and care for these animals, we and our partners may be unable to produce antibodies for development. Further, the spread of COVID-19 has had and may continue to severely impact the trading price of shares of our common stock and could further severely impact our ability to raise additional capital on a timely basis or at all.
The COVID-19 pandemic continues to evolve. The extent to which the COVID-19 may impact our business, including our drug manufacturing and supply chain, nonclinical activities, clinical trials and financial condition, including due to impacts on our partners’ businesses, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.
Future revenue based on Promacta, Kyprolis and Evomela, as well as sales ofroyalties from our other partnered products, may be lower than expected.
NovartisSubstantially all of our royalty revenue is obligated to pay us royalties on its sales of Promacta, and we receive revenue from Amgen based on both sales of Kyprolis by Amgen and purchasessales of Captisol material for clinicalEvomela by Acrotech Biopharma. Royalties, including payments from Amgen and commercial uses. These paymentsAcrotech Biopharma, are expected to be a substantial portion of our ongoing revenues for some time. In addition, we receive revenues based on sales of Evomela and other products.the foreseeable future. Any setback that may occur with respect to any of our partners' products, and in particular Promacta or Kyprolis, could significantly impair our operating results and/or reduce our revenue and the market price of our stock. Setbacks for the products could include problems with shipping, distribution, manufacturing, product safety, marketing, government regulation or reimbursement, licenses and approvals, intellectual property rights, including Amgen's or Acrotech Biopharma's failure to enforce their respective intellectual property rights, competition with existing or new products and physician or patient acceptance of the products, as well as higher than expected total rebates, returns, discounts, or unfavorable exchange rates. These products also are or may become subject to generic competition. For example, we entered into a settlement agreement with Teva and Acrotech Biopharma (the holder of the NDA for Evomela) which will allow Teva to market a generic version of Evomela in the United States on June 1, 2026, or earlier under certain circumstances. The entry of generic competition for Evomela may materially and adversely affect the revenue we derive from Evomela sales. Also, Amgen has settled patent litigation related to Kyprolis on confidential terms with several parties, but it has been publicly reported that the U.S. launch date for at least Breckenridge Pharmaceuticals’ applicable generic product will be “on a date that is held as confidential in 2027 or sooner, depending on certain occurrences” and litigation against one other party is awaiting a post-trial judgement.
Future revenue from sales of Captisol material to our license partners may be lower than expected.
Revenues from sales of Captisol material to our collaborative partners, including Amgen and Gilead, represent a significant portion of our current revenues. Any setback that may occur with respect to Captisol could significantly impair our operating results and/or reduce the market price of our stock. Setbacks for Captisol could include problems with shipping, distribution, manufacturing, product safety, marketing, government regulation or reimbursement, licenses and approvals, intellectual property rights, competition with existing or new products and physician or patient acceptance of the products using Captisol.
In addition, revenue from Captisol sales related to remdesivir may not continue or materially increase due to a number of factors, including: if remdesivir is later shown to not be effective or safe for the treatment of COVID-19; the FDA revises or revokes its approval of remdesivir; if alternative therapies or vaccines are approved; or the risk of COVID-19 infection significantly diminishes, in which case the commercial opportunity could be materially and adversely affected.
If products or product candidates incorporating Captisol material were to cause any unexpected adverse events, the perception of Captisol safety could be seriously harmed. If this were to occur, we may not be able to sell Captisol unless and until we are able to demonstrate that the adverse event was unrelated to Captisol, which we may not be able to do. Further, the FDA could require us to submit additional information for regulatory review or approval, including data from extensive safety testing or clinical testing of products using Captisol. This would be expensive and it may delay the marketing of Captisol-enabled products and receipt of revenue related to those products, which could significantly impair our operating results and/or reduce the market price of our stock.
We obtain Captisol from a sole source supplier,Hovione, our third party manufacturer, primarily at Hovione’s facilities in Portugal and if this supplierIreland.If Hovione were to cease to be able, for any reason, to supply Captisol to us in the amounts we require, or decline to supply Captisol to us, we would be required to seek an alternative source, which could potentially take a considerable length of time and impact our revenue and customer relationships. In the event of a Captisol supply interruption, we are permitted to designate and, with Hovione’s assistance, qualify one or more alternate suppliers, although there is no assurance that we could do so timely or at an acceptable costs, if at all. In addition to manufacturing at Hovione’s facilities in Ireland and Portugal, we have now added final step processing capacity for Captisol in both the United States and England.
We maintain inventory of Captisol, which has a five year shelf life, at three geographically dispersed storage locations in the United States and Europe. If we were to encounter problems maintaining our inventory, such as natural disasters, at one or more of these locations, it could lead to supply interruptions. In addition, we will rely on Hovione to expand manufacturing capacity of Captisol and any failure by Hovione to timely implement such increased capacity could adversely affect our ability to supply Captisol to our partners. While we believe we maintain adequate inventory of Captisol to meet our current partner needs, and expectedour planned expansion of Captisol capacity will be sufficient to meet future partner needs, our estimates and projections for Captisol demand may not be wrongcorrect and any supply interruptions could materially adversely impact our operating results.
In addition, our plan to invest additional capital for the expansion of Captisol manufacturing capacity may not yield a return on investment if future Captisol sales fall below our expectations.
We currently depend on our arrangements with our partners and licensees to sell products using our Captisol technology. These agreements generally provide that our partners may terminate the agreements at will. If our partners discontinue sales of products using Captisol, fail to obtain regulatory approval for products using Captisol, fail to satisfy their obligations under their agreements with us, or choose to utilize a generic form of Captisol should it become available,competing product, or if we are unable to establish new licensing and marketing relationships, our financial results and growth prospects would be materially affected. Furthermore, we maintain significant accounts receivable balances with certain customers purchasing Captisol materials, which may result in the concentration of credit risk. We generally do not require any collateral from our customers to secure payment of these accounts receivable. If any of our major customers were to default in the payment of their obligations to us, our business, operating results and cash flows could be adversely affected.
Further, under most of our Captisol outlicenses, the amount of royalties we receive will be reduced or will cease when the relevant patent expires. Our low-chloride patents and foreign equivalents are not expected to expire until 2033, our high purity patents and foreign equivalents, are not expected to expire until 2029 and our morphology patents and foreign equivalents, are not expected to expire until 2025,2026 in United States, but the initially filed patents relating to Captisol expired starting in 2010 in the United States and in 2016 in most countries outside the United States. If our other intellectual property rights are not sufficient to prevent a generic form of Captisol from coming to market and if in such case our partners choose to terminate their agreements with us, our Captisol revenue may decrease significantly.
We rely heavily on collaboration relationships to generate milestone and royalty payments and our collaboration partners have significant discretion when deciding whether to pursue any development program, and any failure by our partners to successfully develop a product candidate or a termination or breach of any of the related agreements could reduce our milestone and license fee revenue, and potential reduce future royalties.
Our strategy for developing and commercializing many of our product candidates includes entering into collaboration agreements, outlicenses, and development funding and royalty purchase agreements with corporate partners and others. These agreements give our collaboration partners significant discretion when deciding whether or not to pursue any development program. Our existing collaborations may not continue or be successful, and we may be unable to enter into future collaboration arrangements to develop and commercialize our unpartnered assets.
In addition, our collaborators may develop products, either alone or with others that compete with the types of products they are developing with us (or that we are developing on our own). This would result in increased competition for our or our partners' programs. If product candidates are approved for marketing under our collaboration programs, revenues we receive will depend on the manufacturing, marketing and sales efforts of our collaboration partners, who generally retain commercialization rights under the collaboration agreements. Generally, our current collaboration partners also have the right to terminate their collaborations at will or under specified circumstances. If any of our collaboration partners breach (for example, by not making required payments when due, or at all) or terminate their agreements with us or otherwise fail to conduct their collaboration activities successfully, including due to insolvency events, ongoing product development under these agreements will be delayed or terminated. Disputes or litigation may also arise with our collaborators (with us and/or with one or more third parties), including those over ownership rights to intellectual property, know-how or technologies developed with our collaborators. Such disputes or litigation could adversely affect our rights to one or more of our product candidates. Any such dispute or litigation could delay, interrupt or terminate the collaboration research, development and commercialization of certain potential products, create uncertainty as to ownership rights of intellectual property, or could result in litigation or arbitration. The occurrence of any of these problems could be time-consuming and expensive and could adversely affect our business.
Our collaboration partners may change their strategy or the focus of their development and commercialization efforts with respect to our partnered programs, and the success of our partnered programs could be adversely affected.
If our collaboration partners terminate their collaborations with us or do not commit sufficient resources to the development, manufacture, marketing or distribution of our partnered programs, we could be required to devote additional resources to our partnered programs, seek new collaboration partners or abandon such partnered programs, all of which could reduce our revenues and otherwise have an adverse effect on our business. For example, several of our collaboration partners using our OmniAb antibody platform have terminated their contracts or substantially reduced their investment in the antibodies discovered based on the platform. Although we expect growth in the net number of partners with one more active programs based on antibodies discovered using our OmniAb platform, there can be no assurance that our partners will continue their programs or that we will be able to find new collaboration partners interested in discovering antibodies based on our OmniAb platform.
Our product candidates, and the product candidates of our partners, face significant development and regulatory hurdles prior to partnering and/or marketing which could delay or prevent licensing, sales-based royalties and/or milestone revenue.
Before we or our partners obtain the approvals necessary to sell any of our unpartnered assets or partnered programs, we must show through preclinical studies and human testing that each potential product is safe and effective. We and/or our partners have a number of partnered programs and unpartnered assets moving toward or currently awaiting regulatory action. Failure to show any product's safety and effectiveness could delay or prevent regulatory approval of a product and could adversely affect our business. The product development and clinical trials process is complex and uncertain. For example, the results of preclinical studies and initial clinical trials may not necessarily predict the results from later large-scale clinical trials. In addition, clinical trials may not demonstrate a product's safety and effectiveness to the satisfaction of the regulatory authorities. A number of companies have suffered significant setbacks in advanced clinical trials or in seeking regulatory approvals, despite promising results in earlier trials. The FDA may also require additional clinical trials after regulatory approvals are received. Such additional trials may be expensive and time-consuming, and failure to successfully conduct those trials could jeopardize continued commercialization of a product.
The speed at which we and our partners complete our scientific studies and clinical trials depends on many factors, including, but not limited to, the ability to obtain adequate supplies of the products to be tested and patient enrollment. Patient enrollment is a function of many factors, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial and other potential drug candidates being studied. Delays in patient enrollment for our or our partners’ trials may result in increased costs and longer development times. In addition, our partners have rights to control product development and clinical programs for products developed under our collaborations. As a result, these partners may
conduct these programs more slowly or in a different manner than expected. Moreover, even if clinical trials are completed, we or our partners still may not apply for FDA or foreign regulatory approval in a timely manner or the FDA or foreign regulatory authority still may not grant approval.
Our product candidate discovery, early-stage development, and product reformulation programs may require substantial additional capital to complete successfully. Our partners’ development programs may require substantial additional capital to complete successfully, arising from costs to: conduct research, preclinical testing and human studies; establish pilot scale and commercial scale manufacturing processes and facilities; and establish and develop quality control, regulatory, marketing, sales and administrative capabilities to support these programs. While we expect to fund our research and development activities from cash generated from operations to the extent possible, if we are unable to do so, we may need to complete additional equity or debt financings or seek other external means of financing. These financings could depress our stock price. If additional funds are required to support our operations and we are unable to obtain them on terms favorable to us, we may be required to cease or reduce further development or commercialization of our products, to sell some or all of our technology or assets or to merge with another entity.
Our OmniAb antibody platform faces specific risks, including the fact that no product using antibodies from the platform has been approved by the FDA or similar regulatory agency.
None of our collaboration partners using our OmniAb antibody platform have received approval from the FDA or similar regulatory agency to market a product discovered based on our platform. In addition, only a few of our collaboration partners’ product candidates based on the platform have been tested in late stage clinical trials. If one of our OmniAb collaboration partners’ product candidates fails during preclinical studies or clinical trials, our other OmniAb collaboration partners may decide to abandon product candidates using antibodies generated from the OmniAb platform, whether or not such failure is attributable to the platform. All of our OmniAb collaboration partners may terminate their programs at any time without penalty. In addition, our OmniRat and OmniFlic platforms, which we consider the most promising, are covered by six patents within the U.S. and three patents in the European Union and are subject to the same risks as our patent portfolio discussed elsewhere in this report and our 2019 Annual Report, including the risk that our patents may infringe on third party patent rights or that our patents may be invalidated. As of a result of these factors, the future revenue generated from this platform may be materially lower than what we currently anticipate. Further, we face significant competition from other companies selling human antibody-generating rodents, especially mice which compete with our OmniMouse platform, including the VelocImmune mouse, the AlivaMab mouse, the Trianni mouse and the Kymouse. Many of our competitors have greater financial, technical and human resources than we do and may be better equipped to develop, manufacture and market competing antibody platforms. Our competitors may render our OmniAb antibody platform obsolete, or limit the commercial value of any product candidates developed using our platform, by advances in existing technological approaches or the development of new or different approaches, potentially eliminating the advantages that we believe our platform offers.
Risks Related to Intellectual Property:
Third party intellectual property may prevent us or our partners from developing our potential products; our and our partners’ intellectual property may not prevent competition; and any intellectual property issues may be expensive and time consuming to resolve.
The manufacture, use or sale of our potential products or our licensees' products or potential products may infringe the patent rights of others. If others obtain patents with conflicting claims, we may be required to obtain licenses to those patents or to develop or obtain alternative technology. We may not be able to obtain any such licenses on acceptable terms, or at all. Any failure to obtain such licenses could delay or prevent us from pursuing the development or commercialization of our potential products.
Generally, our success will depend on our ability and the ability of our partners to obtain and maintain patents and other intellectual property rights for our and their potential products. Our patent position is uncertain and involves complex legal and technical questions for which legal principles are unresolved. Even if we or our partners do obtain patents, such patents may not adequately protect the technology we own or have licensed.
We permit our partners to list our patents that cover their branded products in the Orange Book. If a third party files an NDA or ANDA for a generic drug product that relies in whole or in part on studies contained in our partner’s NDA for their branded product, the third party will have the option to certify to the FDA that, in the opinion of that third party, the patents listed in the Orange Book for our partner’s branded product are invalid, unenforceable, or will not be infringed by the manufacture, use or sale of the third party’s generic drug product. A third party certification that a new product will not infringe Orange Book-listed patents, or that such patents are invalid, is called a paragraph IV patent certification. If the third party submits a paragraph IV patent certification to the FDA, a notice of the paragraph IV patent certification must be sent to the NDA owner and the owner of the patents that are subject to the paragraph IV patent certification notice once the third-party’s
NDA or ANDA is accepted for filing by the FDA. A lawsuit may then be initiated to defend the patents identified in the notice. The filing of a patent infringement lawsuit within 45 days of the receipt of notice of a paragraph IV patent certification automatically prevents the FDA from approving the generic NDA or ANDA until the earlier of the expiration of a 30-month period, the expiration of the patents, the entry of a settlement order stating that the patents are invalid or not infringed, a decision in the infringement case that is favorable to the NDA or ANDA applicant, or such shorter or longer period as the court may order. If a patent infringement lawsuit is not initiated within the required 45-day period, the third-party’s NDA or ANDA will not be subject to the 30-month stay.
Several third-parties have challenged, and additional third parties may challenge, the patents covering our partner’s branded products, including Kyprolis and Evomela, which could result in the invalidation or unenforceability of some or all of the relevant patent claims. We may from time to time become party to litigation or other proceedings as a result of Paragraph IV certifications. For example, as a result of the settlement of one such matter, Teva will be permitted to market a generic version of Evomela®in November 2017, CyDex,the United States on June 1, 2026 or earlier under certain circumstances. The terms of the settlement agreement are otherwise confidential. Also, as noted above, Amgen has settled patent litigation related to Kyprolis on confidential terms with several parties, but it has been publicly reported that the U.S. launch date for at least Breckenridge Pharmaceuticals’ applicable generic product will be “on a date that is held as confidential in 2027 or sooner, depending on certain occurrences” and litigation against one other party is awaiting a post-trial judgement.
In addition, we cannot assure you that all of the potentially relevant prior art information that was or is deemed available to a person of skill in the relevant art prior to the priority date of the claimed invention-relating to our wholly owned subsidiary, receivedand our partners’ patents and patent applications has been found. If such prior art exists, it can invalidate a paragraph IV certificationpatent or prevent a patent from Teva Pharmaceuticals USA, Inc., Teva Pharmaceutical Industries Ltd.issuing from a pending patent application, and Actavis, LLC (collectively “Teva”) alleging that certainwe or our partners may be subject to a third party pre-issuance submission of prior art to the United States Patent and Trademark Office. Even if patents do successfully issue and even if such patents cover our or our partner’s products or potential products, third parties may initiate litigation or opposition, interference, re-examination, post-grant review, inter partes review, nullification or derivation action in court or before patent offices, or similar proceedings challenging the validity, enforceability or scope of such patents, which may result in the patent claims being narrowed or invalidated, may allow third parties to commercialize our or our partners’ products and compete directly with us and our partners, without payment to us or our partners, or limit the duration of the patent protection of our patents related to Captisol were invalid, unenforceable and/or will not be infringed by Teva’s ANDA related to Spectrum Pharmaceuticals’ NDA for Evomela. On December 20, 2017, CyDex filed a complaint against Teva in the U.S. District Court for the District of Delaware, asserting that Teva’fs ANDA would infringeand our patents.
partners’ technology and products.
Litigation or other proceedings to enforce or defend intellectual property rights are often very complex in nature, may be very expensive and time-consuming, may divert our management’s attention from our core business, and may result in unfavorable results that could adversely impact our ability to prevent third parties from competing with our partner’s products. Any adverse outcome of such litigation or other proceedings could result in one or more or our patents being held invalid or unenforceable, which could adversely affect our ability to successfully execute our business strategy and negatively impact our financial condition and results of operations. However, given the unpredictability inherent in litigation, we cannot predict or guarantee the outcome of these matters or any other litigation. Regardless of how these matters are ultimately resolved, these matters may be costly, time-consuming and distracting to our management, which could have a material adverse effect on our business.
In addition, periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and or applications will be due to the U.S. and various foreign patent offices at various points over the lifetime of our and our licensees’ patents and/or applications. We have systems in place to remind us to pay these fees, and we rely on our outside patent annuity service to pay these fees when due. Additionally, the U.S. and various foreign patent offices require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with rules applicable to the particular jurisdiction. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or
complete loss of patent rights in the relevant jurisdiction. If such an event were to occur, it could have a material adverse effect on our business.
Any conflicts with the patent rights of others could significantly reduce the coverage of our patents or limit our ability to obtain meaningful patent protection. For example, our European patent related to Agglomerated forms of Captisol was limited during an opposition proceeding, and the rejection of our European patent application related to High Purity Captisol is currently being appealed.was upheld on appeal. In addition, any determination that our patent rights are invalid may result in early termination of our agreements with our license partners and could adversely affect our ability to enter into new license agreements. We also rely on unpatented trade secrets and know-how to protect and maintain our competitive position. We require our employees, consultants, licensees and others to sign confidentiality agreements when they begin their relationship with us. These agreements may be breached, and we may not have adequate remedies for any breach. In addition, our competitors may independently discover our trade secrets.
We may also need to initiate litigation, which could be time-consuming and expensive, to enforce our proprietary rights or to determine the scope and validity of others' rights. If this occurs, a court may find our patents or those of our licensors invalid or may find that we have infringed on a competitor's rights. In addition, if any of our competitors have filed patent applications in the United States which claim technology we also have invented, the United States Patent and Trademark Office may require us to participate in expensive interference proceedings to determine who has the right to a patent for the technology.
The occurrence of any of the foregoing problems could be time-consuming and expensive and could adversely affect our financial position, liquidity and results of operations.
We rely heavily on licensee relationships,The validity, scope and any disputes or litigation with our partners or termination or breachenforceability of any patents that cover our partners’ biologic product candidate can be challenged by third parties.
For biologics, the Biologics Price Competition and Innovation Act of the related agreements could reduce the financial resources available to us, including milestone payments and future royalty revenues.
Our existing collaborations may not continue or be successful, and we may be unable to enter into future collaborative arrangements to develop and commercialize our unpartnered assets. Generally, our current collaborative partners also have the right to terminate their collaborations at will or under specified circumstances. If any of our collaborative partners breach or terminate their agreements with us or otherwise fail to conduct their collaborative activities successfully (for example, by not making required payments when due, or at all), our product development under these agreements will be delayed or terminated. Disputes or litigation may also arise with our collaborators (with us and/or with2009, BPCIA, provides a mechanism for one or more third parties), including those over ownership rightsparties to seek FDA approval to manufacture or sell a biosimilar or interchangeable versions of brand name biological products. Due to the large size and complexity of biological products, as compared to small molecules, a biosimilar must be “highly similar” to the reference product with “no clinically meaningful differences between the two.” The BPCIA does not require reference product sponsors to list patents in an Orange Book and does not include an automatic 30-month stay of FDA approval upon the timely filing of a lawsuit. The BPCIA, however, does require a formal pre-litigation process which includes the exchange of information between a biosimilar applicant and a reference biologic sponsor that includes the identification of relevant patents and each parties’ basis for infringement and invalidity. After the exchange of this information, sponsors may then initiate a lawsuit within 30 days to defend the patents identified in the exchange. If the biosimilar applicant successfully challenges the asserted patent claims it could result in the invalidation of, or render unenforceable, some or all of the relevant patent claims or result in a finding of non-infringement. Such litigation or other proceedings to enforce or defend intellectual property know-howrights are often very complex in nature, may be very expensive and time-consuming, may divert our management’s attention from our core business, and may result in unfavorable results that could limit our partners’ ability to prevent third parties from competing with their products or technologies developedproduct candidates.
Risks Related to Government Regulation and Legal Proceedings:
Market acceptance and sales of any approved product will depend significantly on the availability and adequacy of coverage and reimbursement from third-party payors and may be affected by existing and future healthcare reform measures.
Sales of the products we license to our collaboration partners and the royalties we receive will depend in large part on the extent to which coverage and reimbursement is available from government and health administration authorities, private health maintenance organizations and health insurers, and other healthcare payors. Significant uncertainty exists as to the reimbursement status of healthcare products. Healthcare payors, including Medicare, are challenging the prices charged for medical products and services. Government and other healthcare payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement for medical products. Even if a product is approved by the FDA, insurance coverage may not be available, and reimbursement levels may be inadequate, to cover the costs associated with the research, development, marketing and sale of the product. If government and other healthcare payors do not provide adequate coverage and reimbursement levels for any product, market acceptance and any sales could be reduced.
From time to time, legislation is implemented to reign in rising healthcare expenditures. By way of example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the ACA, was enacted, which included a number of provisions affecting the pharmaceutical industry, including, among other things, annual, non-deductible fees on any entity that manufactures or imports some types of branded prescription drugs and increases in Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program. Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA, and we expect there will be additional challenges and amendments to the ACA in the future.
Other legislative changes have been proposed and adopted since the ACA was enacted, including aggregate reductions of Medicare payments to providers of 2% per fiscal year and reduced payments to several types of Medicare providers. Moreover, there has recently been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed bills designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. Individual states in the United States have also become increasingly active in implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. We cannot predict
whether other legislative changes will be adopted, if any, or how such changes would affect our collaborators. For example, we are assertingoperations or financial condition.
We and our rightscollaboration partners may be subject to receivefederal and state healthcare laws, including fraud and abuse, false claims, physician payment against onetransparency and health information privacy and security laws. Our operations and those of our collaborativecollaboration partners are subject to various federal and state fraud and abuse laws, including, without limitation, anti-kickback, false claims and physician payment transparency statutes. These laws may impact, among other things, financial arrangements with physicians, sales, marketing and education programs and the manner in which could harmany of those activities are implemented. In addition, we may be subject to federal and state patient privacy regulations. If our relationship with such partner. Such disputesoperations or litigationthose of our collaboration partners are found to be in violation of any of those laws or any other applicable governmental regulations, we or our collaboration partners may be subject to penalties, including civil and criminal penalties, damages, fines, imprisonment, exclusion from government healthcare programs or the curtailment or restructuring of operations, any of which could adversely affect our rightsability to oneoperate our business and our financial condition.
Changes in funding for the FDA and other government agencies could hinder their ability to hire and retain key leadership and other personnel, or moreotherwise prevent new products and services from being developed or commercialized in a timely manner, which could negatively impact our business or the business of our product candidatespartners.
The ability of the FDA to review and could delay, interrupt or terminateapprove new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the collaborative research, developmentpayment of user fees, and commercialization of certain potential products, create uncertaintystatutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as to ownership rights of intellectual property, or could result in litigation or arbitration.a result. In addition, a significant downturn government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.
Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or deterioration in the business or financial condition of our collaborators or partners could result in a loss of expected revenue and our expected returns on investment. The occurrence of any of these problems could be time-consuming and expensive and couldapproved by necessary government agencies, which would adversely affect our business.
Our product candidates, andbusiness or the product candidatesbusiness of our partners, face significant developmentpartners. For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory hurdles prioragencies, such as the FDA, have had to partnering and/or marketingfurlough critical FDA employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could delay or prevent licensing, sales-based royalties and/or milestone revenue.
Before we or our partners obtain the approvals necessary to sell any of our unpartnered assets or partnered programs, we must show through preclinical studies and human testing that each potential product is safe and effective. We and/or our partners have a numbermaterial adverse effect on our business. If the timing of partnered programsFDA’s review and unpartnered assets moving toward or currently awaiting regulatory action. Failure to show any product's safety and effectiveness could delay or prevent regulatory approval of a product and could adversely affect our business. The drug development and clinical trials processnew products is complex and uncertain. For example,delayed, the resultstiming of preclinical studies and initial clinical trials may not necessarily predict the results from later large-scale clinical trials. In addition, clinical trials may not demonstrate a product's safety and effectiveness to the satisfaction of the regulatory authorities. A number of companies have suffered significant setbacks in advanced clinical trials or in seeking regulatory approvals, despite promising results in earlier trials. The FDA may also require additional clinical trials after regulatory approvals are received. Such additional trials may be expensive and time-consuming, and failure to successfully conduct those trials could jeopardize continued commercialization of a product.
The speed at which we and our partners complete our scientific studies and clinical trials depends on many factors, including, but not limited to, the ability to obtain adequate supplies of the products to be tested and patient enrollment. Patient enrollment is a function of many factors, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial and other potential drug candidates being studied. Delays in patient enrollment for our or our partners’ trialsdevelopment process may be delayed which would result in increased costsdelayed milestone revenues and longer development times. In addition, our partners have rights to control
product development and clinical programs for products developed under our collaborations. As a result, these partners may conduct these programs more slowly or in a different manner than expected. Moreover, even if clinical trials are completed, we or our partners still may not apply for FDA or foreign regulatory approval in a timely manner or the FDA or foreign regulatory authority still may not grant approval.
Our drug discovery, early-stage drug development, and product reformulation programs may require substantial additional capital to complete successfully. Our partner's drug development programs may require substantial additional capital to complete successfully, arising from costs to: conduct research, preclinical testing and human studies; establish pilot scale and commercial scale manufacturing processes and facilities; and establish and develop quality control, regulatory, marketing, sales and administrative capabilities to support these programs. While we expect to fund our research and development activities from cash generated from operations to the extent possible, if we are unable to do so, we may need to complete additional equity or debt financings or seek other external means of financing. These financings could depress our stock price. If additional funds are required to supportmaterially harm our operations and we are unable to obtain them on terms favorable to us, we may be required to cease or reduce further development or commercialization of our products, to sell some or all of our technology or assets or to merge with another entity.
Our OmniAb antibody platform faces specific risks, including the fact that no drug using antibodies from the platform has yet advanced to late stage clinical trials.
None of our collaboration partners using our OmniAb antibody platform have tested drugs based on the platform in clinical trials and, therefore, none of our OmniAb collaboration partners’ drugs have received FDA approval. If one of our OmniAb collaboration partners’ drug candidates fails during preclinical studies or clinical trials, our other OmniAb collaboration partners may decide to abandon drugs using antibodies generated from the OmniAb platform, whether or not attributable to the platform. All of our OmniAb collaboration partners may terminate their programs at any time without penalty. In addition, our OmniRat and OmniFlic platforms, which we consider the most promising, are covered by two patents within the U.S. and two patents in the European Union and are subject to the same risks as our patent portfolio discussed above, including the risk that our patents may infringe on third party patent rights or that our patents may be invalidated. Further, we face significant competition from other companies selling human antibody-generating rodents, especially mice which compete with our OmniMouse platform, including the VelocImmune mouse, the AlivaMab mouse, the Trianni mouse and the Kymouse. Many of our competitors have greater financial, technical and human resources than we do and may be better equipped to develop, manufacture and market competing antibody platforms.
business.
If plaintiffs bring product liability lawsuits against us or our partners, we or our partners may incur substantial liabilities and may be required to limit commercialization of our approved products and product candidates.
As is common in our industry, our partners and we face an inherent risk of product liability as a result of the clinical testing of our product candidates in clinical trials and face an even greater risk for commercialized products. Although we are not currently a party to product liability litigation, if we are sued, we may be held liable if any product or product candidate we develop causes injury or is found otherwise unsuitable during product testing, manufacturing, marketing or sale. Regardless of merit or eventual outcome, liability claims may result in decreased demand for any product candidates, partnered products or products that we may develop, injury to our reputation, discontinuation of clinical trials, costs to defend litigation, substantial monetary awards to clinical trial participants or patients, loss of revenue and product recall or withdrawal from the market and the inability to commercialize any products that we develop. We have product liability insurance that covers our clinical trials up to a $10.0 million annual limit. Our insurance coverage may not be sufficentsufficient to cover all of our product liability related expenses or losses and may not cover us for any expenses or losses we may suffer. If we are sued for any injury caused by our product candidates, partnered products or any future products, our liability could exceed our total assets.
Market acceptance and salesWe face risks related to handling of any approved product will depend significantly on the availability and adequacy of coverage and reimbursement from third-party payors and may be affected by existing and future healthcare reform measures.
Sales of the products we license to our collaboration partners and the royalties we receive will depend in large part on the extent to which coverage and reimbursement is available from government and health administration authorities, private health maintenance organizations and health insurers,hazardous materials and other healthcare payors. Significant uncertainty exists asregulations governing environmental safety.
Our operations are subject to the reimbursement status of healthcare products. Healthcare payors, including Medicare, are challenging the prices charged for medical productscomplex and services. Governmentstringent environmental, health, safety and other healthcare payorsgovernmental laws and regulations that both public officials and private individuals may seek to enforce. Our activities that are increasingly attemptingsubject to contain healthcare costs by limiting both coverage and the level of reimbursement for medical products. Even if a product is approved by the FDA, insurance coverage may not be available, and reimbursement levels may be inadequate, to cover the costs associated with the research, development, marketing and sale of the product. If government and other healthcare payors do not provide adequate coverage and reimbursement levels for any product, market acceptance and any sales could be reduced.
From time to time, legislation is implemented to reign in rising healthcare expenditures. By way of example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the ACA, was enacted, which included a number of provisions affecting the pharmaceutical industry, including,these regulations include, among other things, annual, non-deductible fees on any entityour use of hazardous materials and the generation, transportation and storage of waste. Although we have secured clearance from the EPA historically, and currently are operating in material compliance with applicable EPA rules and regulations, our business could be adversely affected if we discover that manufactureswe or imports some typesan acquired business is not in material compliance with these rules and regulations. In the future, we may pursue the use of branded prescription drugs and increases in Medicaid rebates owed by manufacturers underother surfactant substances that will require clearance from the Medicaid Drug Rebate Program. Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA,EPA, and we expect there willmay fail to obtain such clearance. Existing laws and regulations may also be additional challengesrevised or reinterpreted, or new laws and amendmentsregulations may become applicable to us, whether retroactively or prospectively, that may have a negative effect on our business and results of operations. It is also impossible to eliminate completely the ACA in the future.
Other legislative changes have been proposed and adopted since the ACA was enacted, including aggregate reductionsrisk of Medicare paymentsaccidental environmental contamination or injury to providers of 2% per fiscal year and reduced payments to several types of Medicare providers. Moreover, there has recently been heightened governmental scrutiny over the manner in which manufacturers set pricesindividuals. In such an event, we could be liable for their marketed products, which has resulted in several Congressional inquiries and proposed bills designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. Individual states in the United States have also become increasingly active in implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. We cannot predict whether other legislative changes will be adopted, if any or how such changes would affect our operations or financial condition.
We and our collaboration partners may be subject to federal and state healthcare laws, including fraud and abuse, false claims, physician payment transparency and health information privacy and security laws. Our operations and those of our collaboration partners are subject to various federal and state fraud and abuse laws, including, without limitation, anti-kickback, false claims and physician payment transparency statutes. These laws may impact, among other things, financial arrangements with physicians, sales, marketing and education programs and the manner in any of those activities are implemented. In addition, we may be subject to federal and state patient privacy regulations. If our operations or those of our collaboration partners are found to be in violation of any of those laws or any other applicable governmental regulations, we or our collaboration partners may be subject to penalties, including civil and criminal penalties, damages fines, imprisonment, exclusion from government healthcare programs or the curtailment or restructuring of operations, any ofthat result, which could adversely affect our abilitybusiness.
Risk Related to operate our business and our financial condition.Our Strategic Transactions:
Any difficulties from strategic acquisitions could adversely affect our stock price, operating results and results of operations.
We may acquire companies, businesses and products that complement or augment our existing business. We may not be able to integrate any acquired business successfully or operate any acquired business profitably. Integrating any newly acquired business could be expensive and time-consuming. Integration efforts often take a significant amount of time, place a significant strain on managerial, operational and financial resources and could prove to be more difficult or expensive than we predict. The diversion of our management's attention and any delay or difficulties encountered in connection with any future acquisitions we may consummate could result in the disruption of our on-goingongoing business or inconsistencies in standards and controls that could negatively affect our ability to maintain third-party relationships. Moreover, we may need to raise additional funds through public or private debt or equity financing, or issue additional shares, to acquire any businesses or products, which may result in dilution for stockholders or the incurrence of indebtedness.
As part of our efforts to acquire companies, business or product candidates or to enter into other significant transactions, we conduct business, legal and financial due diligence with the goal of identifying and evaluating material risks involved in the transaction. Despite our efforts, we ultimately may be unsuccessful in ascertaining or evaluating all such risks and, as a result, might not realize the intended advantages of the transaction. If we fail to realize the expected benefits from acquisitions we may consummate in the future or have consummated in the past, whether as a result of unidentified risks, integration difficulties, regulatory setbacks, litigation with current or former employees and other events, our business, results of operations and financial condition could be adversely affected. If we acquire product candidates, we will also need to make certain assumptions about, among other things, development costs, the likelihood of receiving regulatory approval and the market for such product candidates. Our assumptions may prove to be incorrect, which could cause us to fail to realize the anticipated benefits of these transactions.
In addition, we will likely experience significant charges to earnings in connection with our efforts, if any, to consummate acquisitions. For transactions that are ultimately not consummated, these charges may include fees and expenses for investment bankers, attorneys, accountants and other advisors in connection with our efforts. Even if our efforts are successful, we may incur, as part of a transaction, substantial charges for closure costs associated with elimination of duplicate
operations and facilities and acquired IPR&D charges. In either case, the incurrence of these charges could adversely affect our results of operations for particular quarterly or annual periods.
We recently acquired Pfenex, as well as Taurus and xCella. We may not be able to integrate these acquired businesses successfully, achieve the expected growth prospects and synergies, expected royalties and other economics or operate such businesses profitably.In addition, such acquisitions may disrupt our current plans and operations, we may not be able to retain key personnel or preserve existing business relationships following such acquisitions, and may incur unexpected costs, charges or expenses resulting from completion of the acquisitions.
We have restated prior consolidated financial statementsalso recently announced the disposition of Vernalis (R&D) Limited. We may not realize expected future benefits from the Vernalis transaction, including from retained licenses and we have previously identified material weaknesses in our internal control over financial reporting, which may lead to possible additional riskscollaboration economics and uncertainties, including possible loss of investor confidence and/or additional material misstatements in our financial statements.
We have restated our consolidated financial statements as of and for the year ended December 31, 2015 (including the third quarter within that year) and for the first and second quarters of fiscal year 2016 in order to correct certain accounting errors. For a description of the material weaknesses in our internal control over financial reporting identified by management in connection with the Restatement and the result of management’s efforts to remediate those material weaknesses, see “Part II, Item 9A - Controls and Procedures.”
As a result of indemnification claims under the Restatement, we have become subject to possible additional costsVernalis Purchase Agreement and risks, including (a) accounting and legal fees incurred in connectionour retention of certain liabilities associated with the RestatementVernalis business.
If we fail to realize the expected benefits from these acquisitions and (b) a possible loss of investor confidence. Further, we were subject to a shareholder lawsuit related to the Restatement. See "Item 3. Legal Proceedings."
As described in “Part II, Item 9A - Controls and Procedures,” management previoulsy identified control deficiencies that represent material weaknesses. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As a result of the identified material weaknesses, management has concluded that we did not maintain effective internal control over financial reporting as of December 31, 2016. See “Part II, Item 9A - Controls and Procedures.”
We developed and implemented a remediation plan to address the material weaknesses, which we concluded was successful as of December 31, 2017. However, if additional material weaknesses in our internal control over financial reporting are discovered or occur in the future, our consolidated financial statements may contain material misstatements and we could be required to restate our financial results, which could materially and adversely affectVernalis disposition, our business, results of operations and financial condition restrictcould be adversely affected.
Other Risks:
Our operating results may fluctuate significantly, which makes our abilityfuture operating results difficult to access the capital markets, requirepredict and could cause our operating results to fall below expectations or any guidance we may provide.
Our quarterly and annual operating results may fluctuate significantly, which makes it difficult for us to expend significant resourcespredict our future operating results. These fluctuations may occur due to correct a variety of factors, many of which are outside of our control, including, but not limited to:
•the material weakness, subject usroyalties from the sales of Kyprolis, Evomela and other products sold by our partners;
•the success of our collaboration partners’ preclinical and clinical programs;
•the timing of Captisol purchases for use in clinical trials and commercial products;
•the timing and cost of, and level of investment in, research, development, regulatory approval and commercialization activities relating to fines, penaltiesour internal development programs, which may change from time to time;
•expenditures that we may incur to acquire or judgments, harmdevelop additional product candidates and platform technologies; and
•future accounting pronouncements or changes in our reputationaccounting policies.
The cumulative effects of these factors could result in large fluctuations and unpredictability in our quarterly and annual operating results and revenues. This variability and unpredictability could result in our failing to meet the expectations of industry or otherwise causefinancial analysts or investors for any period. If our revenue or operating results fall below the expectations of analysts or investors or below any forecasts we may provide to the market, or if the forecasts we provide to the market are below the expectations of analysts or investors, the price of our common stock could decline substantially. Such a stock price decline in investor confidence.
could occur even when we have met any previously publicly stated revenue or earnings guidance we may provide.
Changes or modifications in financial accounting standards, including those related to revenue recognition, may harm our results of operations.
From time to time, the FASB either alone or jointly with other organizations, promulgates new accounting principles that could have an adverse impact on our results of operations. For example, in May 2014, FASB issued a newan accounting standard for revenue recognition-Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, or ASC 606-that supersedes most current revenue recognition guidance. The new guidance requires a company to recognize revenue upon transfer of goods or services to a customer at an amount that reflects the expected consideration to be received in exchange for those goods or services. The new guidance becomesbecame effective in fiscal 2018.
We anticipate this standard will have a material impact on our consolidated financial statements by accelerating the timing of revenue recognition for revenues related to royalties, and potentially certain contingent milestone based payments. Our practice has been to book royalties one quarter after our partners report sales of the underlying product. Now, underUnder ASC 606, Ligand will estimateestimates and bookbooks royalties in the same quarter that our partners report the sale of the underlying product. As a result, we will book royalties one quarter earlier compared to our past practice. We will rely on our partners’ earning releases and other information from our partners to determine the sales of our partners’ products and to estimate the related royalty revenues. If our partners report incorrect sales, or if our partners delay reporting of their earnings release, our royalty estimates may need to be revised and/or our financial reporting may be delayed.
Any difficulties in implementing this guidance could cause us to fail to meet our financial reporting obligations, which could result in regulatory discipline and harm investors’ confidence in us. Finally, if we were to change our critical accounting estimates, including those related to the recognition of license revenue and other revenue sources, our operating results could be significantly affected.
Uncertainties in the interpretation and application of the 2017 Tax Cuts and Jobs Act could materially affect our tax obligations and effective tax rate.
The 2017 Tax Cuts and Jobs Act (the Tax Act) was enacted on December 22, 2017, and significantly affected U.S. tax law by changing how the U.S. imposes income tax on corporations, including by reducing the U.S. corporate income tax rate. The U.S. Department of Treasury has broad authority to issue regulations and interpretative guidance that may significantly impact how we will apply the law and impact our results of operations in the period issued.
The Tax Act requires certain complex computations not previously provided in U.S. tax law. As such, the application of accounting guidance for such items is currently uncertain. Further, compliance with the Tax Act and the accounting for such provisions require accumulation of certain information not previously required or regularly produced. As a result, we have provided a provisional estimate on the effect of the Tax Act in our financial statements. As additional regulatory guidance is issued by the applicable taxing authorities, as accounting treatment is clarified, as we perform additional analysis on the application of the law, and as we refine estimates in calculating the effect, our final analysis, which will be recorded in the period completed, may be different from our current provisional amounts, which could materially affect our tax obligations and effective tax rate.
Our ability to use our net operating loss carryforwards and certain other tax attributes to offset future taxable income may be subject to certain limitations.
As of December 31, 20172020, we had U.S. federal and state net operating loss carryforwards (NOLs) of approximately $388$162.4 million and $127$129.3 million, respectively, whichrespectively. Our federal NOLs expire through 2036,2037 and our state NOLs begin to expire in 2031, if not utilized. Under the Tax Act, any federal NOLs arising in taxable years ending after December 31, 2017 will carry forward indefinitely. As of December 31, 2017,2020, we had federal and California research and development tax credit carryforwards of approximately $24$9.2 million and $21$23.1 million, respectively. The federal research and development tax credit carryforwards expire in various years through 2036,2040, if not utilized. The California research and development credit will carry forward indefinitely. Under Sections 382 and 383 of Internal Revenue Code of 1986, as amended (Code) if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes, such as research tax credits, to offset its future post-change income and taxes may be limited. In general, an “ownership change” occurs if there is a cumulative change in our ownership by “5% shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. We believe we have experienced certain ownership changes in the past and have reduced our deferred tax assets related to NOLs and research and development tax credit carryforwards accordingly. In the event that it is determined that we have in the past experienced additional ownership changes, or if we experience one or more ownership changes as a result future transactions in our stock, then we may be further limited in our ability to use our NOLs and other tax assets to reduce taxes owed on the net taxable income that we earn in the event that we attain profitability. Furthermore, under recently enacted U.S. tax legislation,the Tax Act, although the treamenttreatment of tax losses generated in tax years beginning before December 31, 2017 has generally not changed, tax losses generated in calendar year 2018 and beyondtax years beginning after December 31, 2017 may only offset 80% of our taxable income. This change may require us to pay federal income taxes in future years despite generatinghaving potentially generated a loss for federal income tax purposes in prior years. Any such limitations on the ability to use our NOLs and other tax assets could adversely impact our business, financial condition and operating results.
We rely on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cyber security incidents, could harm our ability to operate our business effectively.
Our business is increasingly dependent on critical, complex and interdependent information technology systems, including internet-based systems, to support business processes as well as internal and external communications. Despite the implementation of security measures, our internal computer systems and those of our partners are vulnerable to damage from cyber-attacks, computer viruses, security breaches, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. System failures, accidents or security breaches could cause interruptions in our operations, could lead to the loss of trade secrets or other intellectual property, could lead to the public exposure of personal information of our employees and others, and could result in a material disruption of our clinical and commercialization activities and business operations, in addition to possibly requiring substantial expenditures to remedy. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and our business and financial condition could be harmed.
The occurrence of a catastrophic disaster could damage our facilities beyond insurance limits or we could lose key data which could cause us to curtail or cease operations.
We are vulnerable to damage and/or loss of vital data from natural disasters, such as earthquakes, tornadoes, power loss, fire, floods and similar events, as well as from accidental loss or destruction. If any disaster were to occur, our ability to operate our business could be seriously impaired. We have property, liability, and business interruption insurance which may not be adequate to cover our losses resulting from disasters or other similar significant business interruptions, and we do not plan to purchase additional insurance to cover such losses due to the cost of obtaining such coverage. Any significant losses that are not recoverable under our insurance policies could seriously impair our business, financial condition and prospects.
We sold the 2019 Convertible Senior Notes, whichConversion of our outstanding convertible notes may impact our financial results,result in losses, result in the dilution of existing stockholders, create downward pressure on the price of our common stock, and restrict our ability to take advantage of future opportunities.
In August of 2014,May 2018, we sold $245.0issued $750.0 million aggregate principal amount of 0.75% Convertible Senior Notes due 2019, or the 2019 Convertible Senior2023 Notes. We will be required to pay interest on the 2019 Convertible Senior Notes until they come due or are converted, and the payment of that interest will reduce our net income. The sale of the 2019 Convertible Senior2023 Notes may also affect our earnings per share figures, as accounting procedures require that we include in our calculation of earnings per share the number of shares of our common stock into which the 2019 Convertible Senior2023 Notes are convertible. The 2019 Convertible Senior Notesconvertible notes may be converted under the conditions and at the premium specified in the 2019 Convertible Senior Notes, into cash and shares of our common stock, if any (subject to our right or obligation to pay cash in lieu of all or a portion of such shares). If shares of our common stock are issued to the holders of the 2019 Convertible Senior Notesconvertible notes upon conversion, there will be dilution to our shareholders equity and the market price of our shares may decrease due to the additional selling pressure in the market. Any downward pressure on the price of our common stock caused by the sale or potential sale of shares issuable upon conversion of the 2019 Convertible Notesconvertible notes could also encourage short sales by third parties, creating additional selling pressure on our stock. Upon the occurrence of certain circumstances, holders of the 2019 Convertible Senior Notesconvertible notes may require us to purchase all or a portion of their notes for cash, which may require the use of a substantial amount of cash. If such cash is not available, we may be required to sell other assets or enter into alternate financing arrangements at terms that may or may not be desirable. The existence of the 2019 Convertible Senior Notesconvertible notes and the obligations that we incurred by issuing them may restrict our ability to take advantage of certain future opportunities, such as engaging in future debt or equity financing activities.
As of December 31, 2020, we had $495.3 million aggregate principal amount of 2023 Notes. The notes are convertible into cash, and if applicable, shares of our common stock under certain circumstances, including trading price conditions related to our common stock. Upon conversion, we are required to record a gain or loss for the difference between the fair value of the notes to be extinguished and their corresponding net carrying value. The fair value of the notes to be extinguished depends on our current incremental borrowing rate. If our incremental borrowing rate at the time of conversion is lower than the implied interest rate of the notes, we will record a loss in our consolidated statement of income during the period in which the notes are converted.
Impairment charges pertaining to goodwill, identifiable intangible assets or other long-lived assets from our mergers and acquisitions could have an adverse impact on our results of operations and the market value of our common stock.
The total purchase price pertaining to our acquisitions in recent years of CyDex, Metabasis, Pharmacopeia, Neurogen and OMT have been allocated to net tangible assets, identifiable intangible assets, in-process research and development and goodwill. To the extent the value of goodwill or identifiable intangible assets or other long-lived assets become impaired, we will be required to incur material charges relating to the impairment. Any impairment charges could have a material adverse impact on our results of operations and the market value of our common stock.
Our investments are subject to market and credit risks that could diminish their value and these risks could be greater during periods of extreme volatility or disruption in the financial and credit markets, which could adversely impact our business, financial condition, results of operations, liquidity and cash flows.
Our investments are subject to risks of credit defaults and changes in market values. Periods of macroeconomic weakness or recession, heightened volatility or disruption in the financial and credit markets could increase these risks, potentially resulting in other than temporary impairment of assets in our investment portfolio. Any event reducing the estimated fair value of these securities, other than on a temporary basis, could have a material and adverse effect on our business, results of operations, financial condition, liquidity and cash flows. If our investment manager, fails to react appropriately to difficult market, economic and geopolitical conditions, our investment portfolio could incur material losses.
We have a risk management framework in place to identify, assess and prioritize risks, including the market and credit risks to which our investments are subject. As part of that framework, we test our investment portfolio based on various market scenarios. Under certain stressed market scenarios, unrealized losses on our investment portfolio could lead to material reductions in its carrying value.
A decline in fair value below the amortized cost of a security requires management to assess whether an impairment has occurred. The decision on whether to record an impairment is determined in part by our assessment of the financial condition and prospects of a particular issuer, projections of future cash flows and recoverability of the particular security as well as management’s assertion of whether it is more likely than not that we will sell the particular security before recovery.
Our charter documents and concentration of ownership may hinder or prevent change of control transactions.
Provisions contained in our certificate of incorporation and bylaws may discourage transactions involving an actual or potential change in our ownership. In addition, our Board of Directors may issue shares of common or preferred stock without any further action by the stockholders. Our directors and certain of our institutional investors collectively beneficially own a significant portion of our outstanding common stock. Such provisions and issuances may have the effect of delaying or preventing a change in our ownership. If changes in our ownership are discouraged, delayed or prevented, it would be more difficult for our current Board of Directors to be removed and replaced, even if you or our other stockholders believe that such actions are in the best interests of us and our stockholders.
Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the General Corporation Law of Delaware or our amended and restated certificate of incorporation or amended and restated bylaws, or (iv) any action asserting a claim governed by the internal affairs doctrine. To the extent that any such claims may be based upon federal law claims, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Furthermore, Section 22 of the Securities Act provides for concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder, and as such, the exclusive jurisdiction clauses set forth above would not apply to such suits. The choice of forum provisions in our amended and restated bylaws may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. By agreeing to these provisions, however, stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder. Furthermore, the enforceability of similar choice of forum provisions in other companies’ certificates of incorporation and bylaws has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. If a court were to find the choice of forum provisions in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.
Our stock price has been volatile and could experience a sudden decline in value.
The market prices for securities of biotechnology and pharmaceutical companies have historically been highly volatile, and the market has recently experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. Continued volatility in the overall capital markets could reduce the market price of our common stock in spite of our operating performance. Further, high stock price volatility could result in higher stock-basedshare-based compensation expense.
Our common stock has experienced significant price and volume fluctuations and may continue to experience volatility in the future. Many factors may have a significant impact on the market price of our common stock, including, but not limited to, the following factors: results of or delays in our preclinical studies and clinical trials; the success of our collaboration agreements; publicity regarding actual or potential medical results relating to products under development by us or others; announcements of technological innovations or new commercial products by us or others; developments in patent or other proprietary rights by us or others; comments or opinions by securities analysts or major stockholders or changed securities analysts' reports or recommendations; future sales or shorting of our common stock by existing stockholders; regulatory developments or changes in regulatory guidance; litigation or threats of litigation; economic and other external factors or other disaster or crises; the departure of any of our officers, directors or key employees; period-to-period fluctuations in financial results; and price and volume fluctuations in the overall stock market.
Our results of operations and liquidity needs could be materially negatively affected by market fluctuations and economic downturn.
Our results of operations could be materially negatively affected by economic conditions generally, both in the United States and elsewhere around the world. Concerns over inflation, energy costs, geopolitical issues, public health emergencies, the availability and cost of credit, and the U.S. financial markets have in the past contributed to, and may continue in the future contributedto contribute to, increased volatility and diminished expectations for the economy and the markets. For example, the outbreak of a novel strain of coronavirus has affected the People’s Republic of China and elsewhere and has affected worldwide equity markets. Domestic and international equity markets periodically experience heightened volatility and turmoil. These events may have an adverse effect on us. In the event of a market downturn, our results of operations could be adversely affected by those factors in many ways, including making it more difficult for us to raise funds if necessary, and our stock price may further decline. We cannot provide assurance that our investments are not subject to adverse changes in market value. If our investments experience adverse changes in market value, we may have less capital to fund our operations.
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| Item 1B. | Unresolved Staff Comments |
None.
The following table summarizes our principal facilities leased as of December 31, 2020, including the location and size of each facility, and their designated use. We currentlyalso lease premises consisting of approximately 5,000 square feet of office spacefacilities in San Diego which servesother locations. We believe our facilities are adequate for our current and near-term needs, and we will be able to locate additional facilities, as our corporate headquarters. The lease expires in May 2023.needed.
We lease approximately 1,500 square feet of laboratory space located at the Bioscience and Technology Business Center in Lawrence, Kansas, leased through December 2020.
We lease approximately 13,000 square feet of office and laboratory space located in Emeryville, California. The lease expires in August 2021. | | | | | | | | | | | |
| Location | Approximate
Square Feet | Operation | Lease Expiration Date |
| San Diego, CA | 54,000 | Corporate headquarters office and laboratory | March 2024 |
| Emeryville, CA | 13,000 | Office and laboratory | August 2021 |
| Durham, NC | 11,200 | Office and laboratory | April 2022 |
From timeSee “Item 8. Financial Statements and Supplementary Data—Notes to time we are subject to various lawsuitsConsolidated Financial Statements—Note (10), Commitments and claims with respect to matters arising out of the normal course of our business. Due to the uncertainty of the ultimate outcome of these matters, the impact on future financial results is not subject to reasonable estimates.Contingencies—Legal Proceedings.”
In November 2016, a putative shareholder class action lawsuit was filed in the United States District Court for the Southern District of California against the Company, its chief executive officer and chief financial officer. The complaint was voluntarily dismissed without prejudice on May 15, 2017.
In November 2017, CyDex, our wholly owned subsidiary, received a paragraph IV certification from Teva Pharmaceuticals USA, Inc., Teva Pharmaceutical Industries Ltd. and Actavis, LLC (collectively “Teva”) alleging that certain of our patents related to Captisol were invalid, unenforceable and/or will not be infringed by Teva’s ANDA related to Spectrum
Pharmaceuticals’ NDA for Evomela. On December 20, 2017, CyDex filed a complaint against Teva in the U.S. District Court for the District of Delaware, asserting that Teva’s ANDA would infringe our patents.
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| Item 4. | Mine Safety Disclosures |
Not applicable.
PART II
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| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities |
Market Information
Our common stock is traded on the Nasdaq Global Market under the symbol “LGND.”
The following table sets forth the high and low intraday sales prices for our common stock on the Nasdaq Global Market for the periods indicated:
|
| | | | | | | |
| | Price Range |
| | Low | | High |
| Year Ended December 31, 2017: | | | |
| 1st Quarter | $ | 100.38 |
| | $ | 109.54 |
|
| 2nd Quarter | $ | 104.13 |
| | $ | 123.87 |
|
| 3rd Quarter | $ | 116.75 |
| | $ | 137.94 |
|
| 4th Quarter | $ | 128.36 |
| | $ | 147.04 |
|
| Year Ended December 31, 2016: | | | |
| 1st Quarter | $ | 82.06 |
| | $ | 108.79 |
|
| 2nd Quarter | $ | 95.05 |
| | $ | 131.84 |
|
| 3rd Quarter | $ | 97.22 |
| | $ | 139.79 |
|
| 4th Quarter | $ | 87.50 |
| | $ | 110.83 |
|
As of February 15, 2018, the closing price of our common stock on the NASDAQ Global Market was $157.18
Holders
As of February 15, 2018,18, 2021, there were approximately 665424 holders of record of the common stock.
PurchasesExcept for 2007, during which we declared a cash dividend on our common stock of Equity Securities By$2.50 per share, we have not paid any dividends on our common stock in the Issuerpast and Affiliated Purchasers
currently do not expect to pay cash dividends or make any other distributions on common stock in the future. We expect to retain our future earnings, if any, for use in the operation and expansion of our business, to pay down debt and potentially for share repurchases. Any future determination to pay dividends on common stock will be at the discretion of our board of directors and will depend upon our financial condition, results of operations, capital requirements and such other factors as the board deems relevant.
The following table presents information regarding repurchases by us of our common stock during the three months ended December 31, 20172020 under the stock repurchase program approved by our board of directors in September 2015,2019, under which we may acquire up to $200$500 million of our common stock in open market and negotiated purchases for a period of up to three years.
ISSUER PURCHASES OF EQUITY SECURITIES
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| | | | | | | | | | | | | | |
| | | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program (in thousands) |
| October 1 - October 31, 2017 | | — |
| | $ | — |
| | — |
| | $ | 195,610 |
|
| November 1 - November 30, 2017 | | 10,000 |
| | $ | 142.47 |
| | 10,000 |
| | $ | 194,185 |
|
| December 1 - December 31, 2017 | | 4,000 |
| | $ | 135.32 |
| | 4,000 |
| | $ | 193,644 |
|
| Total | | 14,000 |
| | $ | 140.43 |
| | 14,000 |
| | $ | 193,644 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program (in thousands) |
| October 1 - October 31, 2020 | | — | | | $ | — | | | — | | | $ | 253,499 | |
| November 1 - November 30, 2020 | | 55,554 | | | $ | 84.81 | | | 55,554 | | | $ | 248,788 | |
| December 1 - December 31, 2020 | | — | | | $ | — | | | — | | | $ | 248,788 | |
| Total | | 55,554 | | | $ | 84.81 | | | 55,554 | | | |
The information required by Item 201(d) of Regulation S-K is incorporated by reference to the 2021 Annual Meeting Proxy Statement as defined in Item 10 below.
Performance Graph
The graph below shows the five-year cumulative total stockholder return assuming the investment of $100 and is based on the returns of the component companies weighted monthly according to their market capitalizations. The graph compares total stockholder returns of our common stock, of all companies traded on the NASDAQNasdaq Stock market, as represented by the NASDAQNasdaq Composite® Index, and of the NASDAQNasdaq Biotechnology Stock Index, as prepared by The NASDAQNasdaq Stock Market Inc.
The stockholder return shown on the graph below is not necessarily indicative of future performance and we will not make or endorse any predictions as to future stockholder returns.
Value of $100 Invested Over Time
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 12/31/2015 | | 12/31/2016 | | 12/31/2017 | | 12/31/2018 | | 12/31/2019 | | 12/31/2020 |
| Ligand | | | | $ | 100.00 | | | $ | 93.72 | | | $ | 126.30 | | | $ | 125.16 | | | $ | 96.19 | | | $ | 91.73 | |
| NASDAQ Composite-Total Return | | | | $ | 100.00 | | | $ | 108.87 | | | $ | 141.13 | | | $ | 137.12 | | | $ | 187.44 | | | $ | 271.64 | |
| NASDAQ Biotechnology Index | | | | $ | 100.00 | | | $ | 78.65 | | | $ | 95.69 | | | $ | 87.21 | | | $ | 109.11 | | | $ | 137.94 | |
|
| | | | | | | | | | | | | | | |
| | | 12/31/2013 | | 12/31/2014 | | 12/31/2015 | | 12/31/2016 | | 12/31/2017 |
| Ligand | | 154 | % | | 1 | % | | 104 | % | | (6 | )% | | 35 | % |
| NASDAQ Market (U.S. Companies) Index | | 40 | % | | 15 | % | | 7 | % | | 9 | % | | 27 | % |
| NASDAQ Biotechnology Stocks | | 66 | % | | 34 | % | | 12 | % | | (21 | )% | | 22 | % |
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| Item 6. | Selected Consolidated Financial Data |
The following selected historical consolidated financial and other data are qualified by reference to, and should be read in conjunction with, our consolidated financial statements and the related notes thereto appearing elsewhere herein and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our selected statement of operations data set forth below for each of the years ended December 31, 2020, 2019, 2018, 2017 2016, 2015, 2014, and 20132016 and the balance sheet data as of December 31, 2020, 2019, 2018, 2017 2016, 2015, 2014 and 20132016 are derived from our consolidated financial statements.
The comparability of the information is affected by a variety of factors, including acquisitions and divestitures of businesses, issuance and repayment of debt, share-based compensation expense, and repurchases of common stock under our stock repurchase programs. In addition, the consolidated statements of operations data for each of the years ended December 31, 2017 and 2016 and the selected consolidated balance sheet data as of December 31, 2017 and 2016 set forth in the tables below do not reflect the adoption of Topic 606 and continue to be reported under the standards in effect for those periods. Additionally, the selected consolidated balance sheet data as of December 31, 2018, 2017 and 2016 set forth in the tables below do not reflect the adoption of Topic 842 regarding leases and continue to be reported under Topic 840 for those periods. The selected consolidated financial data in this section are not intended to replace our consolidated financial statements and related notes. Our historical results are not necessarily indicative of our future results.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Consolidated Statements of Operations Data: | | | (in thousands, except per share amounts) |
| Royalties | $ | 33,796 | | | $ | 46,976 | | | $ | 128,556 | | | $ | 88,685 | | | $ | 59,423 | |
| Captisol | 109,959 | | | 31,489 | | | 29,123 | | | 22,070 | | | 22,502 | |
| Contract revenue | 42,664 | | | 41,817 | | | 93,774 | | | 30,347 | | | 27,048 | |
| Total revenues | 186,419 | | | 120,282 | | | 251,453 | | | 141,102 | | | 108,973 | |
| Cost of Captisol | 30,419 | | | 11,347 | | | 6,337 | | | 5,366 | | | 5,571 | |
| Amortization of intangibles | 23,442 | | | 16,864 | | | 15,792 | | | 12,120 | | | 10,643 | |
| Research and development | 59,392 | | | 55,908 | | | 27,863 | | | 26,887 | | | 21,221 | |
| General and administrative | 64,435 | | | 41,884 | | | 37,734 | | | 28,653 | | | 27,653 | |
| Total operating costs and expenses | 177,688 | | | 126,003 | | | 87,726 | | | 73,026 | | | 65,088 | |
| Gain from sale of Vernalis R&D | 17,114 | | | — | | | — | | | — | | | — | |
| Gain from sale of Promacta license | — | | | 812,797 | | | — | | | — | | | — | |
| Income from operations | 25,845 | | | 807,076 | | | 163,727 | | | 68,076 | | | 43,885 | |
| Total other income (expense), net | (36,383) | | | (10,437) | | | 9,603 | | | (10,845) | | | (35,925) | |
| Income tax benefit (expense) | 7,553 | | | (167,337) | | | (30,009) | | | (44,675) | | | (10,327) | |
| Income (loss) from continuing operations | (2,985) | | | 629,302 | | | 143,321 | | | 12,556 | | | (2,367) | |
| Discontinued operations | — | | | — | | | — | | | — | | | 731 | |
| Net income (loss) | $ | (2,985) | | | $ | 629,302 | | | $ | 143,321 | | | $ | 12,556 | | | $ | (1,636) | |
| Basic per share amounts: | | | | | | | | | |
| Income (loss) from continuing operations | $ | (0.18) | | | $ | 33.13 | | | $ | 6.77 | | | $ | 0.60 | | | $ | (0.11) | |
| Discontinued operations | — | | | — | | | — | | | — | | | 0.04 | |
| Net income (loss) | $ | (0.18) | | | $ | 33.13 | | | $ | 6.77 | | | $ | 0.60 | | | $ | (0.08) | |
| Weighted average number of common shares-basic | 16,185 | | | 18,995 | | | 21,160 | | | 21,032 | | | 20,831 | |
| Diluted per share amounts: | | | | | | | | | |
| Income (loss) from continuing operations | $ | (0.18) | | | $ | 31.85 | | | $ | 5.96 | | | $ | 0.53 | | | $ | (0.11) | |
| Discontinued operations | — | | | — | | | — | | | — | | | 0.04 | |
| Net income (loss) | $ | (0.18) | | | $ | 31.85 | | | $ | 5.96 | | | $ | 0.53 | | | $ | (0.08) | |
| Weighted average number of common shares-diluted | 16,185 | | | 19,757 | | | 24,067 | | | 23,481 | | | 20,831 | |
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| Consolidated Statements of Operations Data: | (in thousands) |
| Royalties | $ | 88,685 |
| | $ | 59,423 |
| | $ | 38,194 |
| | $ | 29,994 |
| | $ | 23,584 |
|
| Material sales | 22,070 |
| | 22,502 |
| | 27,662 |
| | 28,488 |
| | 19,072 |
|
| License fees, milestones, and other revenues | 30,347 |
| | 27,048 |
| | 6,058 |
| | 6,056 |
| | 6,317 |
|
| Total revenues | 141,102 |
| | 108,973 |
| | 71,914 |
| | 64,538 |
| | 48,973 |
|
| Cost of sales | 5,366 |
| | 5,571 |
| | 5,807 |
| | 9,136 |
| | 3,357 |
|
| Intangible Amortization | 12,120 |
| | 10,643 |
| | 2,375 |
| | 2,375 |
| | 2,375 |
|
| Research and development expenses | 26,887 |
| | 21,221 |
| | 11,005 |
| | 9,747 |
| | 9,274 |
|
| General and administrative expenses | 28,653 |
| | 27,653 |
| | 25,398 |
| | 23,654 |
| | 18,544 |
|
| Write-off of acquired IPR&D | — |
| | — |
| | — |
| | — |
| | 480 |
|
| Total operating costs and expenses | 73,026 |
| | 65,088 |
| | 44,585 |
| | 44,912 |
| | 34,030 |
|
| Income from operations | 68,076 |
| | 43,885 |
| | 27,329 |
| | 19,626 |
| | 14,943 |
|
| Income (loss) from continuing operations including noncontrolling interests | 12,556 |
| | (2,367 | ) | | 227,444 |
| | 10,892 |
| | 8,832 |
|
| Loss attributable to noncontrolling interests | — |
| | — |
| | (2,380 | ) | | (1,132 | ) | | — |
|
| Income (loss) from continuing operations | 12,556 |
| | (2,367 | ) | | 229,824 |
| | 12,024 |
| | 8,832 |
|
| Discontinued operations | — |
| | 731 |
| | — |
| | — |
| | 2,588 |
|
| Net income (loss) | 12,556 |
| | (1,636 | ) | | 229,824 |
| | 12,024 |
| | 11,420 |
|
| Basic per share amounts: | | | | | | | | | |
| Income (loss) from continuing operations | $ | 0.60 |
|
| $ | (0.11 | ) | | $ | 11.61 |
| | $ | 0.59 |
| | $ | 0.43 |
|
| Discontinued operations | — |
| | 0.04 |
| | — |
| | — |
| | 0.13 |
|
| Net income (loss) | $ | 0.60 |
| | $ | (0.08 | ) | | $ | 11.61 |
| | $ | 0.59 |
| | $ | 0.56 |
|
| Weighted average number of common shares-basic | 21,032 |
| | 20,831 |
| | 19,790 |
| | 20,419 |
| | 20,312 |
|
| Diluted per share amounts: | | | | | | | | | |
| Income (loss) from continuing operations | $ | 0.53 |
|
| $ | (0.11 | ) | | $ | 10.83 |
| | $ | 0.56 |
| | $ | 0.43 |
|
| Discontinued operations | — |
|
| 0.04 |
| | — |
| | — |
| | 0.12 |
|
| Net income (loss) | $ | 0.53 |
| | $ | (0.08 | ) | | $ | 10.83 |
| | $ | 0.56 |
| | $ | 0.55 |
|
| Weighted average number of common shares-diluted | 23,481 |
| | 20,831 |
| | 21,228 |
| | 21,433 |
| | 20,745 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| (in thousands) |
| Consolidated Balance Sheet Data: | | | | | | | | | |
| Cash, cash equivalents, short-term investments, restricted cash and investments | $ | 411,186 | | | $ | 1,070,597 | | | $ | 776,445 | | | $ | 208,099 | | | $ | 149,393 | |
| Working capital (deficit) | $ | 400,448 | | | $ | 1,106,643 | | | $ | 788,291 | | | $ | (1,847) | | | $ | (64,076) | |
| Total assets | $ | 1,362,285 | | | $ | 1,494,915 | | | $ | 1,260,803 | | | $ | 671,021 | | | $ | 601,585 | |
| Other long-term obligations | $ | 110,356 | | | $ | 71,722 | | | $ | 7,776 | | | $ | 13,506 | | | $ | 3,603 | |
| Total notes payable, net (including current portion) | $ | 442,293 | | | $ | 638,959 | | | $ | 636,297 | | | $ | 224,529 | | | $ | 212,910 | |
| Retained earnings (accumulated deficit) | $ | 391,952 | | | $ | 400,105 | | | $ | (229,197) | | | $ | (400,924) | | | $ | (431,127) | |
| Total stockholders’ equity | $ | 709,525 | | | $ | 767,232 | | | $ | 560,914 | | | $ | 399,788 | | | $ | 341,290 | |
|
| | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | (in thousands) |
| Consolidated Balance Sheet Data: | | | | | | | | | |
| Cash, cash equivalents, short-term investments, restricted cash and investments | $ | 208,099 |
| | 149,393 |
| | $ | 229,947 |
| | $ | 168,597 |
| | $ | 17,320 |
|
| Working capital (deficit) | (1,847 | ) | | (64,076 | ) | | (8,109 | ) | | 162,379 |
| | (4,058 | ) |
| Total assets | 671,021 |
| | 601,585 |
| | 503,061 |
| | 258,029 |
| | 104,713 |
|
| Long-term obligations (excludes long-term portions of deferred revenue, net and deferred gain) | 9,981 |
| | 3,603 |
| | 3,330 |
| | 208,757 |
| | 24,076 |
|
| Accumulated deficit | (400,924 | ) | | (431,127 | ) | | (429,491 | ) | | (659,315 | ) | | (671,339 | ) |
| Total stockholders’ equity | 399,788 |
| | 341,290 |
| | 237,282 |
| | 26,318 |
| | 49,613 |
|
|
| | | | |
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Our Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) will help readers understand our results of operations, financial condition, and cash flows. It is provided in addition to the accompanying consolidated financial statements and notes. Comparisons under this heading refer to twelve months ended December 31, 2020 and 2019, respectively, unless otherwise indicated.
Our MD&A is organized as follows:
•Results of Operations. Detailed discussion of our revenue and expenses for twelve months ended December 31, 2020 and 2019. A comparison of our results of operations for twelve months ended December 31, 2019 and 2018 can be found under “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on February 27, 2020.
•Liquidity and Capital Resources. Discussion of key aspects of our consolidated statements of cash flows, changes in our financial position, and our financial commitments.
•Off-Balance Sheet Arrangements. We have no off-balance sheet arrangements.
•Contractual Obligations. Tabular disclosure of known contractual obligations as of December 31, 2020.
•Critical Accounting Policies and Estimates. Discussion of significant changes we believe are important to understand the assumptions and judgments underlying our consolidated financial statements.
•Recent Accounting Pronouncements. For summary of recent accounting pronouncements applicable to our consolidated financial statements, see “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (1), Basis of Presentation and Summary of Significant Accounting Policies.”
Results of Operations
Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in thousands) | 2020 | | 2019 | | Change | | % Change | |
| Royalties | $ | 33,796 | | | $ | 46,976 | | | $ | (13,180) | | | (28) | % | |
| Captisol Sales | 109,959 | | | 31,489 | | | 78,470 | | | 249 | % | |
| Contract Revenue | 42,664 | | | 41,817 | | | 847 | | | 2 | % | |
| Total revenue | $ | 186,419 | | | $ | 120,282 | | | $ | 66,137 | | | 55 | % | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in thousands) | 2017 | | 2016 | | Change | | % Change | | 2015 | | Change | | % Change |
| Royalty Revenue | $ | 88,685 |
| | $ | 59,423 |
| | $ | 29,262 |
| | 49 | % | | $ | 38,194 |
| | $ | 21,229 |
| | 56 | % |
| Material Sales | 22,070 |
| | 22,502 |
| | (432 | ) | | (2 | )% | | 27,662 |
| | (5,160 | ) | | (19 | )% |
| License fees, milestones and other revenue | 30,347 |
| | 27,048 |
| | 3,299 |
| | 12 | % | | 6,058 |
| | 20,990 |
| | 346 | % |
| Total revenue | $ | 141,102 |
| | $ | 108,973 |
| | $ | 32,129 |
| | 29 | % | | $ | 71,914 |
| | $ | 37,059 |
| | 52 | % |
Total revenue for 2017 increased $32.1 million or 29% compared with 2016 and for 2016 it increased $37.1 million or 52% compared with 2015.
Royalty revenue increased in each year presented primarily due to an increase in Promacta, Kyprolis and Evomela royalties. Increases in Promactais a function of our partners' product sales of $197 million in 2017 and $151 million in 2016, and increases in the effectiveapplicable royalty rates due to ourrate. Kyprolis royalty rate is under a tiered royalty rate structure drovewith the increase in Promacta royalty revenue. The effective royalty rate for Promacta was 8.0% in 2017, 7.3% in 2016 and 6.7% in 2015. Increases in Kyprolis product sales of $167 million in 2017 and $217 million in 2016 and increases in the effective royalty rates due to our tiered royalty rate structure, drove the increase in Kyprolis royalty revenue. The effective royalty rate for Kyprolis was 2.0% in 2017, 1.9% in 2016 and 1.7% in 2015.highest being 3.0%. Evomela was launched in late 2016 and has a fixed royalty rate of 20%. Evomela royalties increased as a resultOn March 6, 2019, we sold all of an increaseour rights, title and interest in productand to the Promacta license to RPI. Subsequent to March 6, 2019, we no longer recognize revenue related to sales of $29Promacta. See “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (2), Sale of Vernalis R&D and Promacta License.”
Royalty revenue decreased in 2020 as compared to 2019 driven primarily by the above mentioned sale of the Promacta license in March 2019, which contributed $14.2 million revenue in 2017 and $7 million and in 2016.
Material2019. In addition, royalties for 2020 were impacted by the ongoing COVID-19 pandemic. Captisol sales decreasedincreased year over year in 2017 and 2016 due to timing of customer purchases2020 primarily reflecting higher sales of Captisol for use in clinical trials andthe manufacturing of Veklury. Contract revenue increased slightly year over year in commercialized products. The increase in license fee, milestones and other revenues in 2017 compared to 2016 is primarily due to OmniAb license fees and milestone payments and the increase in 2016 compared to 2015 is primarily due to OmniAb license fees and a milestone payment received from Spectrum as a result of the FDA approval of Evomela.
2020.
The following table represents royalty revenue by program (in thousands):program:
|
| | | | | | | | | | | |
| | Year ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Promacta / Revolade | $ | 62,918 |
| | $ | 43,043 |
| | $ | 29,295 |
|
| Kyprolis | 16,413 |
| | 12,145 |
| | 7,317 |
|
| Third Largest Royalty | 7,155 |
| | 1,357 |
| | 390 |
|
| Other Royalties | 2,199 |
| | 2,878 |
| | 1,192 |
|
| Total | $ | 88,685 |
| | $ | 59,423 |
| | $ | 38,194 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | 2020 Estimated Partner Product Sales | Effective Royalty Rate | 2020 Royalty Revenue | | 2019 Estimated Partner Product Sales | Effective Royalty Rate | 2019 Royalty Revenue |
| Kyprolis | $ | 1,094.6 | | 2.3% | $ | 25.2 | | | $ | 1,095.4 | | 2.3% | $ | 25.0 | |
| Evomela | 32.6 | | 20.0% | 6.4 | | | 26.0 | | 20.0% | 5.2 | |
| Other | 178.5 | | 1.2% | 2.2 | | | 194.1 | | 1.3% | 2.6 | |
| Promacta | N/A | N/A | N/A | | 225.1 | | 6.3% | 14.2 | |
| Total | $ | 1,305.7 | | | $ | 33.8 | | | $ | 1,540.6 | | | $ | 47.0 | |
The following table represents material sales by clinical and commercial use (in thousands):
|
| | | | | | | | | | | |
| | Year ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Clinical material sales | $ | 7,671 |
| | $ | 9,325 |
| | $ | 10,049 |
|
| Commercial material sales | 14,399 |
| | 13,177 |
| | 17,613 |
|
| Total | $ | 22,070 |
| | $ | 22,502 |
| | $ | 27,662 |
|
Operating Costs and Expenses
| | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in thousands) | 2020 | | 2019 | | Change | | % Change |
| Cost of Captisol | $ | 30,419 | | | $ | 11,347 | | | $ | 19,072 | | | 168 | % |
| Amortization of intangibles | 23,442 | | | 16,864 | | | 6,578 | | | 39 | % |
| Research and development | 59,392 | | | 55,908 | | | 3,484 | | | 6 | % |
| General and administrative | 64,435 | | | 41,884 | | | 22,551 | | | 54 | % |
| Total operating costs and expenses | $ | 177,688 | | | $ | 126,003 | | | $ | 51,685 | | | 41 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in thousands) | 2017 | | 2016 | | Change | | % Change | | 2015 | | Change | | % Change |
| Cost of sales | $ | 5,366 |
| | $ | 5,571 |
| | $ | (205 | ) | | (4 | )% | | $ | 5,807 |
| | $ | (236 | ) | | (4 | )% |
| Amortization of intangibles | 12,120 |
| | 10,643 |
| | 1,477 |
| | 14 | % | | 2,375 |
| | 8,268 |
| | 348 | % |
| Research and development | 26,887 |
| | 21,221 |
| | 5,666 |
| | 27 | % | | 11,005 |
| | 10,216 |
| | 93 | % |
| General and administrative | 28,653 |
| | 27,653 |
| | 1,000 |
| | 4 | % | | 25,398 |
| | 2,255 |
| | 9 | % |
| Total operating costs and expenses | $ | 73,026 |
| | $ | 65,088 |
| | $ | 7,938 |
| | 12 | % | | $ | 44,585 |
| | $ | 20,503 |
| | 46 | % |
Total operating costs and expenses for 20172020 increased $7.9$51.7 million or 12%41% compared with 2016. 2019.
Cost of sales decreasedCaptisol increased year over year in 2017 and 20162020 primarily due to lower materialhigher sales as a result of timing of customer purchases. Captisol during 2020.
Amortization of intangibles increased year over year in 2017 and 20162020 primarily due primarily to the acquisitionacquisitions of CrystalIcagen in April 2020 and OMTPfenex in October 20172020.
At any one time, we are working on multiple programs. As such, we generally do not track our R&D expenses on a specific program basis. Our R&D expenses increased year over year in 2020 due to the costs associated with our acquisitions of Icagen in April 2020 and January 2016, respectively. ResearchPfenex in October 2020, which primarily consisted of salaries and development expenseslab costs and generalintangible amortizations associated with Icagen ($10.4 million) and Pfenex ($13.5 million). The increases were partially offset by a $17.0 million year over year decreases in amortization of other economic rights, primarily consisting of economic rights acquired from Palvella in December 2018 and Novan in February 2019.
General and administrative expenses increased year over year in 20172020 primarily due to $20.7 million acquisition and 2016 due primarily to increased business development activities, timing of internal development costs and increased stock-based compensation expense and headcountintegration related expenses associated with Crystal and OMT.the Pfenex acquisition.
We do not provide forward-looking estimates of costs and time to complete our ongoing research and development projects as such estimates would involve a high degree of uncertainty. Uncertainties include our inability to predict the outcome of research and clinical studies, regulatory requirements placed upon us by regulatory authorities such as the FDA and EMA, our inability to predict the decisions of our partners, our ability to fund research and development programs, competition from other entities of which we may become aware in future periods, predictions of market potential for products that may be derived from our work, and our ability to recruit and retain personnel or third-party contractors with the necessary knowledge and skills to perform certain research. Refer to “Item“Item 1A. Risk Factors”Factors” for additional discussion of the uncertainties surrounding our research and development initiatives.
Other income (expense) income
| | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in thousands) | 2020 | | 2019 | | Change | | % Change |
| Gain (loss) from short-term investments | $ | (16,933) | | | $ | 1,049 | | | $ | (17,982) | | | (1,714) | % |
| Interest income | 8,078 | | | 28,430 | | | (20,352) | | | (72) | % |
| Interest expense | (27,420) | | | (35,745) | | | 8,325 | | | 23 | % |
| Other expense, net | (108) | | | (4,171) | | | 4,063 | | | 97 | % |
| Total other income (expense,) net | $ | (36,383) | | | $ | (10,437) | | | $ | (25,946) | | | (249) | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in thousands) | 2017 | | 2016 | | Change | | % Change | | 2015 | | Change | | % Change |
| Interest expense, net | $ | (11,400 | ) | | $ | (12,178 | ) | | $ | 778 |
| | (6 | )% | | $ | (11,802 | ) | | $ | (376 | ) | | 3 | % |
| Increase in contingent liabilities | (2,580 | ) | | (3,334 | ) | | 754 |
| | (23 | )% | | (5,013 | ) | | 1,679 |
| | (33 | )% |
| Gain on deconsolidation of Viking | — |
| | — |
| | — |
| | — | % | | 28,190 |
| | (28,190 | ) | | 100 | % |
| Loss from Viking | (2,048 | ) | | (23,132 | ) | | 21,084 |
| | (91 | )% | | (5,143 | ) | | (17,989 | ) | | 350 | % |
| Other income, net | 5,183 |
| | 2,719 |
| | 2,464 |
| | 91 | % | | 1,768 |
| | 951 |
| | 54 | % |
| Total other (expense) income | $ | (10,845 | ) | | $ | (35,925 | ) | | $ | 25,080 |
| | (70 | )% | | $ | 8,000 |
| | $ | (43,925 | ) | | (549 | )% |
The fluctuation in the gain (loss) from short-term investments is primarily driven by the changes in the fair value of our ownership in Viking common stock and warrants (an unrealized loss of $19.0 million in 2020 as compared to an unrealized gain of $2.9 million in 2019).
Interest income consists primarily of interest earned on our short-term investments. The year over year decrease in 2020 resulted from the decrease in our short-term investment balances due to the usage of funds in share repurchases, the 2023 Notes repurchase and the acquisitions of Icagen, xCella, Taurus and Pfenex during 2020 as well as lower interest rates during 2020.
Interest expense net in 2017 is due to an increase in interest income offset by an increase inincludes the 0.75% coupon cash interest expense relatedin addition to the 2019 Convertible Seniornon-cash accretion of discount (including the amortization of debt issuance costs) on our 2023 Notes. The year over year variancedecrease in Increase in contingent liabilities in 2017 and 2016 is2020 was primarily due to the change in the fair value of CyDex, Metabasis and Crystal related contingent liabilities.
We recorded a gain on deconsolidation of Viking in 2015, primarily relatedlower average debt outstanding balance as compared to the equity milestone received from Vikingprior year. The 2019 Notes were paid off upon the closematurity date in August 2019. During 2020, we repurchased $254.7 million in principal of the Viking IPO.2023 Notes for $222.8 million in cash, including accrued interest of $0.6 million. See “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (7), Convertible Senior Notes.”
We recorded a $4.7 million loss from VikingOther expense, net, decreased year over year in 2017 for our proportionate share of Viking’s losses based on our ownership of Viking common stock and a $2.7 million gain on dilution resulting from Viking's financings.We recorded2020 primarily due to a $5.1 million loss from Viking in 2016 for our proportionate share of Viking’s losses based on our ownership of Viking common stock and $10.7 million for loss on dilution resulting from Viking's financing. We recorded an impairment charge in 2016 of $7.4 million relating to our investment in Viking.
The year over year increase in Other income, net in 2017 is primarily due to an increasereduction in the fair value of the Viking note receivableour Selexis commercial license right in 2019. See additional information in “Item 8. Financial Statements and Viking warrantsSupplementary Data—Notes to Consolidated Financial Statements—Note (1), Basis of Presentation and gain on the saleSummary of short-term investments. The year over year increase inSignificant Accounting Policies - Commercial License and Other income, net in 2016 is primarily due to the gain on the sale of short-term investments.
Economic Rights.”
Income tax benefit (expense)
| | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in thousands) | 2020 | | 2019 | | Change | | % Change |
| Income before income tax expense (benefit) | $ | (10,538) | | | $ | 796,639 | | | $ | (807,177) | | | (101) | % |
| Income tax benefit (expense) | 7,553 | | | (167,337) | | | 174,890 | | | 105 | % |
| Net income (loss) | $ | (2,985) | | | $ | 629,302 | | | $ | (632,287) | | | (100) | % |
| Effective Tax Rate | 72 | % | | 21 | % | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in thousands) | 2017 | | 2016 | | Change | | % Change | | 2015 | | Change | | % Change |
| Income before income tax (benefit) expense | $ | 57,231 |
| | $ | 7,960 |
| | $ | 49,271 |
| | 619 | % | | $35,329 | | $ | (27,369 | ) | | (77 | )% |
| Income tax benefit (expense) | (44,675 | ) | | (10,327 | ) | | (34,348 | ) | | 333 | % | | 192,115 | | (202,442 | ) | | (105 | )% |
| Income from operations | $ | 12,556 |
| | $ | (2,367 | ) | | $ | 14,923 |
| | (630 | )% | | $227,444 | | $ | (229,811 | ) | | (101 | )% |
| Effective Tax Rate | 78 | % | | 130 | % | | | | | | (544 | )% | | | | |
Our effective tax rate for 2017, 20162020 and 20152019 was 78% , 130% ,72% and (544)% 21%, respectively. Our tax rate is affected by recurring items, such as the U.S. federal and state statutory tax rates and the relative amounts of income we earn in those jurisdictions, which we expect to be fairly consistent in the near term. It is also affected by discrete items that may occur in any given year, but are not consistent from year to year. In addition2020, the variance from the U.S. federal statutory rate of 21% was primarily attributable to state income taxes, the mix of earnings in jurisdictions with lower statutory rates than the U.S. federal statutory tax rate, primarily the United Kingdom. The items below also had the most significantan impact on the difference between our statutory U.S. income tax rate and our effective tax rate.
20172020
•$2.4 million (22.9%) increase from Section 162(m) limitation
•$32.41.7 million (55%(15.7%) decrease from the foreign-derived intangible income deduction
•$1.5 million (13.8%) increase from state income taxes
•$0.9 million (8.3%) increase due to the provisional estimated impact of the Tax Act andnon-deductible transaction costs primarily duerelated to the impactacquisition of revaluing our U.S. deferredPfenex
•$0.7 million (6.6%) decrease from research and development tax assets and liabilities based on the statutory rates at which they are expected to be recognized in the future, which for federal purposes was reduced from 35% to 21%credits
•$4.70.3 million (8%(3.4%) decrease due to excess tax benefits from stock-basedshare-based compensation which are recorded as a discrete item within the provision for income tax pursuant to ASU 2016-09 which was previously recognized in additional paid-in capital on the consolidated statement of stockholders' equity
2019
•$4.21.2 million (7%(0.1%) reductiondecrease due to decrease inthe release of a valuation allowance primarily relating to our Viking deferredresearch and development tax asset and change in corporate tax rates under the Tax Actcredits.
$2.8 million (5%) reduction from R&D tax credits
$1.3 million (2%) increase in uncertain tax positions
•$0.9 million (2%(0.1%) increasedecrease from non-cash contingent liability charges that are nondeductible for tax purposes
2016
$6.3 million (79%) increase in valuation allowance primarily relating to Viking deferred tax asset
$1.4 million (18%) increase in uncertain tax positions
$1.2 million (15%) increase from non-cash contingent liability charges that are nondeductible for tax purposes
$1.5 million (19%) reduction from R&D credits
2015
$231.4 million (655%) reduction from the valuation allowance release against a significant portion of our deferred tax assets. The tax benefit is primarily comprised of U.S. federalresearch and state net operating loss carryforwards, R&Ddevelopment tax credits and other temporary differences
•$5.80.8 million (16%(0.1%) reduction from rate changesdecrease due to changes in state law
$2.1 million (6%) reductionexcess tax benefits from adjustments relating toshare-based compensation which are recorded as a discrete item within the discontinuation of the Avinza product line
$27.2 million (77%) increase in uncertain tax positions
$3.3 million (9%) increase in deferred tax assets from completion of 382 analysis
$1.7 million (5%) increase from non-cash CVR and contingent liability charges that are nondeductible for tax purposes
Discontinued operations
In 2006, we entered into a purchase agreement with Eisai pursuant to which Eisai agreed to acquire our Oncology product line which included four marketed oncology drugs: ONTAK, Targretin capsules, Targretin gel and Panretin gel. Certain liabilities were recorded associated with the disposal of the product line. During the year ended December 31, 2016 we recognized a $1.1 million gain due to subsequent changes in certain estimates and liabilities previously recorded. We recorded a provision for income taxes relatedtax pursuant to the gain of $0.4 million.ASU 2016-09
Liquidity and Capital Resources
We have financed our operations through offerings of our equity securities, borrowings from long-term debt, issuance of convertible notes, product sales and the subsequent sales of our commercial assets, royalties, license fees, milestones and other revenues, and capital and operating lease transactions.
We had net income of $12.6 million for the year ended December 31, 2017. At December 31, 2017, our accumulated deficit was $400.9 million and2020, we had a working capital deficitapproximately $411.2 million in cash, cash equivalents, and short-term investments. Cash and cash equivalents and short-term investments decreased by $658.7 million from last year, due to factors described in the "Cash Flow Summary" below. Our primary source of $1.8 million. We believe thatliquidity, other than our currently available funds,holdings of cash, generatedcash equivalents, and investments, which decreased during 2020 primarily from the acquisitions of Icagen, xCella, Taurus and Pfenex, has been cash flows from operations. Our ability to generate cash from operations as well as existing sources ofprovides us with the financial flexibility we need to meet operating, investing, and access to financing will be sufficient to fundneeds.
Historically, we have liquidated our anticipated operating, capital requirements and debt service requirement. We expect to build cash in the future as we continue to generate significant cash flow from royalty, license and milestone revenue and Captisol material sales primarily driven by continued increases in Promacta, Kyprolis and Evomela sales, recent product approvals and regulatory developments, as well as revenue from anticipated new licenses and milestones. In addition, we anticipate that our liquidity needs can be met through other sources, including sales of marketable securities, borrowings through commercial papershort-term investments and/or syndicated credit facilities and access to other domestic and foreignissued debt markets and equity markets.
Investments
We investsecurities to finance our excessbusiness needs as a supplement to cash principally inprovided by operating activities. Our short-term investments include U.S. government debt securities, investment-grade corporate debt securities, mutual funds and certificates of deposit. We have established guidelines relative to diversification and maturities of our investments in order to provide both safety and liquidity. These guidelines are periodically reviewed and modified to take advantage of trends in yields and interest rates. Additionally, we own certain securities which are classified as short-term investments that we received as a result of a milestone and an upfront license payment as well as 6.35.8 million shares of common stock in Viking.
Borrowings and Other Liabilities
2019 Convertible Senior Notes
We have convertible debt outstanding as of December 31, 2017 related to our 2019 Convertible Senior Notes. In August 2014, we issued $245.0 millionthe 2019 Notes with aggregate principal amount of convertible senior unsecured notes. The Notes are convertible into common stock upon satisfaction of certain conditions. Interest of 0.75% per year is payable semi-annually on August 15th and February 15th through the maturity of the notes$245.0 million. During 2018, $217.7 million in August 2019.
Upon the occurrence of certain circumstances, holdersprincipal of the 2019 Convertible Senior Notes may redeem all or awere converted into cash. In June 2019, we received notices for conversion of $1.0 million of principal amount of the 2019 Notes, which were settled in cash upon the 2019 Notes' maturity date in August 2019. On August 15, 2019, the 2019 Notes maturity date, we paid the noteholders the remaining $26.3 million principal amount.
In May 2018, we issued the 2023 Notes with an aggregate principal amount of $750.0 million. A portion of their notes, which may require the useproceeds from such issuance totaling $49.7 million were used to repurchase 260,000 shares of a substantialour common stock. During 2020, we repurchased $254.7 million in principal of the 2023 Notes for $222.8 million in cash, including accrued interest of $0.6 million. After the repurchases, $495.3 million in principal amount of cash. At December 31, 2017, we had a working capital deficitthe 2023 Notes remain outstanding. We may continue to use cash on hand to repurchase additional 2023 Notes through open-market transactions, including through Rule 10b5-1 trading plan to facilitate open-market repurchases, or otherwise, from time to time. The timing and amount of $1.8 million, which includesrepurchase transactions will be determined by management based on the 2019 Convertible Senior notes that are currently redeemableevaluation of market conditions, trading price of the 2023 Notes, legal requirements and other factors. The 2023 Notes were not convertible as of December 31, 2016 but excludes another $18.92020. It is our intent and policy to settle conversions through combination settlement, which essentially involves payment in cash equal to the principal portion and delivery of shares of common stock for the excess of the conversion value over the principal portion. See detail in “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (7), Convertible Senior Notes.”
In September 2018, our Board of Directors authorized us to repurchase up to $200.0 million that is classified as mezzanine equity. As noted in Note 6,of our common stock from time to time over a period of up to three years. On January 23, 2019, our Board of Directors increased the debtshare repurchase authorization by $150.0 million. The available amount under the $350.0 million repurchase plan was fully utilized during the third quarter of 2019.
On September 11, 2019, our Board of Directors approved a stock repurchase program authorizing the repurchase of up to $500.0 million of our common stock from time to time over the next three years. We expect to acquire shares primarily through open-market transactions and have entered into a Rule 10b5-1 trading plan, and may change from current to non-current period over period, primarily as a result of changesenter into additional Rule 10b5-1 trading plans in the Company’sfuture, to facilitate open-market repurchases. The timing and amount of repurchase transactions will be determined by management based on our evaluation of market conditions, share price, legal requirements and other factors. Our prior $350.0 million stock price. Management believes that it is remote that holdersrepurchase program mentioned above was terminated in connection with the approval of the notes would choosenew stock repurchase program. Authorization to convert their notes early because therepurchase $248.8 million of our common stock remained available as of December 31, 2020. See “Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchase of Equity Securities.”
We believe that existing funds, cash generated from operations and existing sources of and access to financing are adequate to satisfy our needs for working capital; capital expenditure and debt service requirements; continued advancement of research and development efforts; potential stock repurchases; and other business initiatives we plan to strategically pursue, including acquisitions and strategic investments.
As of December 31, 2020, we had $49.1 million in fair value of contingent consideration liabilities associated with the security that a noteholder can currently realizeacquisitions to be settled in an active market is greater than the conversion value the noteholder would realize upon early conversion. future periods.
Cash Flow Summary
| | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | 2020 | | 2019 | | 2018 |
| Net cash provided by (used in): | | | | | | |
| Operating activities | | $ | 54,586 | | | $ | (29,336) | | | $ | 194,059 | |
| Investing activities | | $ | 231,648 | | | $ | 466,918 | | | $ | (423,269) | |
| Financing activities | | $ | (310,545) | | | $ | (485,172) | | | $ | 328,585 | |
In the unlikely event that all the debt was converted,2020, we have 3 business days following a 50 trading day observation periodgenerated cash from operations, from the convert datesale of Vernalis R&D business and from issuance of common stock under employee stock plans. During the year we used cash for investing activities, including the acquisition of Pfenex, Icagen, xCella and Taurus. We also used cash for financing activities, including the payments related to the extinguishment of certain 2023 Notes and stock repurchases.
In 2019, we generated $827 million from the sale of the Promacta license (including $14.2 million recorded to revenue related to the Promacta royalty for the period between January 1, 2019 and March 6, 2019), used cash for net purchases of short-term investments, used $453.0 million to repurchase our common stock, used $103.8 million to pay federal and state estimated income taxes, paid off the principalremaining balance of the 2019 Notes in cash. We have positive operating incomethe amount of $27.3 million, paid $12.0 million for the purchase of Novan economic rights and positivepaid $11.8 million for the Ab Initio acquisition (net of cash flowacquired).
In 2018, we generated cash from operations, from issuance of the 2023 Notes and associated warrants, and from issuance of common stock under employee stock plans. During the same period we used cash for investing activities, including the acquisition of commercial rights, net purchases of short-term investments, payments made to acquire Vernalis, payments to CVR holders and capital expenditures. We also used cash for financing activities, including principal payments related to conversions of the 2019 Notes, payments to purchase the bond hedge associated with the 2023 Notes, payments for taxes related to net share settlement of equity awards and to repurchase shares of our common stock.
Off-Balance Sheet Arrangements
We do not participate in any transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the three years ended December 31, 2017 and, accordingly, while there can be no
assurance, we believe we havepurpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. During the ability to raise additional capital through our active S-3, by liquidating assets, or via alternative financing arrangements such as convertible or high yield debt.
Repurchases of Common Stock
During thefiscal year ended December 31, 2017,2020, we repurchased 14,000 common shares at a weighted average price of $140.43 per share, pursuant towere not involved in any “off-balance sheet arrangements” within the repurchase plan, or approximately $2.0 million of common shares.
Contingent Liabilities
Crystal
In connection with the acquisition of Crystal in October 2017, we may be required to pay up to an additional $10.5 million in purchase consideration upon achievement of certain commercial and development milestones to the Crystal shareholders. See footnote 7, Balance Sheet Account Details.
CyDex
In connection with the acquisition of CyDex in January 2011, we issued a series of CVRs and also assumed certain contingent liabilities. We may be required to make additional payments upon achievement of certain clinical and regulatory milestones to the CyDex shareholders and former license holders. See footnote 7, Balance Sheet Account Details.
Metabasis
In connection with the acquisition of Metabasis in January 2010, we entered into four CVR agreements with Metabasis shareholders. The CVRs entitle the holders to cash payments as frequently as every six months as proceeds are received by us upon the sale or licensing of anymeaning of the Metabasis drug development programs and uponrules of the achievement of specified milestones. See footnote 7, Balance Sheet Account Details.
Leases and Off-Balance Sheet Arrangements
SEC.
We lease our office facilities under operating lease arrangements with varying terms through April 2023.March 2024. The agreements provide for increases in annual rents based on changes in the Consumer Price Index or fixed percentage increases of 3.0%. We had no off-balance sheet arrangements at December 31, 2017, 20162020, 2019 and 2015.2018.
Contractual Obligations
As of December 31, 2017,2020, future minimum payments due under our contractual obligations are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period |
| | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | Thereafter |
Purchase obligations (1) | $ | 63,056 | | | $ | 36,416 | | | $ | 26,640 | | | $ | — | | | $ | — | |
Notes payable (2) | $ | 503,947 | | | $ | 3,714 | | | $ | 500,233 | | | $ | — | | | $ | — | |
Operating lease obligations (3) | $ | 8,659 | | | $ | 2,259 | | | $ | 3,895 | | | $ | 1,805 | | | $ | 700 | |
Finance lease obligations (4) | $ | 6,758 | | | $ | 6,649 | | | $ | 105 | | | $ | 4 | | | $ | — | |
(1) Amounts represent our commitments under our supply agreement with Hovione for Captisol purchases.
(2) Amounts represent contractual amounts due under our 2023 Notes, including interest based on the fixed rate of 0.75% per year.
|
| | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period |
| | Total | | Less than 1 year | | 1-2 years | | 3-4 years | | Thereafter |
Purchase obligations (1) | $ | 9,310 |
| | $ | 7,182 |
| | $ | 2,128 |
| | $ | — |
| | $ | — |
|
Contingent liabilities (2) | $ | 1,000 |
| | $ | 1,000 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Note and interest payment obligations | $ | 248,676 |
| | $ | 1,838 |
| | $ | 246,838 |
| | $ | — |
| | $ | — |
|
Operating lease obligations (3) | $ | 3,745 |
| | $ | 1,375 |
| | $ | 1,701 |
| | $ | 619 |
| | $ | 50 |
|
| |
(1) | Purchase obligations represent our commitments under our supply agreement with Hovione for Captisol purchases. |
| |
(2) | Contingent liabilities to former shareholders and license holders are subjective and affected by changes in inputs to(3) We lease two office facilities, which we have fully vacated under operating lease arrangements. The lease agreements expire on February 2023 and April 2024. We sublet the valuation model including management’s assumptions regarding revenue volatility, probability of commercialization of products, estimates of timing and probability of achievement of certain revenue thresholds and developmental and regulatory milestones and affect amounts owed to former license holders and CVR holders. As of December 31, 2017, only those liabilities for revenue sharing payments and milestones achieved as a result of 2017 activities are included in the table above. |
| |
(3) | We lease an office and research facility, which we have fully vacated under operating lease arrangements expiring on June 2019. We sublet these facilities through the end of our lease. As of December 31, 2017, we expect to receive aggregate future minimum lease payments totaling $1.0 million (non-discounted) over the duration of the sublease agreement as follows and not included in the table above: less than a year $0.6 million and two to three years $0.4 million. |
Cash Flow Summary
|
| | | | | | | | | | | | |
| (in thousands) | | 2017 | | 2016 | | 2015 |
| Net cash provided by (used in): | | | | | | |
| Operating activities | | $ | 93,568 |
| | $ | 63,001 |
| | $ | 41,727 |
|
| Investing activities | | (84,177 | ) | | (143,192 | ) | | (112,862 | ) |
| Financing activities | | (7,523 | ) | | 1,515 |
| | 8,360 |
|
| Net increase (decrease) in cash and cash equivalents | | $ | 1,868 |
| | $ | (78,676 | ) | | $ | (62,775 | ) |
In 2017, we generated cash from operations and from issuance of common stock under employee stock plans. During the same period we used cash for investing activities, including net purchases of short-term investments, payments made to acquire Crystal, payments to CVR holders and capital expenditures. We also used cash to pay taxes related to net share settlement of equity awards and to repurchase shares of our common stock.lease. As of December 31, 2020, we expect to receive aggregate future minimum lease payments totaling $1.0 million (non-discounted) over the duration of the sublease agreement, which are not included in the table above.
(4) Amounts represent our commitments under our finance lease agreements.
In 2016, we generated cash from operations and from issuance of common stock under employee stock plans. During the same period we used cash for investing activities, including net purchases of short-term investments, payments made to acquire OMT, commercial license rights from Cormatrix, Viking common stock and shares of an equity method investee, payments to CVR holders and capital expenditures. We also used cash to pay taxes related to net share settlement of equity awards and to repurchase shares of our common stock.
In 2015, we generated cash from operations and from issuance of common stock under employee stock plans. During the same period we used cash for investing activities, including net purchases of short-term investments, payments made to acquire commercial license rights from Selexis and Viking common stock, payments to CVR holders and capital expenditures. We also used cash to repurchase share of our common stock.
Critical Accounting Policies and Estimates
CertainThe preparation of our policies require the application of management judgmentfinancial statements in makingconformity with GAAP requires estimates and assumptions that affect the reported amounts reportedof assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and disclosures made in the accompanying notes. Those estimates and assumptions are based on historical experience and various other factors deemed to be applicable and reasonable under the circumstances. The use of judgment in determining such estimates and assumptions is by nature, subject toSEC has defined a degree of uncertainty. Accordingly, actual results could differ materially from the estimates made. Ourcompany’s critical accounting policies as the ones that are most important to the portrayal of the company’s financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as follows:a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting policies and judgments addressed below. We also have other key accounting policies, which involve the use of estimates, judgments, and assumptions that are significant to understanding our results. For additional information, see “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (1), Basis of Presentation and Summary of Significant Accounting Policies.” Although we believe that our estimates, assumptions, and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions.
Revenue Recognition
On January 1, 2018, we adopted ASC 606, which amends the guidance for recognition of revenue from contracts with customers using the modified-retrospective method applied to those contracts that were not completed as of January 1, 2018. We recognizeapply the following five-step model in order to determine the revenue: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when persuasive evidence(or as) the Company satisfies each performance obligation.
We receive royalty revenue on sales by our partners of an arrangement exists, delivery has occurredproducts covered by patents that we or service has been provided, title has transferred or access has been given,our partners own under the price is fixed or determinable, there are no remaining customer acceptance requirements, and collectabilitycontractual agreements. We do not have future performance obligations under these license arrangements. We generally satisfy our obligation to grant intellectual property rights on the effective date of the resulting receivable is reasonably assured.
Royaltiescontract. However, we apply the royalty recognition constraint required under the guidance for sales-based royalties which requires a sales-based royalty to be recorded no sooner than the underlying sale occurs. Therefore, royalties on sales of products commercialized by our partners are recognized in the quarter reported by the respective partner. Generally, we receive royalty reports from our licensees approximatelyproduct is sold. Our partners generally report sales information to us on a one quarter in arrears due tolag. Thus, we estimate the fact thatexpected royalty proceeds based on an analysis of historical experience and interim data provided by our agreements require partners to report product salesincluding their publicly announced sales. Differences between 30-60 days after the end of the quarter. The Company recognizesactual and estimated royalty revenues, when it can reliably estimate such amounts and collectability is reasonably assured. Under this accounting policy, the royalty revenues reported are not based upon estimates and such royalty revenues are typically reported to the Company by its partners in the same period in which payment is received.
Revenue from material sales of Captisol is recognized upon transfer of title, which normally passes upon shipment to the customer, provided all other revenue recognition criteria have been met. All product returns are subject to the Company's credit and exchange policy, approval by the Company and a 20% restocking fee. To date, product returns by customers have not been material, are adjusted in the period in which they become known, typically the following quarter.
Our contracts with customers often will include future contingent milestone based payments. We include contingent milestone based payments in the estimated transaction price when it is probable to net material sales in any related period. The Company records revenue net of product returns, if any, and sales tax collected and remitted to government authorities duringestimate the period.
Manyamount of the Company'spayment. These estimates are based on historical experience, anticipated results and our best judgment at the time. If the contingent milestone based payment is sales-based, we apply the royalty recognition constraint and record revenue arrangementswhen the underlying sale has taken place. Significant judgments must be made in determining the transaction price for our sales of intellectual property. Because of the risk that products in development with our partners will not reach development based milestones or receive regulatory approval, we generally recognize any contingent payments that would be due to us upon the development milestone or regulatory approval. Depending on the terms of the arrangement, we may also defer a portion of the consideration received if we have to satisfy a future obligation. We use an observable price to determine the stand-alone selling price for separate performance obligations or a cost plus margin approach when one is not available.
For R&D services that we recognize over time, we measure our progress using an input method. The input methods we use are based on the effort we expend or costs we incur toward the satisfaction of our performance obligation. We estimate the amount of effort we expend, including the time it will take us to complete the activities, or the costs we may incur in a given period, relative to the estimated total effort or costs to satisfy the performance obligation. This results in a percentage that we multiply by the transaction price to determine the amount of revenue we recognize each period. This approach requires us to make numerous estimates and use significant judgement. If our estimates or judgements change over the course of the collaboration, they may affect the timing and amount of revenue that we recognize in the current and future periods.
Revenue from Captisol involve a license agreement with the supply of manufactured Captisol product. Licenses may be granted to pharmaceutical companies for the usesales is recognized when control of Captisol productmaterial or intellectual property license rights is transferred to our customers in an amount that reflects the consideration we expect to receive from our customers in exchange for those products. This process involves identifying the contract with a customer, determining the performance obligations in the developmentcontract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. We consider a performance obligation satisfied once we have transferred control of pharmaceutical compounds. The supplythe product, meaning the customer has the ability to use and obtain the benefit of the Captisol product may bematerial or intellectual property license right. We recognize revenue for all phasessatisfied performance obligations only when we determine there are no uncertainties regarding payment terms or transfer of clinical trialscontrol. Sales tax and
through commercial availability other taxes we collect concurrent with revenue-producing activities are excluded from revenue. We have elected to recognize the cost of freight and shipping when control over Captisol material has transferred to the customer as an expense in cost of material sales. We expense incremental costs of obtaining a contract when incurred if the expected amortization period of the host drugasset that we would have recognized is one year or may be limited to certain phasesless or the amount is immaterial. We did not incur any incremental costs of obtaining a contract during the clinical trial process. The Company evaluates the deliverables in these agreements to determine whether theyperiods reported.
We occasionally have stand-alone value to our customers and therefore meet the criteria to be accounted for as separate units of accounting or they should be combined with other deliverables and accounted for as a single unit of accounting. Management believes that the Company's licenses have stand-alone value at the outset of an arrangement because the customer obtains the right to use Captisol in its formulations without any additional input by the Company.
Other nonrefundable, upfront license fees are recognized as revenue upon delivery of the license, if the license is determined to have standalone value that is not dependent on any future performance by the Company under the applicable collaboration agreement. Nonrefundable contingent event-based payments are recognized as revenue when the contingent event is met, which is usually the earlier of when payments are received or collections are assured, provided that it does not require future performance by the Company. Sales-based contingent payments from partners are accounted for similarly to royalties, with revenue recognized upon achievement of the sales targets assuming all other revenue recognition criteria are met. The Company occasionally has sub-license obligations related to arrangements for which it receiveswe receive license fees, milestones and royalties. The Company evaluatesWe evaluate the determination of gross as a principal versus net as an agent reporting based on each individual agreement.
Revenue from development and regulatory milestones is recognized when earned, as evidenced by written acknowledgement from the collaborator, provided that (1) the milestone event is substantive, its achievability was not reasonably assured at the inception of the agreement, and the Company has no further performance obligations relating to that event, and (2) collectability is reasonably assured. If these criteria are not met, the milestone payment is recognized over the remaining period of the Company’s performance obligations under the arrangement.
Revenue from research funding under our collaboration agreements is earned and recognized on a percentage-of completion basis as research hours are incurred in accordance with the provisions of each agreement.
Intangible Assets and Other Long-Lived Assets — Impairment Assessments
We regularly perform reviews to determine if the carrying values of our long-lived assets are impaired. A review of identifiable intangible assets and other long-lived assets is performed when an event occurs indicating the potential for impairment. If indicators of impairment exist, we first assess the impairment evaluation and then assess the recoverability of the affected long-lived assets and compare their fair values to the respective carrying amounts.
amounts if needed. An impairment evaluation is based on an undiscounted cash flow analysis at the lowest level at which cash flows of the long-lived assets are largely independent of other groups of assets and liabilities.
In order to estimate the fair value of identifiable intangible assets and other long-lived assets, we estimate the present value of future cash flows from those assets. The key assumptions that we use in our discounted cash flow model are the amount and timing of estimated future cash flows to be generated by the asset over an extended period of time and a rate of return that considers the relative risk of achieving the cash flows, the time value of money, and other factors that a willing market participant would consider. Significant judgment is required to estimate the amount and timing of future cash flows and the relative risk of achieving those cash flows.
Assumptions and estimates about future values and remaining useful lives are complex and often subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts. For example, if our future operating results do not meet current forecasts or if we experience a sustained decline in our market capitalization that is determined to be indicative of a reduction in fair value of our reporting unit, we may be required to record future impairment charges for purchased intangible assets. Impairment charges could materially decrease our future net income and result in lower asset values on our balance sheet.
Contingent Liabilities
In October 2017, we acquired Crystal for total cash consideration of $26.8$27.2 million, plus contingent consideration of up to an additional $10.5 million ($5.8 million has been paid as of December 31, 2020) over a five year period following the acquisition date based on certain research milestones and a portion of the payments that we receive from a specified part of the historical Crystal business. The contingent consideration is measured at fair value using an income approach valuation technique, specifically with probability weighted and discounted cash flows. The fair value of the liability is assessed at each reporting date and the change in fair value is recorded in our consolidated statements of operations. The carrying amount of the liability may fluctuate significantly and actual amounts paid may be materially different than the carrying amount of the liability. The fair value of the contingent consideration liability as of December 31, 20172020 was $8.4$0.8 million.
In connection with our acquisition of CyDex in January 2011, we recorded contingent liabilities for amounts potentially due to holders of the CyDex CVRs and certain other contingency payments. The fair value of the liability is assessed at each reporting date using the income approach incorporating the estimated future cash flows from potential
milestones and revenue sharing. The change in fair value is recorded in our consolidated statements of operations. The carrying amount of the liability may fluctuate significantly and actual amounts paid may be materially different than the carrying amount of the liability.
In connection with our acquisition of Metabasis in January 2010, we issued Metabasis stockholders four tradable CVRs, one CVR from each of four respective series of CVR, for each Metabasis share. The CVRs entitle Metabasis stockholders to cash payments as proceeds are received by us from the sale or partnering of any of the Metabasis drug development programs. The fair values of the CVRs are remeasured at each reporting date through the term of the related agreement. Changes in the fair values are reported in the statement of operations as income (decreases) or expense (increases). The carrying amount of the liability may fluctuate significantly based upon quoted market prices and actual amounts paid under the agreements may be materially different than the carrying amount of the liability.
On April 1, 2020, we acquired the core assets, including its partnered programs and ion channel technology from Icagen and certain of its affiliates for total cash consideration of $15.1 million, and a contingent earn-out payment of up to $25.0 million based on certain revenue milestones with an estimated fair value upon acquisition of $4.8 million. The fair value of the earn-out liability was determined using a probability weighted income approach incorporating the estimated future cash flows from expected future milestones. These cash flows were then discounted to present value using a discount rate based on the market participants' cost of debt reflective of Icagen. The fair value of the liability is assessed at each reporting date and the change in fair value is recorded in our consolidated statements of operations. The carrying amount of the liability may fluctuate significantly and actual amounts paid may be materially different than the carrying amount of the liability. The fair value of the contingent consideration liability as of December 31, 2020 was $6.4 million.
On October 1, 2020, we acquired Pfenex, which develops next-generation and novel protein therapeutics to improve existing therapies and create new therapies for biological targets linked to critical, unmet diseases using a protein expression technology platform. The preliminary purchase price of $465.1 million included $429.6 million cash consideration paid upon acquisition, and a contingent CVR payment of up to $77.8 million of cash payments based on certain specified milestones with an estimated initial fair value of $37.0 million, net of $1.5 million recorded as post-acquisition expenses based on double trigger accelerate feature. The fair value of the CVR liability was determined using a probability adjusted income approach. These cash flows were then discounted to present value using a discount rate based on the market participants' cost of debt reflective of Pfenex. The liability is periodically assessed based on events and circumstances related to the underlying milestone, and any change in fair value is recorded in our consolidated statements of operations. The fair value of the CVR liability as of December 31, 2020 was $37.6 million.
See additional information in “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (5), Fair Value Measurement.”
Income Taxes
Our provision for income taxes, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect our best assessment of estimated future taxes to be paid. Significant judgments and estimates based on interpretations of existing tax laws or regulations in the United States are required in determining our provision for income taxes. Changes in tax laws, statutory tax rates, and estimates of our future taxable income could impact the deferred tax assets and liabilities provided for in the consolidated financial statements and would require an adjustment to the provision for income taxes.
In accordance with the Tax Act, we have recorded a provision for income taxes of $32.4 million. The impact of the Tax Act primarily represents the impact of revaluing our U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future. For U.S. federal purposes the corporate statutory income tax rate was reduced from 35% to 21%, effective for our 2018 tax year. The provisional impact of the Tax Act is our current best estimate based on a preliminary review of the new law and is subject to revision based on our existing accounting for income taxes policy as further information is gathered, and interpretation and analysis of the tax legislation evolves. The Securities and Exchange Commission has issued rules allowing for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. Any future changes to our provisional estimated impact of the Tax Act will be included as an adjustment to the provision for income taxes.
Deferred tax assets are regularly assessed to determine the likelihood they will be recovered from future taxable income. A valuation allowance is established when we believe it is more likely than not the future realization of all or some of a deferred tax asset will not be achieved. In evaluating our ability to recover deferred tax assets within the jurisdiction which they arise, we consider all available positive and negative evidence. Factors reviewed include the cumulative pre-tax book income for the past three years, scheduled reversals of deferred tax liabilities, our history of earnings and reliability of our forecasts, projections of pre-tax book income over the foreseeable future, and the impact of any feasible and prudent tax planning strategies.
We recognize the impact of a tax position in our financial statements only if that position is more likely than not of being sustained upon examination by taxing authorities, based on the technical merits of the position. Tax authorities regularly examine our returns in the jurisdictions in which we do business and we regularly assess the tax risk of our return filing positions. Due to the complexity of some of the uncertainties, the ultimate resolution may result in payments that are materially different from our current estimate of the tax liability. These differences, as well as any interest and penalties, will be reflected in the provision for income taxes in the period in which they are determined.
Recent Accounting Pronouncements
For the summary of recent accounting pronouncements applicable to our consolidated financial statements, see footnote 1,“Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (1), Basis of Presentation and Summary of Significant Accounting Policies.”
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| | | | |
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
We are exposed to market risk from interest rates and equity prices which could affect our results of operations, financial condition and cash flows. We manage our exposure to these market risks through our regular operating and financing activities.
Investment Portfolio Risk
At December 31, 2017,2020, our investment portfolio included investments in available-for-sale equity securities of $181.0$363.6 million, including the investment in Viking common stock and warrants of $39.1 million. These securities are subject to market risk and may decline in value based on market conditions.
Equity Price Risk
Our 2019 Convertible Senior2023 Notes include conversion and settlement provisions that are based on the price of our common stock at conversion or maturity of the notes, as applicable. The minimumAs of December 31, 2020, the “if-converted value” did not exceed the principal amount of cash we may be requiredthe 2023 Notes. See detail in “Item 8. Financial Statements and Supplementary Data—Notes to pay is $245.0 million, but will ultimately be determined by the price of our common stock. The fair values of our 2019Consolidated Financial Statements—Note (7), Convertible Senior Notes are dependent on the price and volatility of our common stock and will generally increase or decrease as the market price of our common stock changes. In order to minimize the impact of potential dilution to our common stock upon the conversion of the 2019 Convertible Senior Notes, we entered into convertible bond hedges covering 3,264,643 shares of our common stock. Concurrently with entering into the convertible bond hedge transactions, we entered into warrant transactions whereby we sold warrants with an exercise price of approximately $125.08 per share, subject to adjustment. Throughout the term of the 2019 Convertible Senior Notes, the notes may have a dilutive effect on our earnings per share to the extent the stock price exceeds the conversion price of the notes. Additionally, the warrants may have a dilutive effect on our earnings per share to the extent the stock price exceeds the strike price of the warrants.Notes.”
Foreign Currency Risk
Through our licensing and business operations, we are exposed to foreign currency risk. Foreign currency exposures arise from transactions denominated in a currency other than the functional currency and from foreign denominated revenues and profit translated into U.S. dollars. Our license partners sell our products worldwide in currencies other than the U.S. dollar. Because of this, our revenues from royalty payments are subject to risk from changes in exchange rates.
We purchase Captisol from Hovione, located in Lisbon, Portugal. Payments to Hovione are denominated and paid in U.S. dollars; however, the unit price of Captisol contains an adjustment factor which is based on the sharing of foreign currency risk between the two parties. The effect of an immediate 10% change in foreign exchange rates would not have a material impact on our financial condition, results of operations or cash flows. We do not currently hedge our exposures to foreign currency fluctuations.
Interest Rate Risk
We are exposed to market risk involving rising interest rates. To the extentchanges in interest rates rise,related primarily to our interest costs could increase. An increaseinvestment portfolio. Our investment policy and strategy are focused on the preservation of capital and supporting our liquidity requirements. We use a combination of internal and external management to execute our investment strategy. We typically invest in highly rated securities, with the primary objective of minimizing the risk of principal loss. Our investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer. We have historically maintained a relatively short average maturity for our investment portfolio, and we believe a hypothetical 100 basis point adverse move in interest costs of 10%rates across all maturities would not have a materialmaterially impact on our financial condition, resultsthe fair market value of operations or cash flows.the portfolio in either period.
|
| | | | |
| Item 8. | Consolidated Financial Statements and Supplementary Data |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TheReport of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors and Stockholders of Ligand Pharmaceuticals Incorporated
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Ligand Pharmaceuticals Incorporated (the Company) as of December 31, 20172020 and 2016,2019, and the related consolidated statements of operations, comprehensive income (loss), stockholders‘stockholders’ equity, and cash flows for each of the three years thenin the period ended December 31, 2020, and the related notes, (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as ofat December 31, 20172020 and 2016,2019, and the results of its operations and its cash flows for each of the three years thenin the period ended December 31, 2020, in conformity with USU.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’sCompany's internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework),framework) and our report dated March 1, 2018February 24, 2021 expressed an unqualified opinion thereon.
Adoption of ASU No. 2016-092016-13
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting of measurement for share-based payment transactions in 2017credit losses on financial instruments effective January 1, 2020, due to the adoption of the amendments to the FASB Accounting Standards Codification resulting from Accounting Standards Update (ASU) No. 2016-09, Compensation - Stock Compensation2016-13, Measurement of Credit Losses on Financial Instruments (Topic 718): Improvements to Employee Share-Based Payment Accounting, effective January 1, 2017.326), and the related amendments.
Basis for Opinion
These financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on the Company‘sCompany’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the USU.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the account or disclosure to which they relate.
| | | | | | | | |
Description of the Matter | | Acquisition of Pfenex Inc.
As disclosed in Note 4 to the consolidated financial statements, during 2020, the Company completed the acquisition of Pfenex Inc. for total aggregate consideration of $465.1 million. The transaction was accounted for as a business combination. In connection with the acquisition, the Company recognized identified intangible assets which totaled $385 million and principally consisted of contractual relationships and developed technology, and recognized the Contingent Value Right (CVR) liability for acquisition consideration that is payable based on a predefined regulatory milestone if achieved by December 31, 2021 for which there is a maximum earnout of $77.8 million. The Company determines the fair value of the CVR both as part of the initial purchase price allocation, and on an ongoing basis each reporting period until the CVR is settled. As of December 31, 2020, the liability related to the CVR is $37.6 million.
Auditing the Company’s accounting for its acquisition of Pfenex Inc. was complex due to the significant judgement required by management to determine the fair value of identified intangible assets, and to determine the fair value of the CVR arrangement. The Company used an income approach to measure the value of the contractual relationship and technology-related intangible assets and a discounted cash flow model to value the CVR. Determination of the fair value of the acquired intangible assets was sensitive to the underlying assumptions including the estimated revenue growth rates and timing and the probability of technical and regulatory success. The fair value of CVR was sensitive to the significant underlying assumptions including the probability and timing of achieving the predefined regulatory milestone. These significant assumptions are forward looking and could be affected by future economic and market conditions.
|
| How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of the controls over the Company’s accounting for acquisitions. For example, we tested controls over management’s review of the valuation of intangible assets acquired and CVR, including the valuation models used and the underlying assumptions used to develop such estimates, and management’s review of the completeness and accuracy of the data used to develop the estimates.
To test the estimated fair value of the intangible assets and CVR, our audit procedures included, among others, evaluating the Company's use of valuation methodologies, evaluating the prospective financial information and testing the completeness and accuracy of underlying data. We compared the significant assumptions to current industry, market and economic trends and historical results of the acquired business. We also involved internal valuation specialists to assist in our evaluation of the valuation methodology and certain significant assumptions used by the Company. Our internal valuation specialists’ procedures included, among others, developing a range of independent estimates for the discount rates and comparing those to the discount rates selected by management. |
| | Impairment assessment of finite-lived intangibles |
| Description of the Matter | | At December 31, 2020, the Company’s finite-lived intangible assets totaled $595.3 million. As discussed in Note 1 to the consolidated financial statements, the Company reviews finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the finite-lived intangibles are not expected to be recovered through future undiscounted cash flows. The Company did not identify indicators of impairment for its finite-lived intangibles at December 31, 2020.
Auditing management’s assessment of impairment is challenging due to the high degree of subjective auditor judgment necessary in evaluating management’s identification of indicators of potential impairment and the related assessment of the severity of such indicators in determining whether a triggering event has occurred that requires the Company to evaluate the recoverability of the asset. A high degree of auditor judgment was required to evaluate the significant inputs used in the assessment for potential triggering events which included market conditions, industry and economic trends, changes in regulations, clinical success and historical and forecasted financial results. These possible triggering events could have a significant effect on the Company’s impairment assessment and the determination of whether further quantitative analysis of finite-lived intangible impairment was required.
|
| | | | | | | | |
| How We Addressed the Matter in Our Audit | | We obtained an understanding of management’s process to identify indicators of impairment, including the qualitative analysis and related inputs and assumptions used in performing the analyses. We evaluated the design and tested the operating effectiveness of the controls that address the identification of indicators of impairment. For example, we tested controls over management’s assessment of indicators of impairment.
To test the Company’s evaluation of indicators of impairment for finite-lived intangibles, our audit procedures included, among others, assessing the methodologies and testing the completeness and accuracy of the Company’s analysis of events or changes in circumstances. As part of our evaluation, we considered market conditions, industry and economic trends, changes in regulations, clinical success and historical and forecasted financial results, in assessing whether an indicator of impairments exists.
|
/s/ Ernst & Young LLP
We have served as the Company‘sCompany's auditor since 2016.
San Diego, California
March 1, 2018
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders of Ligand Pharmaceuticals Incorporated
We have audited the accompanying consolidated balance sheet of Ligand Pharmaceuticals Incorporated (the “Company”) as of December 31, 2015 (not presented herein), and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for the year ended December 31, 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ligand Pharmaceuticals Incorporated as of December 31, 2015, and the results of its operations and its cash flows for the year ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America.
/s/ GRANT THORNTON LLP
San Diego, California
February 26, 2016 (except for 2015 Restatement described in Note 1 in the previously filed 2015 financial statements, which is not presented herein and is as of November 14, 2016 and except for Condensed Statement of Operations table for Viking included in Note 2, which is as of March 1, 2018)24, 2021
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)par value)
| | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 47,619 | | | $ | 71,543 | |
| Short-term investments | 363,567 | | | 998,324 | |
| Accounts receivable, net | 56,847 | | | 30,387 | |
| Inventory | 26,487 | | | 7,296 | |
| Income taxes receivable | 2,217 | | | 11,361 | |
| Other current assets | 3,822 | | | 4,734 | |
| Total current assets | 500,559 | | | 1,123,645 | |
| Deferred income taxes, net | 24,320 | | | 25,608 | |
| Intangible assets, net | 595,330 | | | 210,448 | |
| Goodwill | 189,662 | | | 95,229 | |
| Commercial license and other economic rights | 10,979 | | | 20,090 | |
| Property and equipment, net | 14,434 | | | 7,185 | |
| Operating lease assets | 6,892 | | | 10,353 | |
| Finance lease assets | 15,842 | | | 84 | |
| Other assets | 4,267 | | | 2,273 | |
| Total assets | $ | 1,362,285 | | | $ | 1,494,915 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 3,784 | | | $ | 2,420 | |
| Accrued liabilities | 18,530 | | | 8,581 | |
| Current contingent liabilities | 39,884 | | | 2,607 | |
| Deferred revenue | 29,435 | | | 2,139 | |
| Current operating lease liabilities | 1,885 | | | 1,242 | |
| Current finance lease liabilities | 6,593 | | | 13 | |
| Total current liabilities | 100,111 | | | 17,002 | |
| 2023 convertible senior notes, net | 442,293 | | | 638,959 | |
| Long-term contingent liabilities | 9,249 | | | 6,335 | |
| Deferred income taxes, net | 64,598 | | | 32,937 | |
| Long-term operating lease liabilities | 5,643 | | | 9,970 | |
| Other long-term liabilities | 30,866 | | | 22,480 | |
| Total liabilities | 652,760 | | | 727,683 | |
| Commitments and contingencies | 0 | | 0 |
| Stockholders’ equity: | | | |
| Preferred stock, $0.001 par value; 5,000 shares authorized; 0 issued and outstanding at December 31, 2020 and 2019 | 0 | | | 0 | |
| Common stock, $0.001 par value; 60,000 shares authorized; 16,080 and 16,823 shares issued and outstanding at December 31, 2020 and 2019, respectively | 16 | | | 17 | |
| Additional paid-in capital | 318,358 | | | 367,326 | |
| Accumulated other comprehensive loss | (801) | | | (216) | |
| Retained earnings | 391,952 | | | 400,105 | |
| Total stockholders’ equity | 709,525 | | | 767,232 | |
| Total liabilities and stockholders’ equity | $ | 1,362,285 | | | $ | 1,494,915 | |
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 20,620 |
| | $ | 18,752 |
|
| Short-term investments | 181,041 |
| | 122,296 |
|
| Accounts receivable, net | 25,596 |
| | 14,700 |
|
| Note receivable from Viking | 3,877 |
| | 3,207 |
|
| Inventory | 4,373 |
| | 1,923 |
|
| Other current assets | 1,514 |
| | 2,175 |
|
| Total current assets | 237,021 |
| | 163,053 |
|
| Deferred income taxes | 84,422 |
| | 123,891 |
|
| Investment in Viking | 6,438 |
| | 8,345 |
|
| Intangible assets, net | 228,584 |
| | 204,705 |
|
| Goodwill | 85,959 |
| | 72,207 |
|
| Commercial license rights | 19,526 |
| | 25,821 |
|
| Property and equipment, net | 4,212 |
| | 1,819 |
|
| Other assets | 4,859 |
| | 1,744 |
|
| Total assets | $ | 671,021 |
| | $ | 601,585 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 2,259 |
| | $ | 2,734 |
|
| Accrued liabilities | 7,377 |
| | 6,397 |
|
| Current contingent liabilities | 4,703 |
| | 5,088 |
|
2019 convertible senior notes, net
| 224,529 |
| | 212,910 |
|
| Total current liabilities | 238,868 |
| | 227,129 |
|
| Long-term contingent liabilities | 9,258 |
| | 2,916 |
|
| Long-term deferred revenue, net | 3,525 |
| | — |
|
| Other long-term liabilities | 723 |
| | 687 |
|
| Total liabilities | 252,374 |
| | 230,732 |
|
| Commitments and contingencies |
|
| |
|
|
Equity component of currently redeemable convertible notes (Note 6)
| 18,859 |
| | 29,563 |
|
| Stockholders’ equity: | | | |
| Common stock, $0.001 par value; 33,333,333 shares authorized; 21,148,665 and 20,909,301 shares issued and outstanding at December 31, 2017 and 2016, respectively | 21 |
| | 21 |
|
| Additional paid-in capital | 798,205 |
| | 769,653 |
|
| Accumulated other comprehensive income | 2,486 |
| | 2,743 |
|
| Accumulated deficit | (400,924 | ) | | (431,127 | ) |
| Total stockholders’ equity | 399,788 |
| | 341,290 |
|
| Total liabilities and stockholders’ equity | $ | 671,021 |
| | $ | 601,585 |
|
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| Revenues: | | | | | |
| Royalties | $ | 33,796 | | | $ | 46,976 | | | $ | 128,556 | |
| Captisol | 109,959 | | | 31,489 | | | 29,123 | |
| Contract revenue | 42,664 | | | 41,817 | | | 93,774 | |
| Total revenues | 186,419 | | | 120,282 | | | 251,453 | |
| Operating costs and expenses: | | | | | |
| Cost of Captisol | 30,419 | | | 11,347 | | | 6,337 | |
| Amortization of intangibles | 23,442 | | | 16,864 | | | 15,792 | |
| Research and development | 59,392 | | | 55,908 | | | 27,863 | |
| General and administrative | 64,435 | | | 41,884 | | | 37,734 | |
| Total operating costs and expenses | 177,688 | | | 126,003 | | | 87,726 | |
| Gain from sale of Vernalis R&D | 17,114 | | | 0 | | | 0 | |
| Gain from sale of Promacta license | 0 | | | 812,797 | | | 0 | |
| Income from operations | 25,845 | | | 807,076 | | | 163,727 | |
| Other income (expense): | | | | | |
| Gain (loss) from short-term investments | (16,933) | | | 1,049 | | | 50,377 | |
| Interest income | 8,078 | | | 28,430 | | | 13,999 | |
| Interest expense | (27,420) | | | (35,745) | | | (48,276) | |
| Other expense, net | (108) | | | (4,171) | | | (6,497) | |
| Total other income (expense), net | (36,383) | | | (10,437) | | | 9,603 | |
| Income (loss) before income tax | (10,538) | | | 796,639 | | | 173,330 | |
| Income tax benefit (expense) | 7,553 | | | (167,337) | | | (30,009) | |
| Net income (loss) | (2,985) | | | 629,302 | | | 143,321 | |
| | | | | |
| Basic net income (loss) per share | $ | (0.18) | | | $ | 33.13 | | | $ | 6.77 | |
| Shares used in basic per share calculation | 16,185 | | | 18,995 | | | 21,160 | |
| | | | | |
| Diluted net income (loss) per share | $ | (0.18) | | | $ | 31.85 | | | $ | 5.96 | |
| Shares used in diluted per share calculation | 16,185 | | | 19,757 | | | 24,067 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Revenues: | | | | | |
| Royalties | $ | 88,685 |
| | $ | 59,423 |
| | $ | 38,194 |
|
| Material sales | 22,070 |
| | 22,502 |
| | 27,662 |
|
| License fees, milestones and other revenues | 30,347 |
| | 27,048 |
| | 6,058 |
|
| Total revenues | 141,102 |
| | 108,973 |
| | 71,914 |
|
| Operating costs and expenses: | | | | | |
Cost of sales(2) | 5,366 |
| | 5,571 |
| | 5,807 |
|
| Amortization of intangibles | 12,120 |
| | 10,643 |
| | 2,375 |
|
| Research and development | 26,887 |
| | 21,221 |
| | 11,005 |
|
| General and administrative | 28,653 |
| | 27,653 |
| | 25,398 |
|
| Total operating costs and expenses | 73,026 |
| | 65,088 |
| | 44,585 |
|
| Income from operations | 68,076 |
| | 43,885 |
| | 27,329 |
|
| Other (expense) income: | | | | | |
| Interest expense, net | (11,400 | ) | | (12,178 | ) | | (11,802 | ) |
| Increase in contingent liabilities | (2,580 | ) | | (3,334 | ) | | (5,013 | ) |
| Gain on deconsolidation of Viking | — |
| | — |
| | 28,190 |
|
| Loss from Viking | (2,048 | ) | | (23,132 | ) | | (5,143 | ) |
| Other income, net | 5,183 |
| | 2,719 |
| | 1,768 |
|
| Total other (expense) income, net | (10,845 | ) | | (35,925 | ) | | 8,000 |
|
| Income before income tax benefit (expense) | 57,231 |
| | 7,960 |
| | 35,329 |
|
| Income tax benefit (expense) | (44,675 | ) | | (10,327 | ) | | 192,115 |
|
| Income (loss) from operations | 12,556 |
| | (2,367 | ) | | 227,444 |
|
| Discontinued operations: | | | | | |
| Gain on sale of Oncology Product Line before income taxes | — |
| | 1,139 |
| | — |
|
| Income tax expense on discontinued operations | — |
| | (408 | ) | | — |
|
| Income from discontinued operations | — |
| | 731 |
| | — |
|
| Net income (loss) including noncontrolling interests: | 12,556 |
| | (1,636 | ) | | 227,444 |
|
| Less: Net loss attributable to noncontrolling interests | — |
| | — |
| | (2,380 | ) |
| Net income (loss) | $ | 12,556 |
| | $ | (1,636 | ) | | $ | 229,824 |
|
| | | | | | |
Basic per share amounts(1): | | | | | |
| Income (loss) from continuing operations | $ | 0.60 |
| | $ | (0.11 | ) | | $ | 11.61 |
|
| Income from discontinued operations | — |
| | 0.04 |
| | — |
|
| Net income (loss) | $ | 0.60 |
| | $ | (0.08 | ) | | $ | 11.61 |
|
| | | | | | |
Diluted per share amounts(1): | | | | | |
| Income (loss) from continuing operations | $ | 0.53 |
| | $ | (0.11 | ) | | $ | 10.83 |
|
| Income from discontinued operations | — |
| | 0.04 |
| | — |
|
| Net income (loss) | $ | 0.53 |
| | $ | (0.08 | ) | | $ | 10.83 |
|
| | | | | | |
| Shares used for computation (in thousands) | | | | | |
| Basic | 21,032 |
| | 20,831 |
| | 19,790 |
|
| Diluted | 23,481 |
| | 20,831 |
| | 21,228 |
|
(1) The sum of net income per share amounts may not equal the total due to rounding
(2) Excludes amortization of intangibles
See accompanying notes to these consolidated financial statements.
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| Net income (loss) | $ | (2,985) | | | $ | 629,302 | | | $ | 143,321 | |
| Unrealized net gain (loss) on available-for-sale securities, net of tax | (162) | | | 200 | | | 73 | |
| Foreign currency translation adjustment | (423) | | | 608 | | | (921) | |
| Comprehensive income (loss) | $ | (3,570) | | | $ | 630,110 | | | $ | 142,473 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Net income (loss) | $ | 12,556 |
| | $ | (1,636 | ) | | $ | 229,824 |
|
| Unrealized net gain on available-for-sale securities, net of tax | 143 |
| | 93 |
| | 1,933 |
|
| Less:Reclassification of net realized gains included in net income, net of tax | $ | (400 | ) | | $ | (2,253 | ) | | $ | (1,965 | ) |
| Comprehensive income (loss) | $ | 12,299 |
| | $ | (3,796 | ) | | $ | 229,792 |
|
See accompanying notes to these consolidated financial statements.
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional paid-in capital | | Accumulated other comprehensive income (loss) | | Accumulated deficit | | | Total stockholders’ equity |
| Shares | | Amount | | |
| Balance at January 1, 2018 | 21,148,665 | | | $ | 21 | | | $ | 798,205 | | | $ | 2,486 | | | $ | (400,924) | | | | $ | 399,788 | |
| Issuance of common stock under employee stock compensation plans, net | 399,116 | | | — | | | 16,417 | | | — | | | — | | | | 16,417 | |
| Reclassification of equity component of currently redeemable convertible notes | — | | | — | | | 18,859 | | | — | | | — | | | | 18,859 | |
| Share-based compensation | — | | | — | | | 20,846 | | | — | | | — | | | | 20,846 | |
| Repurchase of common stock | (782,248) | | | — | | | (127,481) | | | — | | | — | | | | (127,481) | |
| Other comprehensive income | — | | | — | | | — | | | 73 | | | — | | | | 73 | |
| Cumulative-effect adjustment from adoption of ASU 2016-01 | — | | | — | | | — | | | (2,662) | | | 2,662 | | | | 0 | |
| Cumulative-effect adjustment from adoption of ASU 2014-09, net of tax | — | | | — | | | — | | | — | | | 25,581 | | | | 25,581 | |
| Derivative associated with 2019 Notes and Bond Hedge | — | | | — | | | (1,559) | | | — | | | — | | | | (1,559) | |
| Loss on settlement of 2019 Notes | — | | | — | | | 3,187 | | | — | | | — | | | | 3,187 | |
| Warrant repurchase in connection with 2019 Notes | — | | | — | | | (30,472) | | | — | | | — | | | | (30,472) | |
| Loss on repurchase of warrants in connection with 2019 Notes | — | | | — | | | 1,792 | | | — | | | — | | | | 1,792 | |
| Tax effect on 2019 Notes transactions | — | | | — | | | (1,680) | | | — | | | — | | | | (1,680) | |
| Derivative associated with 2023 Notes and Bond Hedge | — | | | — | | | (1,807) | | | — | | | — | | | | (1,807) | |
| Warrant derivative in connection with 2023 Notes | — | | | — | | | 97,805 | | | — | | | — | | | | 97,805 | |
| Tax effect for 2023 Notes transactions | — | | | — | | | (3,181) | | | — | | | — | | | | (3,181) | |
| Foreign currency translation adjustment | — | | | — | | | — | | | (921) | | | — | | | | (921) | |
| Other tax adjustments | — | | | — | | | 183 | | | — | | | 163 | | | | 346 | |
| Net income | — | | | — | | | — | | | — | | | 143,321 | | | | 143,321 | |
| Balance at December 31, 2018 | 20,765,533 | | | $ | 21 | | | $ | 791,114 | | | $ | (1,024) | | | $ | (229,197) | | | | $ | 560,914 | |
| Issuance of common stock under employee stock compensation plans, net | 179,838 | | | — | | | (1,421) | | | — | | | — | | | | (1,421) | |
| Share-based compensation | — | | | — | | | 24,515 | | | — | | | — | | | | 24,515 | |
| Repurchase of common stock | (4,122,133) | | | (4) | | | (448,429) | | | — | | | — | | | | (448,433) | |
| Unrealized net gain on available-for-sale securities, net of deferred tax | — | | | — | | | — | | | 200 | | | — | | | | 200 | |
| Foreign currency translation adjustment | — | | | — | | | — | | | 608 | | | — | | | | 608 | |
| Other tax adjustments | — | | | — | | | 1,547 | | | — | | | — | | | | 1,547 | |
| Net income | — | | | — | | | — | | | — | | | 629,302 | | | | 629,302 | |
| Balance at December 31, 2019 | 16,823,238 | | | $ | 17 | | | $ | 367,326 | | | $ | (216) | | | $ | 400,105 | | | | $ | 767,232 | |
| Issuance of common stock under employee stock compensation plans, net | 190,672 | | | — | | | 1,535 | | | — | | | — | | | | 1,535 | |
| Share-based compensation | — | | | — | | | 30,727 | | | — | | | — | | | | 30,727 | |
| Repurchase of common stock | (934,079) | | | (1) | | | (77,997) | | | — | | | — | | | | (77,998) | |
| Unrealized net loss on available-for-sale securities, net of deferred tax | — | | | — | | | — | | | (162) | | | — | | | | (162) | |
| Foreign currency translation adjustment | — | | | — | | | — | | | (423) | | | — | | | | (423) | |
| Reacquisition of equity due to 2023 debt extinguishment, net of tax | — | | | — | | | (3,236) | | | — | | | — | | | | (3,236) | |
| Cumulative-effect adjustment from adoption of ASU 2016-13, net of tax | — | | | — | | | — | | | — | | | (5,168) | | | | (5,168) | |
| Other tax adjustments | — | | | — | | | 3 | | | — | | | — | | | | 3 | |
| Net loss | — | | | — | | | — | | | — | | | (2,985) | | | | (2,985) | |
| Balance at December 31, 2020 | 16,079,831 | | | $ | 16 | | | $ | 318,358 | | | $ | (801) | | | $ | 391,952 | | | | $ | 709,525 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional paid-in capital | | Accumulated other comprehensive income (loss) | | Accumulated deficit | | Noncontrolling interest | | Total stockholders’ equity |
| | Shares | | Amount | | |
| Balance at December 31, 2014 | 19,575,150 |
| | $ | 20 |
|
| $ | 680,660 |
|
| $ | 4,953 |
|
| $ | (659,315 | ) | | $ | (1,910 | ) |
|
| $ | 24,408 |
|
| Issuance of common stock under employee stock compensation plans, net | 379,982 |
| | — |
| | 8,849 |
| | — |
| | — |
| | — |
| | 8,849 |
|
Reclassification of equity component of currently redeemable convertible notes
| — |
| | — |
| | (39,628 | ) | | — |
| | — |
| | — |
| | (39,628 | ) |
| Stock-based compensation | — |
| | — |
| | 12,458 |
| | — |
| | — |
| | — |
| | 12,458 |
|
| Repurchase of common stock | (6,120 | ) | | — |
| | (489 | ) | | — |
| | — |
| | — |
| | (489 | ) |
| Other comprehensive income | — |
| | — |
| | — |
| | (50 | ) | | — |
| | — |
| | (50 | ) |
| Net income | — |
| | — |
| | — |
| | — |
| | 229,824 |
| | — |
| | 229,824 |
|
| Net loss in noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | (2,380 | ) | | (2,380 | ) |
| Deconsolidation of Viking | — |
| | — |
| | — |
| | — |
| | — |
| | 4,290 |
| | 4,290 |
|
| Balance at December 31, 2015 | 19,949,012 |
| | $ | 20 |
| | $ | 661,850 |
| | $ | 4,903 |
| | $ | (429,491 | ) | | $ | — |
| | $ | 237,282 |
|
| Issuance of common stock under employee stock compensation plans, net | 210,626 |
| | — |
| | 5,416 |
| | — |
| | — |
| | — |
| | 5,416 |
|
| Shares issued in OMT acquisition | 790,163 |
| | 1 |
| | 77,330 |
| | — |
| | — |
| | — |
| | 77,331 |
|
Reclassification of equity component of currently redeemable convertible notes
| — |
| | — |
| | 10,065 |
| | — |
| | — |
| | — |
| | 10,065 |
|
| Stock-based compensation | — |
| | — |
| | 18,893 |
| | — |
| | — |
| | — |
| | 18,893 |
|
| Repurchase of common stock | (40,500 | ) | | — |
| | (3,901 | ) | | — |
| | — |
| | — |
| | (3,901 | ) |
| Other comprehensive income | — |
| | — |
| | — |
| | (2,160 | ) | | — |
| | — |
| | (2,160 | ) |
| Net income | — |
| | — |
| | — |
| | — |
| | (1,636 | ) | | — |
| | (1,636 | ) |
| Balance at December 31, 2016 | 20,909,301 |
| | $ | 21 |
| | $ | 769,653 |
| | $ | 2,743 |
| | $ | (431,127 | ) | | $ | — |
| | $ | 341,290 |
|
| Issuance of common stock under employee stock compensation plans, net | 253,364 |
| | — |
| | (5,558 | ) | | — |
| | — |
| | — |
| | (5,558 | ) |
Reclassification of equity component of currently redeemable convertible notes
| — |
| | — |
| | 10,704 |
| | — |
| | — |
| | — |
| | 10,704 |
|
| Stock-based compensation | — |
| | — |
| | 24,916 |
| | — |
| | — |
| | — |
| | 24,916 |
|
| Repurchase of common stock | (14,000 | ) | | — |
| | (1,966 | ) | | — |
| | — |
| | — |
| | (1,966 | ) |
| Other comprehensive income | — |
| | — |
| | | | (257 | ) | | — |
| | — |
| | (257 | ) |
| Cumulative-effect adjustment from adoption of ASU 2016-09 | — |
| | — |
| | 456 |
| | — |
| | 17,647 |
| | — |
| — |
| 18,103 |
|
| Net income | — |
| | — |
| | — |
| | — |
| | 12,556 |
| | — |
| | 12,556 |
|
| Balance at December 31, 2017 | 21,148,665 |
| | $ | 21 |
| | $ | 798,205 |
| | $ | 2,486 |
| | $ | (400,924 | ) | | $ | — |
| | $ | 399,788 |
|
See accompanying notes to these consolidated financial statements.
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| Operating activities | | | | | |
| Net income (loss) | $ | (2,985) | | | $ | 629,302 | | | $ | 143,321 | |
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | |
| Gain from sale of Promacta license | 0 | | | (812,797) | | | 0 | |
| Gain from sale of Vernalis R&D | (17,114) | | | 0 | | | 0 | |
| Change in estimated fair value of contingent liabilities | 963 | | | (30) | | | 3,448 | |
| Depreciation and amortization of intangible assets | 25,691 | | | 18,361 | | | 12,784 | |
| Loss (gain) short-term investments | 16,933 | | | (1,049) | | | (50,377) | |
| Amortization/accretion of premium (discount) on investments, net | 1,479 | | | (10,274) | | | (5,452) | |
| Amortization of debt discount and issuance fees | 23,077 | | | 29,988 | | | 43,954 | |
| Amortization of commercial license and other economic rights | 2,275 | | | 25,370 | | | 1,934 | |
| Share-based compensation | 30,727 | | | 24,515 | | | 20,846 | |
| Deferred income taxes, net | (19,053) | | | 74,829 | | | 29,739 | |
| Royalties recorded in retained earnings upon adoption of ASC 606 | 0 | | | 0 | | | 32,707 | |
| Other | 2,657 | | | (3,498) | | | 2,931 | |
| Changes in operating assets and liabilities, net of acquisitions: | | | | | |
| Accounts receivable, net | (26,061) | | | 25,463 | | | (29,544) | |
| Inventory | (17,799) | | | (2,061) | | | (2,559) | |
| Accounts payable and accrued liabilities | (1,245) | | | (6,664) | | | (4,533) | |
| Income taxes receivable | 9,144 | | | (11,219) | | | 318 | |
| Other economic rights | 0 | | | (12,000) | | | 0 | |
| Deferred revenue | 29,236 | | | (1,147) | | | (1,158) | |
| Other | (3,339) | | | 3,575 | | | (4,300) | |
| Net cash provided by (used in) operating activities | 54,586 | | | (29,336) | | | 194,059 | |
| Investing activities | | | | | |
| Proceeds from sale of Promacta license | 0 | | | 812,797 | | | 0 | |
| Purchase of commercial license rights | 0 | | | 0 | | | (10,000) | |
| Cash paid for acquisition, net of cash and restricted cash acquired | (404,884) | | | (11,840) | | | (5,856) | |
| Purchases of property and equipment | (4,458) | | | (2,553) | | | (887) | |
| Purchases of short-term investments | (422,523) | | | (2,356,545) | | | (1,434,255) | |
| Proceeds from commercial license rights | 1,358 | | | 0 | | | 0 | |
| Proceeds from sale of short-term investments | 394,539 | | | 535,877 | | | 131,942 | |
| Proceeds from maturity of short-term investments | 644,155 | | | 1,494,851 | | | 892,873 | |
| Proceeds received from repayment of Viking note receivable | 0 | | | 0 | | | 3,914 | |
| Cash paid for equity method investment | (500) | | | (1,000) | | | 0 | |
| Proceeds on sale of Vernalis R&D, net | 22,061 | | | 0 | | | 0 | |
| Other, net | 1,900 | | | (4,669) | | | (1,000) | |
| Net cash provided by (used in) investing activities | 231,648 | | | 466,918 | | | (423,269) | |
| Financing activities | | | | | |
| Repayment of debt | (222,209) | | | (27,323) | | | (217,674) | |
| Payments under finance lease obligations | (9,549) | | | 0 | | | 0 | |
| Gross proceeds from issuance of 2023 Convertible Senior Notes | 0 | | | 0 | | | 750,000 | |
| Payment of debt issuance costs | 0 | | | 0 | | | (16,900) | |
| Proceeds from issuance of warrants | 0 | | | 0 | | | 90,000 | |
| Purchase of convertible bond hedge | 0 | | | 0 | | | (140,250) | |
| Proceeds from bond hedge settlement | 0 | | | 12,401 | | | 439,559 | |
| Payments to convert holders for bond conversion | 0 | | | (12,401) | | | (439,581) | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Operating activities | | | | | |
| Net income (loss) | $ | 12,556 |
| | $ | (1,636 | ) | | $ | 227,444 |
|
| Less: gain from discontinued operations | — |
| | 731 |
| | — |
|
| Income (loss) from continuing operations | 12,556 |
| | (2,367 | ) | | 227,444 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Change in estimated fair value of contingent liabilities | 2,580 |
| | 3,334 |
| | 5,013 |
|
| Realized gain on sale of short-term investment | (831 | ) | | (2,352 | ) | | (2,603 | ) |
| Depreciation and amortization | 11,714 |
| | 11,290 |
| | 2,627 |
|
| Gain on deconsolidation of Viking | — |
| | — |
| | (28,190 | ) |
| Loss on equity investment in Viking | 2,048 |
| | 23,132 |
| | 5,143 |
|
| Change in fair value of the convertible debt receivable from Viking and warrants | (4,032 | ) | | (462 | ) | | 765 |
|
Amortization of premium (discount) on investments, net
| (81 | ) | | 348 |
| | — |
|
| Amortization of debt discount and issuance fees | 11,619 |
| | 10,925 |
| | 10,274 |
|
| Stock-based compensation | 24,915 |
| | 18,893 |
| | 12,458 |
|
| Deferred income taxes | 44,518 |
| | 10,697 |
| | (192,132 | ) |
| Other | — |
| | 183 |
| | 107 |
|
| Changes in operating assets and liabilities, net of acquisition: | | | | | |
| Accounts receivable, net | (8,358 | ) | | (8,525 | ) | | 6,489 |
|
| Inventory | (843 | ) | | (244 | ) | | (401 | ) |
| Other current assets | 402 |
| | 526 |
| | 987 |
|
| Accounts payable and accrued liabilities | (1,713 | ) | | (2,369 | ) | | (4,027 | ) |
| Deferred revenue | (926 | ) | | (8 | ) | | (2,227 | ) |
| Net cash provided by operating activities | 93,568 |
| | 63,001 |
| | 41,727 |
|
| Investing activities | | | | | |
| Purchase of commercial license rights | — |
| | (17,695 | ) | | (4,030 | ) |
| Purchase of Viking common stock and warrant | — |
| | (700 | ) | | (9,000 | ) |
| Reduction of cash due to deconsolidation of Viking | — |
| | — |
| | (247 | ) |
Purchase of common stock in equity method investment
| — |
| | (1,000 | ) | | — |
|
Cash paid for acquisition, net of cash acquired
| (26,653 | ) | | (92,502 | ) | | — |
|
| Payments to CVR holders and other contingency payments | (4,998 | ) | | (8,777 | ) | | (6,740 | ) |
| Purchases of property and equipment | (2,156 | ) | | (1,850 | ) | | (93 | ) |
| Purchases of short-term investments | (254,258 | ) | | (164,438 | ) | | (166,025 | ) |
| Proceeds from sale of short-term investments | 86,985 |
| | 24,596 |
| | 16,039 |
|
| Proceeds from maturity of short-term investments | 109,649 |
| | 118,874 |
| | 57,234 |
|
Proceeds from commercial license rights
| 7,054 |
| | — |
| | — |
|
Proceeds received from repayment of Viking note receivable
| 200 |
| | 300 |
| | — |
|
| Net cash used in investing activities | (84,177 | ) | | (143,192 | ) | | (112,862 | ) |
| Financing activities | | | | | |
| Net proceeds from stock option exercises and ESPP | 4,517 |
| | 6,415 |
| | 8,849 |
|
Taxes paid related to net share settlement of equity awards
| (10,074 | ) | | (999 | ) | | — |
|
| Share repurchases | (1,966 | ) | | (3,901 | ) | | (489 | ) |
| Net cash (used in) provided by financing activities | (7,523 | ) | | 1,515 |
| | 8,360 |
|
| Net increase (decrease) in cash and cash equivalents | 1,868 |
| | (78,676 | ) | | (62,775 | ) |
| Cash and cash equivalents at beginning of year | 18,752 |
| | 97,428 |
| | 160,203 |
|
| Cash and cash equivalents at end of year | $ | 20,620 |
| | $ | 18,752 |
| | $ | 97,428 |
|
| Supplemental disclosure of cash flow information | | | | | |
| Cash paid during the year: | | | | | |
| | | | | | | | | | | | | | | | | |
| Net proceeds from stock option exercises and ESPP | 3,017 | | | 2,997 | | | 20,183 | |
| Taxes paid related to net share settlement of equity awards | (1,481) | | | (4,418) | | | (3,765) | |
| Share repurchases | (77,998) | | | (453,048) | | | (122,868) | |
| Repurchase of warrants | 0 | | | (380) | | | (30,094) | |
| Payments to CVR Holders | (2,325) | | | (3,000) | | | (25) | |
| Net cash provided by (used in) financing activities | (310,545) | | | (485,172) | | | 328,585 | |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | (24,311) | | | (47,590) | | | 99,375 | |
| Effect of exchange rate changes on cash | 0 | | | 83 | | | (215) | |
| Cash, cash equivalents and restricted cash at beginning of year | 72,273 | | | 119,780 | | | 20,620 | |
| Cash, cash equivalents and restricted cash at end of year | $ | 47,962 | | | 72,273 | | | 119,780 | |
| Supplemental disclosure of cash flow information | | | | | |
| Cash paid during the year: | | | | | |
| Interest paid | $ | 4,463 | | | $ | 5,827 | | | $ | 1,513 | |
| Taxes paid | $ | 2,130 | | | $ | 103,817 | | | $ | 341 | |
| Restricted cash in other current assets | $ | 343 | | | $ | 730 | | | $ | 2,616 | |
| Supplemental schedule of non-cash investing and financing activities | | | | | |
| Accrued inventory purchases | $ | 1,562 | | | $ | 170 | | | $ | 2,059 | |
| Unrealized (loss) gain on AFS investments | $ | (212) | | | $ | 256 | | | $ | 48 | |
| Purchase of fixed assets recorded in accounts payable | $ | 249 | | | $ | 495 | | | $ | 15 | |
|
| | | | | | | | | | | |
| Interest paid | $ | 1,838 |
| | $ | 1,838 |
| | $ | 1,822 |
|
| Taxes paid | $ | 157 |
| | $ | 38 |
| | $ | 28 |
|
| Supplemental schedule of non-cash investing and financing activities | | | | | |
Stock issued for acquisition, net of issuance cost
| $ | — |
| | $ | (77,331 | ) | | $ | — |
|
| Stock and warrant received for repayment of Viking notes receivable | $ | — |
| | $ | 1,200 |
| | $ | — |
|
| Accrued inventory purchases | $ | 1,007 |
| | $ | 646 |
| | $ | 1,333 |
|
| Unrealized gain on AFS investments | $ | 144 |
| | $ | (1,109 | ) | | $ | 3,005 |
|
See accompanying notes to these consolidated financial statements.
LIGAND PHARMACEUTICALS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unless the context requires otherwise, references in this report to “Ligand,” “we,” “us,” the “Company,” and “our” refer to Ligand Pharmaceuticals Incorporated and its consolidated subsidiaries.
1. Basis of Presentation and Summary of Significant Accounting Policies
Business
Ligand isWe are a biopharmaceutical company with a business model primarily based on developing or acquiring assets which generate royalty, milestone or other passive revenue for the Company andus using a lean corporate cost structure. We operate in one business segment: development and licensing of biopharmaceutical assets.
Principles of Consolidation
The accompanying consolidated financial statements include Ligand and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Basis of Presentation
The Company’s accompanyingOur consolidated financial statements have been prepared in accordance with U.S. GAAP and include the accounts of the Companyour parent company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Reclassifications
Certain reclassifications have been made to the previously issued statementfinancial statements to conform with the current period presentation. Specifically, our investment in Viking common stock and warrants was reclassified from “investment in Viking” to “short-term investments” in the audited consolidated balance sheet as of December 31, 2019. Additionally, “gain (loss) from
short-term investments” in the consolidated statements of operations include both the gain (loss) from investment in Viking and other short-term investments, which was previously included in “other income, net” for comparability purposes. These reclassifications had no effect onboth the reported net income (loss), stockholders' equitytwelve months ended December 31, 2019 and operating cash flows as previously reported.2018.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes. Actual results may differ from those estimatesestimates.
Concentrations of Business Risk
Financial instruments that potentially subject the Companyus to significant concentrations of credit risk consist primarily of cash equivalents and investments. The Company invests itsWe invest excess cash principally in United States government debt securities, investment grade corporate debt securities, mutual funds and certificates of deposit. The Company hasWe maintain some cash and cash equivalents balances with financial institutions that are in excess of the Federal Deposit Insurance Corporation insurance limits. We have established guidelines relative to diversification and maturities that maintain safety and liquidity. These guidelines are periodically reviewed and modified to take advantage of trends in yields and interest rates.
A relatively small number of partners account for a significant percentage of our revenue. Revenue from significant partners, which is defined as 10% or more of our total revenue, was as follows:
| | | | | | | | | | | | | | | | | |
| Year-ended December 31, |
| 2020 | | 2019 | | 2018 |
| Partner A | 45 | % | | 13 | % | | 40 | % |
| Partner B | 17 | % | | 27 | % | | 13 | % |
| Partner C | < 10% | | < 10% | | 20 | % |
* Except for Partner B, who represents the same customer for all three years presented, Partner A represents two different customers and Partner C represents another two different customers for the three years presented.
|
| | | | | | | | |
| | December 31, |
| | 2017 | | 2016 | | 2015 |
| Partner A | 46 | % | | 41 | % | | 27 | % |
| Partner B | 19 | % | | 14 | % | | 23 | % |
| Partner C | — |
| | — |
| | 18 | % |
The Company obtainsWe obtain Captisol primarily from two sites at a single supplier, Hovione. If this supplier were not able to supply the requested amounts of Captisol from each site, and if our safety stocks of material were depleted, the Companywe would be unable to continue to derive revenues from the sale of Captisol until itwe obtained material from an alternative source, which could take a considerable length of time.
Cash Equivalents & Short TermShort-term Investments
Cash equivalents consist of all investments with maturities of three months or less from the date of acquisition. Short-term investments primarily consist of investments in debt and equity securities thatand mutual funds. Debt securities have effective maturities greater than three months and less than twelve months from the date of acquisition. The Company classifies itsWe classify our short-term investments as "available-for-sale". Such investments are carried at fair value, with unrealized gains and losses on debt securities included in the statement of comprehensive income (loss). The Company determines and unrealized gains and losses on equity securities and mutual funds included the consolidated statement of operations. Mutual funds are valued at their net asset value (NAV) on the last day of the period. We determine the cost of investments based on the specific identification method. We determine the realized gains or losses on the sale of available-for-sale securities using the specific identification method and includes net realized gains and losses as a component of other income or expense within the consolidated statements of operations. We periodically review available-for-sale securities for other than temporary declines in fair value below the cost basis whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. To date, we have not identified any other than temporary declines in fair value of its short-term investments.
Accounts Receivable
TradeOur accounts receivable are recorded atarise primarily from sales on credit to customers. We establish an allowance for credit losses to present the net invoice value and are not interest bearing. The Company considers receivables past due based on the contractual payment terms which range from 30 to 90 days. The Company reserves specific receivables if collectability is no longer reasonably assured. The Company re-evaluates such reserves on a regular basis and adjusts its reserves as needed. Once aamount of accounts receivable is deemedexpected to be uncollectible, such balancecollected. The allowance is charged againstdetermined by using the reserve.loss-rate method, which requires an estimation of loss rates based upon historical loss experience adjusted for factors that are relevant to determining the expected collectability of accounts receivable. Some of these factors include macroeconomic conditions that correlate with historical loss experience, delinquency trends, aging behavior of receivables and credit and liquidity quality indicators for industry groups, customer classes or individual customers. During 2020, we considered the current and expected future economic and market conditions including, but not limited to, the anticipated unfavorable impacts of the surrounding novel coronavirus (COVID-19) pandemic on our business and recorded an adjustment of $0.3 million of allowance for credit losses as of December 31, 2020.
Inventory
Inventory, which consists of finished goods, is stated at the lower of cost or marketnet realizable value. The Company determinesWe determine cost using the first-in, first-out method or the specific identification method. The Company analyzes itsWe analyze our inventory levels periodically and writeswrite down inventory to its net realizable value if it has become obsolete, has a cost basis in excess of its expected net realizable value or is in excess of expected requirements. There were no0 write downs related to obsolete inventory recorded for the years ended December 31, 20172020, 2019 and 2016.2018.
Property and Equipment
Property and equipment are stated at cost, subject to review for impairment, and depreciated over the estimated useful lives of the assets, which generally range from three to ten years, using the straight-line method. Amortization of leasehold improvements is recorded over the shorter of the lease term or estimated useful life of the related asset. Maintenance and repairs are charged to operations as incurred. When assets are sold, or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in operating income or expense.
Acquisitions
We first determine whether a set of assets acquired constitute a business and should be accounted for as a business combination. If the assets acquired are not a business, we account for the transaction as an asset acquisition. Business Combinations
Thecombinations are accounted for by using the acquisition method of accounting for business combinationswhich requires us to use significant estimates and assumptions, including fair value estimates, as of the business combination date and to refine those estimates as necessary during the measurement period (defined as the period, not to exceed one year, in which we may adjust the provisional amounts recognized for a business combination).
Under the acquisition method of accounting, we recognize separately from goodwill the identifiable assets acquired, the liabilities assumed, including contingent consideration and all contractual contingencies, generally at the acquisition date fair value. Contingent purchase consideration to be settled in cash are remeasured to estimated fair value at each reporting period with the change in fair value recorded in 'Increase in contingent liabilities'.statement of operations. Costs that we incur to complete the business combination such as investment banking, legal and other professional fees are not considered part of consideration and we charge them to general and administrative expense as they are incurred.
We measure goodwill as of the acquisition date as the excess of consideration transferred, which we also measure at fair value, over the net of the acquisition date amounts of the identifiable assets acquired and liabilities assumed. In addition, IPR&D is capitalized and assessed for impairment annually. IPR&D is amortized upon product commercialization or upon out-licensing the underlying intellectual property where we have no have active involvement in the licensee's development activities. IPR&D is amortized over the estimated life of the commercial product or licensing arrangement.
Should the initial accounting for a business combination be incomplete by the end of a reporting period that falls within the measurement period, we report provisional amounts in our financial statements. During the measurement period, we adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date and we record those adjustments to our financial statements in the period of change, if any.
Under the acquisition method of accounting for business combinations, if we identify changes to acquired deferred tax asset valuation allowances or liabilities related to uncertain tax positions during the measurement period and they relate to new
information obtained about facts and circumstances that existed as of the acquisition date, those changes are considered a measurement period adjustment and we record the offset to goodwill. We record all other changes to deferred tax asset valuation allowances and liabilities related to uncertain tax positions in current period income tax expense.
Contingent Liabilities
In connection with the acquisition of Pfenex in October 2020, we will pay $2.00 per share or $77.8 million as a CVR in the event a predefined regulatory milestone is achieved by December 31, 2021. The CVR Agreement provides that the required milestone will be achieved upon the receipt of a notice from the FDA that the teriparatide injection is therapeutically equivalent to FORTEO® (teriparatide injection).
In connection with the acquisition of Icagen in April 2020, Icagen selling shareholders will be entitled to receive up to an additional $25 million of cash payments based on certain revenue achievements.
In connection with the acquisition of Crystal in October 2017, we may be required to pay up to an additional $10.5 million in purchase consideration upon achievement of certain commercial and development milestones to the Crystal shareholders.See footnote 7, Balance Sheet Account Details.
In connection with the Company's acquisition of CyDex in January 2011, the Companywe recorded a contingent liability for amounts potentially due to holders of the CyDex CVRs and former license holders. See footnote 7, Other Balance Sheet Details. The liability is periodically assessed based on events and circumstances related to the underlying milestones, royalties and material sales.
In connection with the Company’s acquisition of Metabasis in January 2010, January 2010, the Companywe issued Metabasis stockholders four4 tradable CVRs for each Metabasis share. The fair values of the CVRs are remeasured at each reporting date through the term of the related agreement.
Any change in fair value is recorded in the Company'sour consolidated statement of operations. For additional information, see “Note (5), Fair Value Measurement and Note (8), Balance Sheet Account Details.”
Goodwill, Intangible Assets and Other Long-Lived Assets
Goodwill, which has an indefinite useful life, represents the excess of cost over fair value of net assets acquired. The change in the carrying value of goodwill during the year ended December 31, 2017, was due to the acquisition of Crystal. Goodwill is reviewed for impairment at least annually during the fourth quarter, or more frequently if an event occurs indicating the potential for impairment. During the goodwill impairment review, we assess qualitative factors to determine whether it is more likely than not that the fair value of our reporting unit is less than the carrying amount, including goodwill. We operate in one reporting unit. The qualitative factors include, but are not limited to, macroeconomic conditions, industry and market considerations, and the overall financial performance. If, after assessing the totality of these qualitative factors, we determine that it is not more likely than not that the fair value of our reporting unit is less than the carrying amount, then no additional assessment is deemed necessary. Otherwise, we proceed to perform the two-step test quantitative assessment. We will then evaluate goodwill
for goodwill impairment. The first step involvesimpairment by comparing the estimated fair value of the reporting unit with theto its carrying value, including the associated goodwill. If the carrying amount of the reporting unit exceedsTo determine the fair value, we generally use a combination of market approach based on Ligand and comparable publicly traded companies in similar lines of businesses and the second step of the goodwill impairment test is performed to determine the amount of loss, which involves comparing the implied fair value of the goodwill to the carrying value of the goodwill.income approach based on estimated discounted future cash flows. Our cash flow assumptions consider historical and forecasted revenue, operating costs and other relevant factors. We may also elect to bypass the qualitative assessment in a period and elect to proceed to perform the first step ofquantitative assessment for the goodwill impairment test. We performed the annual assessment for goodwill impairment induring the fourth quarter of 2017,2020, noting no impairment.
Our identifiable intangible assets are typically comprisedcomposed of acquired core technologies, licensed technologies, contractual relationships, customer relationships and trade names. The cost of identifiable intangible assets with finite lives is generally amortized on a straight-line basis over the assets’ respective estimated useful lives. We regularly perform reviews to determine if any event has occurred that may indicate that intangible assets with finite useful lives and other long-lived assets are potentially impaired. If indicators of impairment exist, an impairment test is performed to assess the recoverability of the affected assets by determining whether the carrying amount of such assets exceeds the undiscounted expected future cash flows. If the affected assets are not recoverable, we estimate the fair value of the assets and record an impairment loss if the carrying value of the assets exceeds the fair value. Factors that may indicate potential impairment include a significant declinemarket conditions, industry and economic trends, changes in our stock priceregulations, clinical success, historical and forecasted financial results, market capitalization, compared to the net book value, significant changes in the ability of a particular asset to generate positive cash flows, and the pattern of utilization of a particular asset. We did not identify indicators of impairment for the finite-lived intangibles at December 31, 2020.
Commercial license and other economic rights
Commercial license and other economic rights consist of the following (in thousands):
|
| | | | | | | |
| | December 31, | | December 31, |
| | 2017 | | 2016 |
| Aziyo & CorMatrix | $ | 17,696 |
| | $ | 17,696 |
|
| Selexis | 8,602 |
| | 8,602 |
|
| | 26,298 |
| | 26,298 |
|
| Less: accumulated amortization | (6,772 | ) | | (477 | ) |
| Total commercial rights, net | $ | 19,526 |
| | $ | 25,821 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 | | December 31, 2019 |
| | Gross | | Adjustments(1) | | Net | | Gross | | Adjustments(2) | | Net |
| Aziyo and CorMatrix | | $ | 17,696 | | | $ | (9,588) | | | $ | 8,108 | | | $ | 17,696 | | | $ | (5,500) | | | $ | 12,196 | |
| Palvella | | 10,000 | | | (10,000) | | | 0 | | | 10,000 | | | (7,492) | | | 2,508 | |
| Selexis and Dianomi | | 10,602 | | | (7,731) | | | 2,871 | | | 10,602 | | | (5,216) | | | 5,386 | |
| Total | | $ | 38,298 | | | $ | (27,319) | | | $ | 10,979 | | | $ | 38,298 | | | $ | (18,208) | | | $ | 20,090 | |
(1) Amounts represent accumulated amortization to principal or research and development expenses of $21.3 million and credit loss adjustments of $6.0 million as of December 31, 2020 . Of the $6.0 million credit loss adjustments as of December 31, 2020, $5.5 million was recorded to retained earnings upon the adoption of ASU 2016-13, Financial Instruments - Credit Losses, on January 1, 2020.
(2) Amounts represent accumulated amortization to principal or research and development expenses as of December 31, 2019.
Commercial license and other economic rights as of December 31, 2020 represent a portfolio of future milestone and royalty payment rights acquired from Selexis in April 2013 and April 2015, and CorMatrix in May 2016. Individual commercial2016, Palvella in December 2018, and Dianomi in January 2019. Commercial license rights acquired are carriedaccounted for as financial assets, and other economic rights are accounted for as funded research and developments as further discussed below.
In May 2019, we entered into a development funding and royalties agreement with Novan, pursuant to which we would receive certain payments at allocated cost.specified milestones, as well as royalties on any future net sales of SB206, a product candidate being developed to treat molluscum contagiosum, and any other Novan products used for the treatment of molluscum (“Novan Molluscum Products”). We paid Novan an upfront payment of $12.0 million, which Novan is required to use to fund the development of SB206. We are not obligated to provide additional funding to Novan for the development or commercialization of SB206. Pursuant to the agreement, we would receive up to $20.0 million of milestone payments upon the achievement by Novan of certain regulatory milestones for SB206 or any other Novan Molluscum Product and commercial milestones. In addition to the milestone payments, Novan will pay us tiered royalties from 7.0% to 10.0% based on aggregate annual net sales of SB206 or any other Novan Molluscum Product in North America. We determined the economic rights related to Novan should be characterized as a funded research and development arrangement, thus we account for it in accordance with ASC 730-20, Research and Development Arrangement, and reduce our asset as the funds are expended by Novan. As of December 31, 2019, Novan had used up the $12.0 million upfront payment provided by us. As such, our other economic rights related to Novan had been fully amortized as of December 31, 2019.
In December 2018, we entered into a development funding and royalties agreement with Palvella. Pursuant to the agreement, we will receive up to $8.0 million of milestone payments upon the achievement by Palvella of certain corporate, financing and regulatory milestones for PTX-022, a product candidate being developed to treat pachyonychia congenita. In addition to the milestone payments, Palvella will pay us tiered royalties from 5.0% to 9.8% based on aggregate annual worldwide net sales of any PTX-022 products, if approved, subject to Palvella’s right to reduce the royalty rates by making payments in certain circumstances. We made an upfront payment of $10.0 million, which Palvella is required to use to fund the development of PTX-022. We are not obligated to provide additional funding to Palvella for development or commercialization of PTX-022. We determined the economic rights related to Palvella should be characterized as a funded research and development arrangement, thus we account for it in accordance with ASC 730-20, and reduce our asset as the funds are expended by Palvella. As of December 31, 2020, the fund has been fully expended by Palvella and our cost basis for the asset has been reduced to 0, and therefore we will recognize milestones and royalties as revenue when earned. During 2020, we recorded a $3.0 million milestone from Palvella under contract revenue, which has been included in our consolidated statement of operations for the year ended December 31, 2020.
In May 2017, the Companywe entered into a Royalty Agreementroyalty agreement with Aziyo pursuant to which the Companywe will receive royalties from certain marketed products that Aziyo acquired from CorMatrix. Pursuant to the Royalty Agreement, the Companyagreement, we received $10$10.0 million in 2017 from Aziyo to buydown the royalty rates on the products CorMatrix sold to Aziyo. The Royalty Agreementagreement closed on May 31, 2017, in connection with the closing of the asset sale from CorMatrix to Aziyo (the “CorMatrix Asset Sale”). Pursuant toPer the Royalty Agreement, the Companyagreement, we will receive a 5% royalty on the products Aziyo acquired in the CorMatrix Asset Sale, reduced from the original 20% royalty from CorMatrix pursuant to the previously disclosed Interest Purchase Agreement,interest purchase agreement, dated May 3, 2016 (the “Original Interest Purchase Agreement”) between CorMatrix and the Company.us. In addition, Aziyo has agreed to pay the Companyus up to $10$10.0 million of additional milestones tied to cumulative net sales of the products Aziyo acquired in the CorMatrix Asset Sale and to extend the term on these royalties by one year. The Royalty Agreementroyalty agreement will terminate on May 31, 2027. In addition, in May 2017, the Companywe entered into an amended and restated interest purchase agreement (the “Amended Interest Purchase Agreement”) with CorMatrix, which supersedes in its entirety the Original Interest Purchase Agreement. Other than removing the commercial products sold to Aziyo in the CorMatrix Sale, the terms of the Amended Interest Purchase Agreement remain unchanged with respect to the CorMatrix developmental pipeline products, including the royalty rate of 5% on such pipeline products. The Amended Interest Purchase Agreement will terminate 10 years from the date of the first commercial sale of such products.
The Company accountsWe account for the Aziyo commercial license right as a financial asset in accordance with ASC 310, Receivables, and amortizesamortize the commercial license right using the 'effective interest'effective interest method whereby the Company forecastswe forecast expected cash flows over the term of the arrangement to arrive at an annualized effective interest. The annual effective interest associated with the forecasted cash flows from the Royalty Agreementroyalty agreement with Aziyo as of December 31, 20172020 is 26%23%. Revenue is calculated by multiplying the carrying value of the commercial license right by the effective interest. The payments received in 20172020 were accordingly allocated between revenue and the amortization of the commercial license rights.
Prior to 2020, we accounted for commercial license rights related to developmental pipeline products such as Selexis and Dianomi on a non-accrual basis. These developmental pipeline products are non-commercialized, non-approved products that require FDA or other regulatory approval, and thus have uncertain cash flows. The developmental pipeline products are on a non-accrual basis as we are not yet able to forecast future cash flows given their pre-commercial stages of development. We will prospectively update the yield model under the effective interest method once the underlying products are commercialized and we can reliably forecast expected cash flows. Income will be calculated by multiplying the carrying value of the commercial license right by the effective interest rate. We regularly perform reviews to determine if any event has occurred that may indicate the carrying value of these commercial license rights are potentially impaired. If the affected commercial license rights are not recoverable, we estimate the fair value of the assets and record an impairment loss if the carrying value of the assets exceeds the fair value. During 2020, given the expected cash flow from the Selexis program, we started to account for the Selexis commercial license right as a financial asset in accordance with ASC 310, and amortize the commercial license right using the effective interest method whereby we forecast expected cash flows over the term of the arrangement to arrive at an annualized effective interest. The annual effective interest associated with the forecasted cash flows from the royalty agreement with Selexis as of December 31, 2020 is 21%. Revenue is calculated by multiplying the carrying value of the commercial license right by the effective interest. The payments received in 2020 were accordingly allocated between revenue and the amortization of the commercial license rights. We still accounted for commercial license rights related to Dianomi on a non-accrual basis as of December 31, 2020.
For commercial license rights, we have elected a prospective approach to account for changes in estimated cash flows and selected a method for determining when an impairment would be recognized and how to measure that impairment. In circumstances where our new estimate of expected cash flows is greater than previously expected, we will update our yield prospectively. While it has not occurred to date, inIn circumstances where our new estimate of expected cash flows is less than previously expected and below our original estimated yield we will record an impairment. Impairment will beis recognized by reducing the financial asset to an amount that
represents the present value of our most recent estimate of expected cash flows discounted by the original effective interest rate. In circumstances where our new estimate of expected cash flows is less than previously expected, but not below our original estimated yield, we will update our yield prospectively.
The Company accountsAs a result of adopting ASU 2016-13, we now recognize an allowance for current expected credit losses on the commercial license rights relatedsubject to developmental pipeline productscredit risk. We recorded a $5.5 million pre-tax reserve for credit losses upon adoption of the standard on a non-accrual basis. These developmental pipeline products are non-commercialized, non-approved products that require FDA or other regulatory approval, and thus have uncertain cash flows. The developmental pipeline products are on a non-accrual basis asJanuary 1, 2020. We estimated the Company is not yet able to forecast future cash flows given their pre-commercial stages of development. The Company will prospectively update its yield model undercredit losses at the effective interest method onceindividual asset level by considering the underlying products are commercializedperformance against the programs, the company operating performance and the Company can reliably forecastmacroeconomic forecast. In addition, we have judgmentally applied credit loss risk factors to the future expected cash flows. Income will be calculated by multiplyingpayments with consideration given to the carrying valuetiming of the commercial license right bypayment. Given the effective interest rate.
In 2017, the Company identified and corrected an immaterial error related to 2016. The adjustment relatedhigher inherent credit risk associated with longer term receivables, we applied a lower risk factor to the recognition of the income associated with this financial asset. The Company determined the 'effective interest' method should have been used to recognize income associated with the financial assetearlier years and that the method utilized previously was incorrect. The error had the impact of understating Commercial License Rights, revenue and net income in 2016. Management evaluated the effect of the adjustment on previously issued consolidated financial statements in accordance with SAB No. 99 and SAB No. 108 and concluded that it was qualitatively and quantitatively immaterialprogressively higher risk factors to the historical periods. Management also concluded that correctinglater years. During the errortwelve months ended December 31, 2020, we further considered the current and expected future economic and market conditions surrounding novel coronavirus (COVID-19) pandemic and recorded an additional $0.5 million reserve for credit losses in 2017 did not have a material impact on the 2017 financial results. As a result,other expense, net, in accordance with SAB No. 108, we corrected our Consolidated Balance Sheets asconsolidated statement of June 30, 2017. The error resulted in an understatement of 2016 revenue of $1.3 million and net income of $0.8 million, or $0.04 per diluted share and overstatement of 2017 revenue of $1.3 million and net income of $0.8 million, or $0.04 per diluted share.operations.
Revenue Recognition
We recognizeOur revenue when persuasive evidence of an arrangement exists, delivery has occurred or service has been provided, title has transferred or access has been given, the price is fixed or determinable, there are no remaining customer acceptance requirements, and collectability of the resulting receivable is reasonably assured.
Royaltiesgenerated primarily from royalties on sales of products commercialized by our partners, Captisol material sales, license fees and development, regulatory and sales based milestone payments.
On January 1, 2018, we adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606), which amends the Company’sguidance for recognition of revenue from contracts with customers by using the modified-retrospective method applied to those contracts that were not completed as of January 1, 2018. The results for reporting periods beginning January 1, 2018, are presented in accordance with the new standard. See additional information in Disaggregation of Revenue subsection below.
Royalties
We receive royalty revenue on sales by our partners of products covered by patents that we own. We do not have future performance obligations under these license arrangements. We generally satisfy our obligation to grant intellectual property rights on the effective date of the contract. However, we apply the royalty recognition constraint required under the guidance for sales-based royalties which requires a sales-based royalty to be recorded when the underlying sale occurs. Therefore, royalties on sales of products commercialized by our partners are recognized in the quarter reported by the respective partner. Generally, the Company receives royalty reports from its licensees approximatelyproduct is sold. Our partners generally report sales information to us on a one quarter in arrears due tolag. Thus, we estimate the fact that its agreements requireexpected royalty proceeds based on an analysis of historical experience and interim data provided by our partners to report product salesincluding their publicly announced sales. Differences between 30actual and 60 days after the end of the quarter. The Company recognizesestimated royalty revenues, when it can reliably estimate such amounts and collectability is reasonably assured. Under this accounting policy, the royalty revenues reported are not based upon estimates and such royalty revenues are typically reported to the Company by its partners in the same period in which payment is received.
Revenue from material sales of Captisol is recognized upon transfer of title, which normally passes upon shipment to the customer, provided all other revenue recognition criteria have been met. All product returns are subject to the Company's credit and exchange policy, approval by the Company and a 20% restocking fee. To date, product returns have not been material, are adjusted for in the period in which they become known, typically the following quarter.
Captisol Sales
We recognize revenue when control of Captisol material is transferred to netour customers in an amount that reflects the consideration we expect to receive from our customers in exchange for those products. This process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. We consider a performance obligation satisfied once we have transferred control of the product, meaning the customer has the ability to use and obtain the benefit of the Captisol material salesor intellectual property license right. We recognize revenue for satisfied performance obligations only when we determine there are no uncertainties regarding payment terms or transfer of control. We have elected to recognize the cost of freight and shipping when or after control over Captisol material has transferred to the customer as an expense in cost of Captisol. Sales tax and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. We expense incremental costs of obtaining a contract when incurred if the expected amortization period of the asset that we would have recognized is one year or less or the amount is immaterial. We did not incur any related period. The Company records revenue netincremental costs of product returns, if any, and sales tax collected and remitted to government authoritiesobtaining a contract during the period.periods reported.
The Company analyzes itsContract Revenue
Our contract revenue arrangementsincludes service revenue, license fees and other agreementsfuture contingent milestone based payments. We recognize service revenue for contracted R&D services performed for our customers over time. We measure our progress using an input method based on the effort we expend or costs we incur toward the satisfaction of our performance obligation. We estimate the amount of effort we expend, including the time it will take us to complete the activities, or the costs we may incur in a given
period, relative to the estimated total effort or costs to satisfy the performance obligation. This results in a percentage that we multiply by the transaction price to determine whetherthe amount of revenue we recognize each period. This approach requires us to make estimates and use judgement. If our estimates or judgements change over the course of the collaboration, they may affect the timing and amount of revenue that we recognize in the current and future periods.
We include contingent milestone based payments in the estimated transaction price when there is a basis to reasonably estimate the amount of the payment. These estimates are multiple elements that should be separatedbased on historical experience, anticipated results and accounted for individually or as a single unit of accounting. For multiple element contracts, arrangement consideration is allocatedour best judgment at the inceptiontime. If the contingent milestone based payment is sales-based, we apply the royalty recognition constraint and record revenue when the underlying sale has taken place. Significant judgments must be made in determining the transaction price for our licenses of intellectual property. Because of the risk that products in development with our partners will not reach development based milestones or receive regulatory approval, we generally recognize any contingent payments that would be due to us upon or after the development milestone or regulatory approval.
Deferred Revenue
Depending on the terms of the arrangement, we may also defer a portion of the consideration received if we have toall deliverables satisfy a future obligation. We use an observable price to determine the stand-alone selling price for separate performance obligations or a cost plus margin approach when one is not available.
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the basis of relative selling price, using a hierarchy to determine selling price. Management first considers VSOE, then TPE and if neither VSOE nor TPE exist, the Company uses its best estimate of selling price.
Many of the Company'sconsolidated balance sheet. Except for royalty revenue, arrangements for Captisol involve a license agreement and the supply of manufactured Captisol product. Licenses may be granted to pharmaceutical companies for the use of Captisol product in the development of pharmaceutical compounds. The supply of the Captisol product may be for all phases of clinical trials and through commercial availability of the host drug or may be limited to certain phases of the clinical trial process. Management believes that the Company's licenses have stand-alone valuewe generally receive payment at the outsetpoint we satisfy our obligation or soon after. Therefore, we do not generally carry a contract asset balance. Any fees billed in advance of an arrangement becausebeing earned are recorded as deferred revenue. During the customer obtainstwelve months ended December 31, 2020, the right to use Captisol in its formulations without any additional input by the Company, and in a hypothetical stand-alone transaction, the customer would be able to procure inventory from another manufacturer in the absence of contractual provisions for exclusive supply by the Company.
Other nonrefundable, up-front license fees areamount recognized as revenue upon delivery ofthat was previously deferred at December 31, 2019 was $0.9 million. During the license, iftwelve months ended December 31, 2019, the license is determined to have standalone value that is not dependent on any future performance by the Company under the applicable collaboration agreement. Nonrefundable contingent event-based payments areamount recognized as revenue when the contingent event is met, which is usually the earlierthat was previously deferred at December 31, 2018 was $3.3 million.
Disaggregation of when paymentsRevenue
Royalty revenue for 2020, 2019 and 2018 are received or collections are assured, provided that it does not require future performance by the Company. reported as below (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, |
| | 2020 | | 2019 | | 2018 |
| | | | | | |
| Kyprolis | | $ | 25,164 | | | $ | 25,046 | | | $ | 21,686 | |
| Evomela | | 6,377 | | | 5,171 | | | 5,658 | |
| Other | | 2,255 | | | 2,566 | | | 1,952 | |
| Promacta | | N/A | | 14,193 | | | 99,260 | |
| | $ | 33,796 | | | $ | 46,976 | | | $ | 128,556 | |
The Company occasionally has sub-license obligations related to arrangements for which it receives licensefollowing table represents disaggregation of Material Sales and License fees, milestonesmilestone and royalties. Management evaluates the determination of gross versus net reporting based on each individual agreement.other (in thousands):
Sales-based contingent payments from partners are accounted for similarly to royalties, with revenue recognized upon achievement of the sales targets assuming all other revenue recognition criteria for milestones are met. Revenue from development and regulatory milestones is recognized when earned, as evidenced by written acknowledgement from the collaborator, provided that (1) the milestone event is substantive, its achievability was not reasonably assured at the inception of the agreement, and the Company has no further performance obligations relating to that event, and (2) collectability is reasonably assured. If these criteria are not met, the milestone payment is recognized over the remaining period of the Company’s performance obligations under the arrangement.
| | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, |
| | 2020 | | 2019 | | 2018 |
| Captisol | | $ | 109,959 | | | $ | 31,489 | | | $ | 29,123 | |
| | | | | | |
| Contract | | | | | | |
| Service Revenue | | 21,803 | | | 16,776 | | | 4,749 | |
| License Fees | | 4,378 | | | 6,199 | | | 78,195 | |
| Milestone | | 11,516 | | | 17,173 | | | 6,577 | |
| Other | | 4,967 | | | 1,669 | | | 4,253 | |
| | $ | 42,664 | | | $ | 41,817 | | | $ | 93,774 | |
Preclinical Study and Clinical Trial Accruals
Substantial portions of the Company’sour preclinical studies and all of the Company’sour clinical trials have been performed by third-party laboratories, CROs. The Company accountsWe account for a significant portion of itsthe clinical study costs according to the terms of itsour contracts with CROs. The terms of itsthe CRO contracts may result in payment flows that do not match the periods over which services are provided to us under such contracts. The Company'sOur objective is to reflect the appropriate preclinical and clinical trial expenses in itsour financial statements in the same period as the services occur. As part of the process of preparing itsour financial statements, the Company relieswe rely on cost information provided by itsour CROs. The Company isWe are also required to estimate certain of itsour expenses resulting from itsthe obligations under itsthe CRO contracts. Accordingly, the Company'sour preclinical study and clinical trial accrual is dependent upon the timely and accurate reporting of CROs and other third-party vendors. The CompanyWe periodically evaluates itsevaluate our estimates to determine if adjustments are necessary or appropriate as more information becomes available concerning changing circumstances, and conditions or events that may affect such estimates. No material adjustments to preclinical study and clinical trial accrued expenses have been recognized to date.
Research and Development Expenses
Research and development expense consists of labor, material, equipment, and allocated facilities costs of the Company’sour scientific staff who are working pursuant to the Company’sour collaborative agreements and other research and development projects. Also included in research and development expenses are third-party costs incurred for the Company’sour research programs including in-licensing costs, CRO costs and costs incurred by other research and development service vendors. We expense these costs as they are incurred. When we make payments for research and development services prior to the services being rendered, we record those amounts as prepaid assets on our consolidated balance sheet and we expense them as the services are providedprovided. In addition, the amortization of the above mentioned other economic rights such as Palvella and Novan are included in research and development expenses in accordance with ASC 730-20.
Stock-BasedShare-Based Compensation
The Company incursWe incur share-based compensation expense related to restricted stock, its ESPP, and stock optionsoptions.
Restricted stock unitsunit (RSU) and performance stock unitsunit (PSU) are all considered restricted stock. The fair value of restricted stock is determined by the closing market price of the Company’sour common stock on the date of grant. The Company recognizesWe recognize share-based compensation expense based on the fair value on a straight-line basis over the requisite service periods of the awards, taking into consideration estimated forfeitures.of forfeitures as they occur. PSU represents a right to receive a certain number of shares of common stock based on the achievement of corporate performance goals and continued employment during the vesting period. At each reporting period, the Company reassesseswe reassess the probability of the achievement of such corporate performance goals and any expense change resulting from an adjustment in the estimated shares to be released are treated as a cumulative catch-up in the period of adjustment.
The Company usesWe use the Black-Scholes-Merton option-pricing model to estimate the fair value of stock purchases under ESPP and stock options granted. The model assumptions include expected volatility, term, dividends, and the risk-free interest rate. The Company looksWe look to historical volatilityand implied volatilities of the Company'sour stock to determine the expected volatility. The expected term of an award is based on historical forfeiture experience, exercise activity, and on the terms and conditions of the stock awards. The expected dividend yield is determined to be 0% given that except for 2007, during which we declared a cash dividend on our common stock of $2.50 per share, we have not paid any dividends on our common stock in the Company has never declared or paid regularpast and currently do not expect to pay cash dividends or make any other distributions on its common stock and does not anticipate paying such cash dividends.in the future. The risk-free interest rate is based upon U.S. Treasury securities with remaining terms similar to the expected term of the share-based awardsawards.
The Company grantsWe grant options, RSUs and restricted stock awardsPSUs to employees and non-employee directors. Non-employee directors are accounted for as employees. Options and restricted stock awardsRSUs granted to certain non-employee directors typically vest one year from the date of grant. Options granted to employees typically vest 1/8 on the six month anniversary of the date of grant, and 1/48 each month thereafter for forty-two months. Restricted stock awardsRSUs and PSUs granted to employees vest over three years. All option awards generally expire ten years from the date of grant.
Stock-basedShare-based compensation expense for awards to employees and non-employee directors is recognized on a straight-line basis over the vesting period until the last tranche vests.
Derivatives
In May 2018, we issued $750.0 million aggregate principal amount of 2023 Notes, bearing cash interest at a rate of 0.75% per year, payable semi-annually, as further described in “Note (7), Convertible Senior Notes.” Concurrently with the issuance of the notes, we entered into a series of convertible note hedge and warrant transactions which in combination are designed to reduce the potential dilution to our stockholders and/or offset the cash payments we are required to make in excess of the principal amount upon conversion of the notes. The conversion option associated with the 2023 Notes temporarily met the criteria for an embedded derivative liability which required bifurcation and separate accounting. In addition, the note hedge and warrants were also temporarily classified as a derivative asset and liability, respectively, on our consolidated balance sheet. As a result of shareholder approval to increase the number of authorized shares of our common stock on June 19, 2018, as discussed in “Note (7), Convertible Senior Notes,” the derivative asset and liabilities were reclassified to additional paid-in capital. Changes in the fair value of these derivatives prior to being classified in equity were reflected in other expense, net, in our consolidated statements of operations for the twelve months ended December 31, 2018.
In connection with our 2019 Notes, which we issued in August 2014 for $245.0 million aggregate principal amount, on May 22, 2018, we amended it making an irrevocable election to settle the entire note in cash. As a result, we reclassified from equity to derivative liability the fair value of the conversion premium as of May 22, 2018. Amounts paid in excess of the principal amount would be offset by an equal receipt of cash under the corresponding convertible bond hedge. As a result, we reclassified from equity to derivative asset the fair value of the bond hedge as of May 22, 2018. Changes in the fair value of these derivatives are reflected in other expense, net, in our consolidated statements of operations.
In connection with the payoff of the 2019 Notes in August 15, 2019, the bond hedge was settled and accordingly, the derivative asset and derivative liability were settled to 0. See detail in “Note (7), Convertible Senior Notes.”
Income Taxes
The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for the expected future tax benefit to be derived from tax loss and credit carryforwards. Deferred
tax assets and liabilities are determined using the enacted tax rates in effect for the years in which those tax assets are expected to be realized. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the provision for income taxes in the period that includes the enactment date.
Deferred tax assets are regularly assessed to determine the likelihood they will be recovered from future taxable income. A valuation allowance is established when the Company believeswe believe it is more likely than not the future realization of all or some of a deferred tax asset will not be achieved. In evaluating the ability to recover deferred tax assets within the jurisdiction which they arise the Company considerswe consider all available positive and negative evidence. Factors reviewed include the cumulative pre-tax book income for the past three years, scheduled reversals of deferred tax liabilities, history of earnings and reliable forecasting, projections of pre-tax book income over the foreseeable future, and the impact of any feasible and prudent tax planning strategies.
The Company recognizesWe recognize the impact of a tax position in theour financial statements only if that position is more likely than not of being sustained upon examination by taxing authorities, based on the technical merits of the position. AnyTax authorities regularly examine our returns in the jurisdictions in which we do business and we regularly assess the tax risk of our return filing positions. Due to the complexity of some of the uncertainties, the ultimate resolution may result in payments that are materially different from our current estimate of the tax liability. These differences, as well as any interest and penalties, related to uncertain tax positions will be reflected in income tax expense.
Discontinued Operations
In 2006, we entered into a purchase agreement with Eisai pursuant to which Eisai agreed to acquire our Oncology product line which included four marketed oncology drugs: ONTAK, Targretin capsules, Targretin gel and Panretin gel. Certain liabilities were recorded associated with the disposal of the product line. During the year ended December 31, 2016 we recognized a $1.1 million gain due to subsequent changes in certain estimates and liabilities previously recorded. We recorded a provision for income taxes related to the gain of $0.4 million.
Convertible Debt
In August 2014, the Company completed a $245.0 million offering of 2019 Convertible Senior Notes, which bear interest at 0.75%. The Company accounted for the 2019 Convertible Senior Notes by separating the liability and equity components of the instrument in a manner that reflects the Company's nonconvertible debt borrowing rate. As a result, the Company assigned a value to the debt component of the 2019 Convertible Senior Notes equal to the estimated fair value of similar debt instruments without the conversion feature, which resulted in the Company recording the debt instrument at a discount. The Company is amortizing the debt discount over the life of the 2019 Convertible Senior Notes as additional non-cash interest expense utilizing the effective interest method.period in which they are determined.
Upon the occurrence of certain circumstances, holders of the 2019 Convertible Senior Notes may redeem all or a portion of their notes, which may require the use of a substantial amount of cash. At December 31, 2017, we had a working capital deficit of $1.8 million, which includes the 2019 Convertible Senior notes that are currently redeemable as of December 31, 2017 but excludes another $18.9 million that is classified as mezzanine equity. As noted in Note 6, the debt may change from current to non-current period over period, primarily as a result of changes in the Company’s stock price. Management believes that it is remote that holders of the notes would choose to convert their notes early because the fair value of the security that a noteholder can currently realize in an active market is greater than the conversion value the noteholder would realize upon early conversion. In the unlikely event that all the debt was converted, we have three business days following a 50 trading day observation period from the convert date to pay the principal in cash. We have positive operating income and positive cash flow from operations since December 31, 2013 and, accordingly, while there can be no assurance, we believe we have the ability to raise additional capital through an S-3 registration or via alternative financing arrangements such as convertible or straight debt.
Income (loss) Per Share
Basic income (loss) per share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted income (loss) per share is computed based on the sum of the weighted average number of common shares and potentially dilutive common shares outstanding during the periodperiod. Diluted loss per share is computed based on the sum of the weighted average number of common shares outstanding during the period.
For the twelve months ended December 31, 2020, all of the 0.6 million weighted average shares of outstanding equity awards as of December 31, 2020 were anti-dilutive due to the net loss for the period.
Potentially dilutive common shares consist of shares issuable under 2019 and 2023 convertible senior notes, stock options and restricted stock. 2019 and 2023 convertible senior notes have a dilutive impact when the average market price of the Company’s common stock exceeds the applicable conversion price of the respective notes. It is our intent and policy to settle conversions through combination settlement, which essentially involves payment in cash equal to the principal portion and
delivery of shares of common stock for the excess of the conversion value over the principal portion. In addition, post May 22, 2018, the 2019 Notes can only be settled in cash and therefore there will be no further impact on income (loss) per share of these notes. Potentially dilutive common shares from stock options and restricted stock are determined using the average share price for each period under the treasury stock method. In addition, the following amounts are assumed to be used to repurchase shares: proceeds from exercise of stock options;options and the average amount
of unrecognized compensation expense for stock options and restricted stock; and estimated tax benefits that will be recorded in additional paid-in capital when expenses related to equity awards become deductible.stock. In loss periods, basic net loss per share and diluted net loss per share are identical since the effect of otherwise dilutive potential common shares is anti-dilutive and therefore excludedexcluded.
The following table presents the calculation of weighted average shares used to calculate basic and diluted earningsincome (loss) per share (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| | 2020 | | 2019 | | 2018 |
| Weighted average shares outstanding: | 16,185 | | | 18,995 | | | 21,160 | |
| Dilutive potential common shares: | | | | | |
| Restricted stock | 0 | | | 43 | | | 72 | |
| Stock options | 0 | | | 719 | | | 1,125 | |
| Warrants associated with 2019 Notes | 0 | | | 0 | | | 1,017 | |
| 2019 Convertible Senior Notes | 0 | | | 0 | | | 693 | |
| Shares used to compute diluted income (loss) per share | 16,185 | | | 19,757 | | | 24,067 | |
| Potentially dilutive shares excluded from calculation due to anti-dilutive effect | 8,458 | | | 8,926 | | | 2,845 | |
|
| | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Weighted average shares outstanding: | 21,032 |
| | 20,831 |
| | 19,790 |
|
| Dilutive potential common shares: | | | | | |
| Restricted stock | 141 |
| | — |
| | 56 |
|
| Stock options | 1,000 |
| | — |
| | 882 |
|
| Warrants | 94 |
| | — |
| | — |
|
| 2019 Convertible Senior Notes | 1,214 |
| | — |
| | 499 |
|
| Shares used to compute diluted income per share | 23,481 |
| | 20,831 |
| | 21,228 |
|
| Potentially dilutive shares excluded from calculation due to anti-dilutive effect | 335 |
| | 3,544 |
| | 3,333 |
|
Comprehensive Income (Loss)
Comprehensive income (loss) represents net income (loss) adjusted for the change during the periods presented in unrealized gains and losses on available-for-sale securities, lessforeign currency translation adjustments, and reclassification adjustments for realized gains or losses included in net income (loss). The unrealized gains or losses are reported on the Consolidated Statements of Comprehensive Income (Loss).
Foreign Currency Translation
The British Pound Sterling is the functional currency of Vernalis and the corresponding financial statements have been translated into U.S. Dollars in accordance with ASC 830-30, Translation of Financial Statements. Assets and liabilities are translated at end-of-period rates while revenues and expenses are translated at average rates in effect during the period in which the activity took place. Equity is translated at historical rates and the resulting cumulative translation adjustments are included as a component of accumulated other comprehensive income (loss).
Impact of COVID-19 Pandemic
The current COVID-19 worldwide pandemic has presented substantial public health and economic challenges and is affecting our employees and partners, patients, communities and business operations, as well as the U.S. and global economy and financial markets. International and U.S. governmental authorities in impacted regions have taken actions in an effort to slow the spread of COVID-19, including issuing varying forms of “stay-at-home” orders, and restricting business functions outside of one’s home. In response, we have restricted in-person access to our executive offices, our administrative employees are mostly working remotely, and we have limited the number of staff in our research and development laboratories and other facilities. The continued spread of the COVID-19 pandemic and the measures taken by the governments of countries have
affected, and could continue to affect, our business and the business of our partners, including future disruptions to our supply chain and the manufacture or shipment of drug substance and finished drug product for Captisol, delays by us or our partners in the initiation or enrollment of patients in clinical trials, discontinuations by patients enrolled in clinical trials, difficulties launching or commercializing products and other related activities, which could delay ongoing clinical trials, increase development costs, reduce royalty revenues and have a material adverse effect on our business, financial condition and results of operations. Several of our partners have reported that their operations have been impacted including delays in research and development programs and deprioritizing clinical trials in favor of treating patients who have contracted the virus or to
prevent the spread of the virus. This may lead to clinical trial protocol deviations or to discontinuation of treatment for patients who are currently enrolled in the clinical trials being conducted by us or our partners. In addition, certain of our partners have reported negative impacts on product sales which will impact our royalty revenues.
Some of our partners are working to develop drugs to treat COVID-19. For example, we are supplying Captisol to partners, including Gilead for Veklury (remdesivir), the first FDA-approved treatment for COVID-19 for the treatment of patients with COVID-19 requiring hospitalization and, as a result, we have extended our Captisol supply agreement with Gilead until September 2030 and worked to increase our manufacturing of Captisol to meet this increased demand. In addition, certain of our OmniAb and Vernalis partners have initiated antibody discovery programs for the potential treatment of COVID-19.
The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, the businesses of our partners, our results of operations and our financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact, including the timing and extent of governments reopening or further restricting activities, and the economic impact on local, regional, national and international markets.
Accounting Standards Recently Adopted
Stock CompensationCredit Losses - In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation ("Topic 718"), which aims to simplify the accounting for share-based payment transactions, including accounting for income taxes, classification on the statement of cash flows, accounting for forfeitures, and classification of awards as either liabilities or equity. This ASU was effective for us beginning in the first quarter of 2017. This new standard increases the volatility of net income by requiring excess tax benefits from share-based payment arrangements to be classified as discrete items within the provision for income taxes, rather than recognizing excess tax benefits in additional paid-in capital. Upon adoption in the first quarter of 2017, the Company recorded $17.9 million, to retained earnings, primarily related to unrealized tax benefits associated with share-based compensation. During the year ended December 31, 2017, excess tax benefits of $4.7 million were reflected as a component of the provision for income taxes. Also, as a result of the adoption of this new standard, the Company made an accounting policy election to recognize forfeitures as they occur and will no longer estimate expected forfeitures.
In addition, excess income tax benefits from share-based compensation arrangements are classified as cash flows from operations, rather than cash flows from financing activities. We elected to apply the cash flows classification guidance prospectively and have not adjusted prior periods.
Accounting Standards Not Yet Adopted
Revenue Recognition - In May 2014, the FASB issued new guidance related to revenue recognition, ASU 2014-09, Revenue from Contracts with Customers (“ASC 606”), which outlines a comprehensive revenue recognition model and supersedes most current revenue recognition guidance. The new guidance requires a company to recognize revenue upon transfer of goods or services to a customer at an amount that reflects the expected consideration to be received in exchange for those goods or services. ASC 606 defines a five-step approach for recognizing revenue, which may require a company to use more judgment and make more estimates than under the current guidance. Two methods of adoption are permitted: (a) full retrospective adoption, meaning the standard is applied to all periods presented; or (b) modified retrospective adoption, meaning the cumulative effect of applying the new guidance is recognized at the date of initial application as an adjustment to the opening retained earnings balance. In addition, ASU 2014-09 adds a new Subtopic to the Codification, ASC 340-40, Other Assets and Deferred Costs: Contracts with Customers, to provide guidance on costs related to obtaining a contract with a customer and costs incurred in fulfilling a contract with a customer that are not in the scope of another ASC Topic.
We have substantially completed our assessment of the new standards and are finalizing the new required disclosures. The standard will have a material impact on our consolidated financial statements by accelerating the timing of recognition for
revenues related to royalties, and potentially certain contingent milestone based payments. We will adopt ASC 606 effective January 1, 2018, by recognizing the cumulative effect of initially applying the new standard as a decrease to the opening balance of accumulated deficit. Based on our analysis of open contracts as of December 31, 2017, we expect this amount to be approximately $33 million.
Financial Instruments - In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall ("Subtopic 825-10"), which requires equity investments (other than those accounted for under the equity method or those that result in consolidation) to be measured at fair value, with changes in fair value recognized in net income. ASU 2016-01 will be effective for us beginning in the first quarter of 2018. We anticipate that the adoption of ASU 2016- 01 may increase the volatility of other income and expense.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326), which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables and available for sale debt securities. This standard includes our financial instruments, such as accounts receivable, investments that are generally of high credit quality, and commercial license rights. Previously, when credit losses were measured under GAAP, an entity generally only considered past events and current conditions in measuring the incurred loss. The ASU is effectivenew guidance requires us to identify, analyze, document and support new methodologies for us beginning inquantifying expected credit loss estimates for our financial instruments, using information such as historical experience and current economic conditions, plus the first quarteruse of 2020, with early adoption permitted.reasonable supportable forecast information. We are currently evaluating the impact ofadopted ASU 2016-13 on the consolidated financial statements.
Statement of Cash Flows - In August 2016 the FASB issued ASU No. 2016-15 Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. The guidance addresses the classification of cash flows related to (1) debt prepayment or extinguishment costs, (2) settlement of zero-coupon debt instruments or other debt instruments with coupon rates that are insignificant in relationJanuary 1, 2020, using a modified retrospective transition method, which requires a cumulative-effect adjustment, if any, to the effective interest rateopening balance sheet of retained earnings to be recognized on the borrowing, (3) contingent consideration payments madedate of adoption with prior periods not restated. The cumulative-effect adjustment, net of tax, recorded on January 1, 2020, is approximately $5.2 million. Results for periods after a business combination, (4) proceeds from the settlement of insurance claims, (5) proceeds from the settlement of corporate-owned life insurance, including bank-owned life insurance, (6) distributions received from equity method investeesJanuary 1, 2020 are presented under ASU 2016-13 while prior period amounts continue to be reported under previously applicable accounting standards. See additional disclosure on credit losses under “Accounts Receivable and (7) beneficial interestsAllowance for Credit Losses” and “Commercial License and Other Economic Rights” discussed above and “Short-term Investments” in securitization transactions. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The new guidance will be effective for fiscal year 2018 and early adoption is permitted. We are currently evaluating the effect that the updated standard will have on our consolidated financial statements. We expect contingent consideration payment presentation will change to conform to the standard.“Note (8), Balance Sheet Accent Details”.
Business Combinations - In January 2017 the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This new standard clarifies the definition of a business in order to allow for the evaluation of whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, which means that it will be effective for us in the first quarter of 2018. We are currently evaluating the impact of our pending adoption of ASU 2017-01 on our consolidated financial statements.
Goodwill Impairment Testing- In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. ThisImpairment, which eliminates the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. Under the new standard eliminates Step 2 from the goodwill impairment test. Instead, an entity should comparetest is performed by comparing the fair value of a reporting unit with its carrying amount, and recognizerecognizing an impairment charge for the amount by which the carrying amount exceedsof the reporting unit'sunit exceeds its fair value, not toalthough it cannot exceed the total amount of goodwill allocated to thethat reporting unit. We adopted this standard on January 1, 2020, and the adoption did not have a material impact on our consolidated financial statements.
Fair Value Measurement - In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement: Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820), which modifies the disclosure requirements on fair value measurements. We adopted this standard on January 1, 2020, and the adoption did not have a material impact on our consolidated financial statements.
Collaborative Arrangements - In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements: Clarifying the Interaction between Topic 808 and Topic 606 (Topic 808). The new standard clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under Topic 606, Revenue from Contracts with Customers, when the counterparty is a customer for a good or service that is a distinct unit of account. The amendments also preclude entities from presenting consideration from transactions with a collaborator that is not a customer together with revenue recognized from contracts with customers. We adopted this standard on January 1, 2020, and the adoption did not have a material impact on our consolidated financial statements.
Income Taxes - In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. The standard is expected to reduce cost and complexity related to accounting for income taxes. The new guidance eliminates certain exceptions and clarifies and amends existing guidance to promote consistent application among reporting entities. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. Depending on the amendment, adoption may be applied on a retrospective, modified retrospective or prospective basis. We adopted this standard on a prospective basis on January 1, 2020, and the adoption did not have a material impact on our consolidated financial statements.
Accounting Standards Not Yet Adopted
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The new guidance simplifies accounting for convertible instruments by removing major separation models required under current GAAP. This standard removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. This standard is effective for fiscal years beginning after December 15, 2019,2021, including interim periods within those fiscal years, which means that it will be effective for us in the first quarter of 2020.years. Early adoption is permitted.permitted, but no earlier than fiscal years beginning after December 15, 2020 and adoption must be as of the beginning of the Company’s annual fiscal year. We are currently evaluating the impact of our pending adoption of ASU 2017-04this standard on our consolidated financial statements.statements and related disclosures. We intent to adopt this standard on January 1, 2022.
We do not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material impact on our consolidated financial statements or disclosures.
2. Investment in VikingSale of Vernalis R&D and Promacta License
In 2014, the CompanyVernalis R&D
On October 11, 2020, we entered into a MLA with Viking to licensean Agreement for the rights to fiveSale and Purchase of the Company's programs to Viking.Entire Issued Share Capital of Vernalis (R&D) Limited (the “Purchase and Sale Agreement”) with HitGen UK Ltd (“Buyer”). Under the terms of the MLA, no consideration was exchanged upon execution, but rather Viking agreedPurchase and Sale Agreement, we transferred certain intellectual property on completed collaboration licenses to issue sharesLigand UK Limited, which is a subsidiary of Viking common stock with an aggregate value of approximately $29.2 million upon consummation of Viking's IPO. As part of this transaction, the Company, which we retain rights and interest to and are entitled to receive future milestones and royalties. Under the Purchase and Sale Agreement, we are also extendedentitled to a $2.5share of the economic rights on current research collaboration contracts. In addition, Vernalis will continue to support certain existing Ligand partnerships. On December 2, 2020, we completed the sale. Pursuant to the terms of the Purchase and Sale Agreement, at the closing of the transaction, Buyer paid $26.7 million convertible loanin cash, following adjustment for debt, cash and net working capital. As Vernalis R&D has the input, process and output elements defined in ASC 805, Business Combinations, we concluded the sale qualifies as a sale of business. Net assets sold, net of working capital adjustment, was $6.1 million, goodwill allocated to Viking underthe selling business that was written off was $3.5 million, resulting in a LSA. As a result$17.1 million gain from sale of these transactions,Vernalis R&D recorded to income from operations.
Promacta License
On March 5, 2019, we entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with RPI Finance Trust (“RPI”), doing business as “Royalty Pharma”, who is not an affiliate. Under the Company determined it held a variableAsset Purchase Agreement, we sold, transferred, assigned and conveyed to RPI, and RPI purchased, acquired and accepted from us, all of our rights, title and interest in Viking. The Company considered certain criteriaand to the Purchased Assets, which include among other things the intellectual property and related know-how generated by us in the accounting guidance for VIEs, and determined that Viking was a VIE and Ligand was the primary beneficiary of Viking. As a result, the Company consolidated Viking on its financial statements from May 2014 through May 2015, the effective date of Viking's IPO. The Company recorded 100% of the losses incurred as net loss attributable to noncontrolling interest because it was the primary beneficiary with no equity interest in the VIE.
In May 2015, Viking completed the Viking IPO and issued the Company approximately 3.7 million shares of Viking common stock with an aggregate value of $29.2 million based on the IPO price of $8.00 per share. In connection with the Viking IPO,license agreement (collectively, the Company also purchased 1.1“Purchased Assets”), dated December 29, 1994, by and between Novartis (as successor in interest to SmithKline Beecham Corporation) and Ligand, which allowed us to receive a royalty on net sales of Promacta. We concluded the sale does not qualify as a sale of a business, but as a sale of a non-financial asset. At the closing on March 6, 2019, RPI paid us $827.0 million shares of Viking common stock for an aggregate price of $9.0 million at the initial public offering price. Upon completion of Viking’s IPO, the Company determined that Viking was no longer a VIEin cash and the Company didwe do not have any other elementremaining performance obligations related to Novartis or RPI for Promacta. The carrying value of control that would require consolidationour Promacta asset as of Viking. In May 2015,March 6, 2019 was 0. Of the Company deconsolidatedtotal cash proceeds from the sale, $14.2 million was recorded to revenue related to the Promacta royalty for the period between January 1, 2019 and March 6, 2019, and the remaining $812.8 million was recorded to income from operations in accordance with ASC 610-20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets.
3. Short-term Investments: Investment in Viking
Our ownership in Viking was approximately 9.8% as of December 31, 2020, and began towe account for its equityit as an investment in Viking under the equity method and records its proportional share of Viking gains and lossesavailable-for-sale securities, which is measured at fair value, with changes in Loss from Viking Therapeuticsfair value recognized in the Company's consolidated statements of operations.net income. Viking is considered a related party as the Company maintainswe maintain a seat on Viking's board of directors.directors and we do not exert significant influence over Viking.
In January 2016As of December 31, 2020 and May 2017, the Company entered into two amendments respectively to the LSA withDecember 31, 2019, we recorded our common stock in Viking to, among other things, (i) extend the maturityin "short-term investments" at fair value of the convertible loan to May 21, 2018, (ii) reduce the interest rate from 5.0% to 2.5%, and (iii) extend the lock up period by one year such that the Company may not sell, transfer, or dispose of any Viking securities prior to January 23, 2017. Additionally, the amendments caused Viking to repay $1.5$32.8 million and $0.2$48.4 million, of the Viking Note obligationrespectively. We also have outstanding warrants to the Company in April 2016 and July 2017, respectively as further discussed below. Upon maturity or further payments, the Company may elect to receive equity of Viking common stock or cash equal to 200%of the principal amount plus accrued and unpaid interest. The Company has opted to account for the Viking convertible note receivable at fair value.
In April 2016, Viking closed an underwritten public offering of 7.5purchase 1.5 million shares of common stock and warrants to purchase up to 7.5 million shares of itsViking's common stock at a price of $1.25 per share of its common stock and related warrants. The warrants have an exercise price of $1.50 per share, are immediately exercisable and will expire on April 13, 2021. As part of this public offering,share. We recorded the Company purchased 560,000 shares ofwarrants in Viking common stock and warrants to purchase 560,000 shares of Viking's common stock for a total purchase price of $0.7 million. The purchased shares of common stock and warrants are subject to the same terms as the shares issued in this offering. In addition, on April 13, 2016, pursuant to the terms of the first amendment to the LSA, Viking repaid $0.3 million of the convertible notes"short-term investments" in cash, and issued the Company 960,000 shares of its common stock and warrants to purchase 960,000 shares of its common stock as repayment of $1.2 million of the convertible notes. The shares received as part of the repayment, like all Viking securities held by the Company, are subject to a lock-up period that ended on January 23, 2017 in accordance with the amended LSA. In July 2017, pursuant to the terms of the second amendment to the LSA, Viking paid $0.2 million of the convertible notes in cash, which reduced the accrued interestour consolidated balance sheets at the time. As of December 31, 2017, the aggregate fair value of the note receivable was $3.9 million. For the years ended$6.3 million and $9.9 million at December 31, 20172020 and 2016, a gain of of $3.2 million and $0.3 million on the fair market value of the warrants was included within other income,2019, respectively. See further discussion in “Note 4(5), Fair Value Measurement.”
4. Acquisitions
The Company's ownership in Viking decreased to 32.7% after
As set forth below, we completed 6 acquisitions from January 1, 2018 through December 31, 2020, of which four (Pfenex, Icagen, Ab Initio and Vernalis) were accounted for as business combinations and two (Taurus and xCella) were accounted for as asset acquisitions. For business combinations, we applied the public offeringacquisition method of accounting. Accordingly, we recorded the tangible and the repaymentintangible assets acquired and liabilities assumed at their estimated fair values as of the convertible notes and further decreased to 17.6% and 30.3% asapplicable date of December 31, 2017 and 2016, respectively. As a result Viking's public stock offerings, the Company recorded a dilution gain of $2.7 million and a dilution loss of $10.7 millionacquisition. Except for the years ended December 31, 2017 and 2016, respectively. These amounts were recognized in Loss from Viking in the Company's consolidated statement of operations.Pfenex acquisition, for all other acquisitions, we did not incur any material acquisition related costs.
The Company reviews its investment in Viking on a regular basis and assesses whether events, changes in circumstances or the passage of time, in management's judgment, indicate that a loss in the market value of the investment may be other than temporary. This might include, but would not necessarily be limited to, the period of time during which the carrying value of our investment is significantly above the observed market value, a deterioration in Viking's financial condition, or an adverse event relating to its lead clinical programs.Pfenex Acquisition
Based on a sustained low Viking common stock unit price during the year ended December 31, 2016, the Company determined that an other than temporary decrease in the value of its investment in Viking had occurred. The Company wrote down the value of its investment in Viking to its estimated fair value which resulted in impairment charges of $7.4 million for the year ended December 31, 2016.
The following table presents summarized financial information of Viking (in thousands):
|
| | | | | | |
| | | Year ended December 31, |
| (in thousands) | | 2017 | | 2016 | | 2015 |
| Condensed Statement of Operations: | | | | | | |
| Total revenue | | — | | — | | — |
| Gross profit | | — | | — | | — |
| Loss from operations | | $19,070 | | $13,847 | | $11,996 |
| Net Loss | | $20,578 | | $14,732 | | $23,404 |
|
| | | | | | | | | |
| | | | As of December 31, |
| (in thousands) | | | 2017 | | 2016 |
| Condensed Balance Sheet: | | | | | |
| Current assets | | | $ | 21,852 |
| | $ | 13,975 |
|
| Noncurrent assets | | | 270 |
| | 561 |
|
| | | | 22,122 |
| | 14,536 |
|
| | | | | | |
| Current liabilities | | | 8,657 |
| | 6,477 |
|
| Noncurrent liabilities | | | — |
| | 16 |
|
| Stockholders' equity | | | 13,465 |
| | 8,043 |
|
3. Business Combinations
Acquisition of Crystal
On October 6, 2017, the Company1, 2020, we acquired allPfenex, which develops next-generation and novel protein therapeutics to improve existing therapies and create new therapies for biological targets linked to critical, unmet diseases using a protein expression technology platform.
The preliminary purchase price of the assets$465.1 million included $429.6 million cash consideration paid upon acquisition, and liabilitiesa contingent CVR payment of Crystal. Crystal is a biotechnology company focused in avian genetics and the generation of fully-human therapeutic engineering of animals for the generation of fully-human therapeutic antibodies through its OmniChicken® technology. Under the terms of the agreement, Ligand wasup to pay Crystal shareholders $27.2$77.8 million in cash including $2.2 million working capital adjustment, and up to an additional $10.5 million of cash consideration based on Crystal’s achievement ofa certain research and business milestones prior to December 31, 2019. In addition, Crystal’s shareholders will receive 10% of revenues realized by Ligand above $15 million between the closing date and December 31, 2022 from existing collaboration agreements between Crystal and three of its collaborators, and Crystal’s shareholders will receive 20% of revenues above $1.5 million generated between the closing date and December 31, 2022 pursuant to a fourth existing collaboration agreementspecified milestone with a large pharmaceutical company. As of December 31, 2017, $0.3 million of the initial $27.2 million of cash consideration remained outstanding.
The transaction was accounted for as a business combination. At the closing of the acquisition, the Company recorded a $8.4 million contingent liability for amounts potentially due to Crystal shareholders. Thean estimated initial fair value of $37.0 million. The CVR will only be paid in full if the milestone is achieved by December 31, 2021. The amount of the CVR included in purchase price was reduced by $1.5 million which was determined to be post-combination expense. The fair value of the CVR liability was determined using a probability weightedadjusted income approach incorporating the estimated future cash flows from potential milestones and revenue sharing.approach. These cash flows were then discounted to present value using a discount ratesrate based on market participants' cost of debt reflective of the Company’s estimated corporate credit rating, and averaged to approximately 4.6%Company, which was 7.1%. Refer to Note 4 Fair Value Measurement for further discussion. The liability will beis periodically assessed based on events and circumstances related to the underlying milestones,milestone, and any change in fair value will beis recorded in the Company’sour consolidated statements of operations. The carrying amount
In connection with the acquisition, a portion of Pfenex's equity awards that were outstanding and unvested prior to the acquisition became fully vested per the terms of the liability may fluctuate significantly and actual amounts paid may be materially different than the carrying amountmerger agreement. The acceleration of the liability. There was no change investing required us to allocate the fair value of the contingentequity attributable to pre-combination service to the purchase price and the remaining amount was considered our post-combination expense. We paid $17.3 million in cash for equity compensation, which is attributable to pre-combination services and is reflected as a component of the total purchase price paid of $429.6 million. In addition, the fair value of equity compensation attributable to the post-combination service period was $8.7 million.These amounts were associated with the accelerated vesting of stock options previously granted to Pfenex employees and were fully paid in cash, which was recognized as general and administrative expenses during the fourth quarter of 2020.
We recorded $20.7 million of acquisition-related costs for legal, severance and other costs in connection with the acquisition within operating expenses in our consolidated statement of operations for 2020. The following table sets forth an allocation of the preliminary purchase price to the identifiable tangible and intangible assets acquired and liabilities fromassumed, with the initial valuation dateexcess recorded to December 31, 2017.
The aggregate acquisition consideration was determined to be $35.7 million, consisting ofgoodwill (in thousands):
|
| | | |
| Cash paid to Crystal shareholders | $ | 26,877 |
|
| Cash payable to Crystal Shareholders | 336 |
|
| Assumed liabilities | 129 |
|
| Fair value of contingent consideration | 8,401 |
|
| Total consideration | $ | 35,743 |
|
| | | | | |
| 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) | 90,750 | |
| Accounts payable | (6,814) | |
| Accrued liabilities | (7,379) | |
| Deferred revenue | (3,908) | |
| Lease liabilities | (3,070) | |
| Other liabilities | (1,382) | |
| Deferred tax liabilities, net | (53,296) | |
| Total consideration | $ | 465,098 | |
The acquisition consideration was allocated(1) Goodwill represents the excess of the purchase price over the preliminary fair value of the underlying assets acquired and liabilities assumed. Goodwill is attributable to the acquisition dateassembled workforce of experienced personnel at Pfenex and expected synergies.
NaN of the goodwill is expected to be deductible for tax purposes. The intangibles acquired and their weighted average useful life are as follows (in thousands, except useful lives):
| | | | | | | | |
| Approximate
Fair Value | Estimated useful life
(in years) |
| Contractual Relationships: | | |
| Alvogen | $ | 114,000 | | 12 |
| Merck | 117,000 | | 12 |
| Jazz | 80,000 | | 17 |
| SII | 49,000 | | 10 |
| Arcellx | 2,000 | | 17 |
| Acquired Technologies | 23,000 | | 10-19 |
| $ | 385,000 | | |
The fair values of the contractual relationships were based on the discounted cash flow method that estimated the present value of the potential royalties, milestones and collaboration revenue streams derived from the licensing of the related technologies over the estimated contractual relationship period. The fair values of the acquired technologies were based on the discounted cash flow method that estimated the present value of the potential royalties, milestones, collaboration and product revenue streams derived from the licensing of the related technologies over the estimated useful lives. These projected cash flows were discounted to present value using discount rate, which varies from 12% to 15%. The intangible assets and assumed liabilities as follows (in thousands):acquired are being amortized on a straight-line basis over the estimated useful life.
|
| | | |
| Cash and cash equivalents | $ | 224 |
|
| Accounts receivable | 2,513 |
|
| Prepaid expenses and other assets | 201 |
|
| Property and equipment, net | 589 |
|
| Current liabilities assumed | (354 | ) |
| Deferred revenue | (4,624 | ) |
Deferred tax liabilities, net
| (12,558 | ) |
Intangible asset with finite life - core technology
| 36,000 |
|
| Goodwill | 13,752 |
|
| Total consideration | $ | 35,743 |
|
The estimated fair values of assets acquired and liabilities assumed, including deferred tax assets and liabilities, and purchased intangibles and deferred revenue, as well as the estimated fair value of contingent consideration described above are provisional. The accounting for these amounts falls within the measurement period and therefore we may adjust these provisional amounts to reflect new information obtained about facts and circumstances that existed as of the acquisition date.
Approximately $2.0 million of revenue and $19.3 million of loss before income taxes of Pfenex were included in the consolidated statement of operations for the year ended December 31, 2020. The following summary presents our unaudited pro forma consolidated results of operations for the years ended December 31, 2020 and December 31, 2019 as if the Pfenex acquisition had occurred on January 1, 2019, which gives effect to certain transaction accounting adjustments, including amortization of acquired intangibles and stock based compensation expense for retained Pfenex employees. The transaction accounting adjustments do not include non-recurring adjustments related to Pfenex's executive salary, board of director compensation, and salary of Pfenex employees involved in the reduction of force as part of the acquisition, estimated to be $7.1 million in 2020 and $4.8 million in 2019. The pro forma financial information is not necessarily indicative of the operating results that would have occurred had the acquisition been consummated as if the date indicated, nor is it necessarily indicative of future operating results (in thousands, except per share amounts):
| | | | | | | | |
| Year Ended December 31, |
| (Unaudited) | 2020 | 2019 |
| Revenue | $ | 189,203 | | $ | 170,608 | |
| Net Income (loss) | $ | (60,059) | | $ | 594,941 | |
| Net income (loss) per common share: | | |
| Basic | $ | (3.71) | | $ | 31.32 | |
| Diluted | $ | (3.71) | | $ | 30.11 | |
Taurus Acquisition
On September 9, 2020, we acquired Taurus, which discovers and develops novel antibodies from immunized cows and cow-derived libraries. These antibodies feature some of the longest CDR3s of any species, with unique genetic and structural diversity that can enable binding to challenging antigens with application in therapeutics, diagnostics and research.
The purchase price of $5.1 million included $4.6 million in cash, and a $0.5 million holdback to satisfy indemnification obligations which will be settled by September 2021. We also issued nontransferable CVRs for up to $4.5 million tied to
partnered and internal research and development and for up to $25.0 million as a 25% share of post-clinical Taurus product revenues (including milestone payments) received by us. We accounted for this transaction as an asset acquisition as we concluded that substantially all of the fair value of the gross assets acquired was concentrated in the acquired core technology.
The allocation of the consideration was allocated to the acquisition date fair values of acquired assets as follows (in thousands)
| | | | | |
| Cash | $ | 47 | |
| Intangibles assets with finite-life - core technologies | 5,005 | |
| $ | 5,052 | |
The core technology is being amortized on a straight-line basis over the estimated useful life of 10 years. We account for the CVRs in accordance with ASC 450, Contingencies, when the contingency is resolved and the liability becomes payable. NaN of the CVRs are recognized as of the acquisition date.
xCella Acquisition
On September 8, 2020, we acquired xCella, an antibody discovery company. xCella's xPloration platform is a proprietary microcapillary platform that can screen single B cells for specificity and bioactivity and will increase Ligand’s antibody discovery throughput and efficiency.
We paid $7.1 million in cash (including a $0.5 million holdback to satisfy indemnification obligations which will be settled by September 2021), and issued earnout rights for up to $5.0 million tied to our use of the xCella technology for partnered research and development and for up to $25.75 million as a 25% share of any future milestone payments we received under a certain existing xCella partner arrangement. We evaluated this acquisition in accordance with ASC 805, Business Combinations, to discern whether the assets and operations of xCella met the definition of a business. We accounted for this transaction as an asset acquisition as we concluded that substantially all of the fair value of the gross assets acquired was concentrated in the acquired core technology.
The allocation of the consideration was allocated to the acquisition date fair values of acquired assets and assumed liabilities as follows (in thousands):
| | | | | |
| Cash and other assets | $ | 240 | |
| Accrued liabilities | (142) | |
| Deferred tax liabilities, net | (820) | |
| Intangibles assets with finite-life - core technology | 7,798 | |
| $ | 7,076 | |
The core technology is being amortized on a straight-line basis over the estimated useful life of 15 years. We account for the earnout rights in accordance with ASC 450, Contingencies, when the contingency is resolved and the liability becomes payable. NaN of the earnout rights are recognized as of the acquisition date.
Icagen Acquisition
On April 1, 2020, we acquired the core assets, including its partnered programs and ion channel technology from Icagen and certain of its affiliates.
The purchase price of $19.9 million included $15.1 million cash consideration paid upon acquisition, and a CVR of up to $25.0 million of cash payments based on certain revenue milestones with an estimated fair value of $4.8 million. The fair value of the earn-out liability was determined using a probability weighted income approach incorporating the estimated future cash flows from expected future milestones. These cash flows were then discounted to present value using a discount rate based on the market participants' cost of debt reflective of the Company, which was 5.5%. The liability is periodically assessed based on events and circumstances related to the underlying milestones, and any change in fair value is recorded in our consolidated statements of operations. The carrying amount of the liability may fluctuate significantly and actual amount paid may be materially different than the carrying amount of the liability. As the acquisition is not considered significant, pro forma information has not been provided. The results of Icagen have been included in our results of operations since the date of acquisition.
The preliminary allocation of the consideration was allocated to the acquisition date fair values of acquired assets and assumed liabilities as follows (in thousands):
| | | | | |
| Property and equipment, net | $ | 1,173 | |
| Prepaids and other assets | 588 | |
| Liabilities assumed | (812) | |
| Deferred revenue | (3,685) | |
| Deferred tax assets, net | 861 | |
| Acquired intangibles | 12,800 | |
Goodwill(1) | 9,015 | |
| $ | 19,940 | |
(1) Goodwill represents the excess of the purchase price over the preliminary fair value of the underlying assets acquired and liabilities assumed. Goodwill is attributable to the assembled workforce of experienced personnel at Icagen and expected synergies.
The majority of the goodwill is deductible for tax purposes. Acquired intangibles include $11.1 million of customer relationships and $1.7 million of core technology. The fair values of the customer relationships were based on a discounted cash flow analysis incorporating the estimated future cash flows from these relationships during the contractual term. These cash flows were then discounted to present value using a discount rate of 17%. The fair value of the customer relationships is being amortized on a straight-line basis over the weighted average estimated useful life of 9.6 years. The fair value of the core technology, or OmniChicken technology was based on the discounted cash flow method that estimated the present value of a hypothetical royalty streamthe potential royalties, milestones, and collaboration revenue streams derived from the licensing of the OmniChicken technology.related technologies. These projected cash flows were discounted to present value using a discount rate of 10.8%17%. The fair value of the core technology is being amortized on a straight-line basis over the estimated useful life of 2010 years. The total acquired intangibles are being amortized on a straight-line basis over the estimated useful life of 9.7 years.
The excessestimated fair values of assets acquired and liabilities assumed, including deferred tax assets and liabilities, and purchased intangibles are provisional. The accounting for these amounts falls within the measurement period and therefore we may adjust these provisional amounts to reflect new information obtained about facts and circumstances that existed as of the acquisition datedate.
Ab Initio Acquisition
On July 23, 2019, we acquired privately-held Ab Initio, an antigen-discovery company located in South San Francisco, California. Ab Initio has a patented antigen technology that is synergistic with the OmniAb® therapeutic antibody discovery platform, providing our current and potential new partners enhanced capabilities for the discovery of therapeutic antibodies against difficult-to-access cellular targets. Ab Initio has a collaboration agreement with Pfizer to discover novel therapeutic antibodies against an undisclosed target in the GPCR superfamily.
The purchase price of $12.0 million included $11.9 million cash consideration over the fair values assigned to the assetspaid upon acquisition, net of cash acquired, and $0.15 million cash holdback for potential indemnification claims. As the liabilities assumed was $13.8 million and was recorded as goodwill, whichacquisition is not deductible for tax purposes and is primarily attributable to Crystal’s potential revenue growth from combining the Crystal and Ligand businesses and workforce, as well as the benefits of access to different markets and customers.considered significant, pro forma information has not been provided.
Acquisition of OMT
On January 8, 2016, the Company acquired substantially all of the assets and liabilities of OMT. OMT is a biotechnology company engaged in the genetic engineering of animals for the generation of human therapeutic antibodies through its OmniAb® technology. The transaction was accounted for as a business combination and the aggregate acquisition consideration was $173.4 million, consisting of (in thousands, except per share amounts):
|
| | | |
| Cash consideration | $ | 96,006 |
|
| Total share consideration: | |
| Actual number of shares issued | 790 |
|
| Multiplied by: Ligand closing share price on January 8, 2016 | 98 |
|
| Total share consideration | $ | 77,373 |
|
| Total consideration | $ | 173,379 |
|
The acquisitionfinal purchase consideration was allocated to the acquisition date fair values of acquired assets and assumed liabilities as follows (in thousands):
| | | | | |
| Cash and other assets | $ | 28 | |
| Accounts payable and accrued liabilities | (83) | |
| Deferred tax liabilities, net | (146) | |
| Intangibles assets with finite-life - core technologies | 7,400 | |
Goodwill(1) | 4,812 | |
| $ | 12,011 | |
|
| | | |
| Cash and cash equivalents | $ | 3,504 |
|
| Accounts receivable | 5 |
|
| Income tax receivable | 136 |
|
| Prepaid expenses and other current assets | 1 |
|
| Deferred tax liabilities, net | (55,708 | ) |
| Intangible asset with finite life - core technology | 167,000 |
|
| Liabilities assumed | (1,528 | ) |
| Goodwill | 59,969 |
|
| Total consideration | $ | 173,379 |
|
None of the goodwill is deductible for tax purposes. The fair value of the core technologies was determined based on the discounted cash flow method that estimated the present value of the hypothetical royalty/ milestone streams from the licensing of the antigen-discovery technology or OMT's OmniAb technology,and collaboration agreement. These projected cash flows were discounted to present value using a discount rate of 12.0%. The fair value of the core technologies is being amortized on a straight-line basis over the weighted average estimated useful life of approximately 20 years.
Vernalis Acquisition
In October 2018, we acquired Vernalis, a biotechnology company for $43.0 million, funded through cash on hand. The acquisition of Vernalis increases our overall portfolio of fully-funded programs. As Vernalis' operations are not considered material, pro forma information is not provided.
The final purchase consideration was allocated to the acquisition date fair values of acquired assets and assumed liabilities as follows (in thousands):
| | | | | |
| Cash and cash equivalents | $ | 34,286 | |
| Restricted cash | 2,836 | |
| Other assets | 6,383 | |
| Accounts payable and accrued liabilities | (3,479) | |
| Restructuring and product reserves | (9,241) | |
| Deferred revenue | (746) | |
| Intangibles assets with finite-life - core technologies | 7,000 | |
| Goodwill | 5,939 | |
| $ | 42,978 | |
None of the goodwill is deductible for tax purposes. The fair value of the core technologies was based on the discounted cash flow method that estimated the present value of athe hypothetical royalty streamroyalty/milestone streams derived from the licensing of the OmniAb technology.related technologies. These projected cash flows were discounted to present value using a discount rate of 15.5%34.0%. The fair value of the core technology is being amortized on a straight-line basis over the weighted average estimated useful life of 20approximately nine years.
The excess of We retained the acquisition date consideration over the fair values assigned to the assets acquired and the liabilities assumed was $60.0 million and was recorded as goodwill, which is not deductible for tax purposes and is primarily attributable to OMT’s potential revenue growth from combining the OMT and Ligand businesses and workforce, as well as the benefits of access to different markets and customers.
The following table presents supplemental pro forma information for the three and twelve months ended December 31, 2016 and December 31, 2015, as if the acquisition of OMT had occurred on January 1, 2015 (in thousands except for income per share):
|
| | | | | | | | | | | | | | |
| | Three months ended | Twelve months ended |
| December 31, | December 31, |
| 2016 | | 2015 | 2016 | | 2015 |
| Revenue | $ | 38,185 |
| | $ | 24,571 |
| $ | 111,449 |
| | $ | 80,365 |
|
| Net (loss) income | $ | (3,126 | ) | | $ | 5,888 |
| $ | 632 |
| | $ | 222,788 |
|
| | | | | | | |
| Basic (loss) income per share: | $ | (0.15 | ) | | $ | 0.30 |
| $ | 0.03 |
| | $ | 11.26 |
|
| Diluted (loss) income per share: | $ | (0.15 | ) | | $ | 0.27 |
| $ | 0.03 |
| | $ | 10.50 |
|
The unaudited pro forma consolidated results include pro forma adjustments that assume the acquisition occurred on January 1, 2015. The primary adjustments include: (i) the $0.3 million and $0.9 million for the three and twelve months ended December 31, 2015, respectively, for share based compensation expenses related to the stock awards issued to the retained OMT employeescore technology after the acquisition, (ii) additional intangible amortization expensesale of $2.1 millionVernalis R&D in December 2020. See further discussion in “Note (2), Sale of Vernalis R&D and $6.3 million was included in the three and twelve months ended December 31, 2015, respectively and (iii) a platform license fee of $3.0 million paid by OMT during the twelve months ended December 31, 2015. The license agreement was terminated upon acquisition by Ligand. The adjustments also include $2.5 million license revenue recognized by OMT from January 1, 2016 to the acquisitionPromacta License.”
date. The unaudited pro forma consolidated results are not necessarily indicative of what our consolidated results of operations actually would have been had we completed the acquisition on January 1, 2015. In addition, the unaudited pro forma consolidated results do not purport to project the future results of operations of the combined company nor do they reflect the expected realization of any cost savings associated with the acquisition.
4.5. Fair Value Measurement
The Company measuresWe measure certain financial assets and liabilities at fair value on a recurring basis. Fair value is a market-based measurement that should be determined using assumptions that market participants would use in pricing an asset or liability. The Company establishesWe establish a three-level hierarchy to prioritize the inputs used in measuring fair value. The levels are described in the below with level 1 having the highest priority and level 3 having the lowest:
Level 1 - Observable inputs such as quoted prices in active markets
Level 2 - Inputs other than the quoted prices in active markets that are observable either directly or indirectly
Level 3 - Unobservable inputs in which there is little or no market data, which require the Company to develop its own assumptions
The following table provideprovides a summary of the assets and liabilities that are measured at fair value on a recurring basis as of December 31, 20172020 and 20162019 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements at Reporting Date Using |
| December 31, 2020 | | | Quoted Prices in Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Unobservable Inputs |
| Total | | (Level 1) | | (Level 2) | | (Level 3) |
| Assets: | | | | | | | |
Short-term investments (1) | $ | 324,478 | | | $ | 3,438 | | | $ | 320,647 | | | $ | 393 | |
| Investment in Viking common stock | 32,763 | | | 32,763 | | | 0 | | | 0 | |
Investment in Viking warrants (2) | 6,326 | | | 6,326 | | | 0 | | | 0 | |
| Total assets | $ | 363,567 | | | $ | 42,527 | | | $ | 320,647 | | | $ | 393 | |
| Liabilities: | | | | | | | |
Contingent liabilities - Crystal (3) | $ | 800 | | | $ | 0 | | | $ | 0 | | | $ | 800 | |
| Contingent liabilities - Cydex | 508 | | | 0 | | | 0 | | | 508 | |
Contingent liabilities - Metabasis (4) | 3,821 | | | 0 | | | 3,821 | | | 0 | |
Contingent liabilities - Icagen (5) | 6,404 | | | 0 | | | 0 | | | 6,404 | |
Contingent liabilities - Pfenex (6) | 37,600 | | | 0 | | | 0 | | | 37,600 | |
| Liability for amounts owed to a former licensor | 60 | | | 60 | | | 0 | | | 0 | |
| Total liabilities | $ | 49,193 | | | $ | 60 | | | $ | 3,821 | | | $ | 45,312 | |
|
| | | | | | | | | | | | | | | |
| Fair Value Measurements at Reporting Date Using |
| December 31, 2017 | | | Quoted Prices in Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Unobservable Inputs |
| | Total | | (Level 1) | | (Level 2) | | (Level 3) |
| Assets: | | | | | | | |
Short-term investments (1) | $ | 181,041 |
| | $ | 1,896 |
| | $ | 179,145 |
| | $ | — |
|
Note receivable Viking (2) | 3,877 |
| | — |
| | — |
| | 3,877 |
|
Investment in warrants (3) | 3,846 |
| | 3,846 |
| | — |
| | — |
|
| Total assets | $ | 188,764 |
| | $ | 5,742 |
| | $ | 179,145 |
| | $ | 3,877 |
|
| Liabilities: | | | | | | | |
Current contingent liabilities - Crystal (7) | $ | 4,618 |
| | $ | — |
| | $ | — |
| | $ | 4,618 |
|
Current contingent liabilities - Cydex (4) | 86 |
| | — |
| | — |
| | 86 |
|
Long-term contingent liabilities - Metabasis (5) | 3,971 |
| | — |
| | 3,971 |
| | — |
|
Long-term contingent liabilities - Crystal (7)
| 3,783 |
| | — |
| | — |
| | 3,783 |
|
Long-term contingent liabilities - CyDex (4) | 1,503 |
| | — |
| | — |
| | 1,503 |
|
Liability for amounts owed to a former licensor (6) | 284 |
| | 284 |
| | — |
| | — |
|
| Total liabilities | $ | 14,245 |
| | $ | 284 |
| | $ | 3,971 |
| | $ | 9,990 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements at Reporting Date Using |
| December 31, 2019 | | | Quoted Prices in Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Unobservable Inputs |
| Total | | (Level 1) | | (Level 2) | | (Level 3) |
| Assets: | | | | | | | |
Short-term investments (1) | $ | 939,989 | | | $ | 3,073 | | | $ | 936,791 | | | $ | 125 | |
| Investment in Viking common stock | 48,425 | | | 48,425 | | | 0 | | | 0 | |
Investment in Viking warrants (2) | 9,910 | | | 9,910 | | | 0 | | | 0 | |
| Total assets | $ | 998,324 | | | $ | 61,408 | | | $ | 936,791 | | | $ | 125 | |
| Liabilities: | | | | | | | |
Contingent liabilities - Crystal (3) | $ | 2,659 | | | $ | 0 | | | $ | 0 | | | $ | 2,659 | |
| Contingent liabilities - Cydex | 348 | | | 0 | | | 0 | | | 348 | |
Contingent liabilities - Metabasis (4) | 5,935 | | | 0 | | | 5,935 | | | 0 | |
| Liability for amounts owed to a former licensor | 75 | | | 75 | | | 0 | | | 0 | |
| Total liabilities | $ | 9,017 | | | $ | 75 | | | $ | 5,935 | | | $ | 3,007 | |
|
| | | | | | | | | | | | | | | |
| Fair Value Measurements at Reporting Date Using |
| December 31, 2016 | | | Quoted Prices in Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Unobservable Inputs |
| | Total | | (Level 1) | | (Level 2) | | (Level 3) |
| Assets: | | | | | | | |
Short-term investments (1) | $ | 122,296 |
| | $ | 3,054 |
| | $ | 119,242 |
| | $ | — |
|
Note receivable Viking (2) | 3,207 |
| | — |
| | — |
| | 3,207 |
|
Investment in warrants (3) | 684 |
| | 684 |
| | — |
| | — |
|
| Total assets | $ | 126,187 |
| | $ | 3,738 |
| | $ | 119,242 |
| | $ | 3,207 |
|
| Liabilities: | | | | | | | |
Current contingent liabilities - CyDex (4) | $ | 101 |
| | $ | — |
| | $ | — |
| | $ | 101 |
|
Long-term contingent liabilities - Metabasis (5) | 1,413 |
| | — |
| | 1,413 |
| | — |
|
Long-term contingent liabilities - CyDex (4) | 1,503 |
| | — |
| | — |
| | 1,503 |
|
Liability for amounts owed to a former licensor (6) | 371 |
| | 371 |
| | — |
| | — |
|
| Total liabilities | $ | 3,388 |
| | $ | 371 |
|
| $ | 1,413 |
|
| $ | 1,604 |
|
(1) InvestmentsExcluding our investment in Viking, our short-term investments in marketable debt and equity securities are classified as level 1 as the fair value is determined using quoted market prices in active markets for the same securities. Short-term investments in marketableavailable-for-sale securities with maturities greater than 90 daysbased on management's intentions and are classified asat level 2 of the fair value hierarchy, as these investment securities are valued based upon quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
(2) The fair Short-term investments in mutual funds are valued at their net asset value (NAV) on the last day of the convertible note receivableperiod. We have classified marketable securities with original maturities of greater than one year as short-term investments based upon our ability and intent to use any and all of those marketable securities to satisfy the liquidity needs of our current operations. In addition, we have investment in warrants resulting from VikingSeelos Therapeutics Inc. milestone payments that were settled in shares during the first quarter of 2019 and are at December 31, 2017approximates the book value since the contractual maturity date was within five months from the endlevel 3 of 2017, and there is no plan to extend the maturity date. The fair value atDecember 31, 2016 was determined using a probability weighted option pricing model. The fair value is subjective and is affected by certain significant input to the valuation model such as the estimated volatility of the common stock, which was estimated to be 75% at December 31, 2016. Changes in these assumptions may materially affect the fair value estimate. Forhierarchy, based on Black Scholes value estimated by management on the years ended December 31, 2017, December 31, 2016, and December 31, 2015, the Company reported an increase in the fair value of 0.9 million, a decrease in the fair value $0.2 million, and $0.8 million, respectively in "Other, net"last day of the consolidated statement of operations.period.
(3)(2) Investment in Viking warrants, which the Companywe received as a result of Viking’s partial repayment of the Viking note receivable and the Company’sour purchase of Viking common stock and warrants in April 2016, is classified as level 1 as the fair value is determined using quoted market prices in active markets for the same securities.
(4) The fair valuechange of CyDex contingent liabilities was determined based on the income approach using a Monte Carlo analysis. The fair value is subjective and is affected by changesrecorded in inputs to the valuation model including management’s assumptions regarding revenue volatility, probability“gain (loss) from short-term investments” in our consolidated statement of commercialization of products, estimates of timing and probability of achievement of certain developmental and regulatory milestones. Changesoperations. See further discussion in these assumptions can materially affect the fair value.“Note (3), Short-term Investments: Investment in Viking.”
The following table represents significant unobservable inputs used in determining the fair value of contingent liabilities assumed in the acquisition of CyDex:
|
| | | | |
| | | December 31, |
| | | 2017 | | 2016 |
| Revenue volatility | | 25% | | 25% |
| Average of probability of commercialization | | 12.5% | | 12.5% |
| Market price of risk | | 2.9% | | 3.2% |
(5) The liability for CVRs for Metabasis is determined using quoted market prices in a market that is not active for the underlying CVR.
(6) The liability for amounts owed to a former licensor is determined using quoted market prices in active markets for the underlying investment received from a partner, a portion of which is owed to a former licensor.
(7)(3) The fair value of Crystal contingent liabilities was determined using a probability weighted income approach. Most of the contingent payments are based on development or regulatory milestones as defined in the merger agreement with Crystal. The fair value is subjective and is affected by changes in inputs to the
valuation model including management’s estimates regarding the timing and probability of achievement of certain developmental and regulatory milestones. AtDuring the twelve months ended December 31, 2017, most2020, we paid $1.8 million contingent liability on development milestones to former Crystal shareholders.
(4) In connection with our acquisition of Metabasis in January 2010, we issued Metabasis stockholders four tradable CVRs, one CVR from each of four respective series of CVR, for each Metabasis share. The CVRs entitle Metabasis stockholders to cash payments as frequently as every six months as cash is received by us from proceeds from the sale or partnering of any of the Metabasis drug development programs, among other triggering events. The liability for the CVRs is determined using quoted prices in a market that is not active for the underlying CVR. The carrying amount of the liability may fluctuate significantly based upon quoted market prices and actual amounts paid under the agreements may be materially differ than the carrying amount of the liability. Several of the Metabasis drug development programs have been outlicensed to Viking, including VK2809. VK2809 is a novel selective TR-β agonist with potential in multiple indications, including hypercholesterolemia, dyslipidemia, NASH, and X-ALD. Under the terms of the agreement with Viking, we may be entitled to up to $375.0 million of development, regulatory and commercial milestones and tiered royalties on potential future sales including a $10.0 million payment upon initiation of a Phase 3 clinical trial.
(5) The fair value of Icagen contingent liabilities was determined using a probability weighted income approach. Most of the contingent payments are based on certain revenue milestones as defined in the asset purchase agreement with Icagen. The fair value is subjective and is affected by changes in inputs to the valuation model including management’s estimates regarding the timing and probability of achievement of certain developmental and regulatory milestones were estimated to be highly probable of being achieved between 2018 and 2020.milestones. Changes in these estimates may materially affect the fair value. During the third quarter of 2020, we paid a $0.5 million contingent liability based on revenue milestones to Icagen.
(6) The fair value of the CVR liability was determined using a probability adjusted income approach. These cash flows were then discounted to present value using a discount rate based on the market participants' cost of debt reflective of the Company.
A reconciliation of the level 3 financial instruments as of December 31, 20172020 is as follows (in thousands):
| | | | | |
| Liabilities | |
| Fair value of level 3 financial instruments as of December 31, 2019 | $ | 3,007 | |
| Payments to CVR holders and other contingency payments | (2,325) | |
| Fair value adjustments to contingent liabilities | 2,830 | |
| Contingent liabilities due to acquisitions | 41,800 | |
| Fair value of level 3 financial instruments as of December 31, 2020 | $ | 45,312 | |
|
| | | |
| Assets: | |
| Fair value of level 3 financial instruments as of December 31, 2016 | $ | 3,207 |
|
Viking note receivable fair market value adjustment
| 870 |
|
Cash payment received as partial repayment of note receivable
| (200 | ) |
| Fair value of level 3 financial instrument assets as of December 31, 2017 | $ | 3,877 |
|
| | |
| Liabilities | |
| Fair value of level 3 financial instruments as of December 31, 2016 | $ | 1,604 |
|
| Fair value of Crystal contingent consideration | 8,401 |
|
| Payments to CVR holders and other contingency payments | (25 | ) |
| Fair value adjustments to contingent liabilities | 10 |
|
| Fair value of level 3 financial instruments as of December 31, 2017 | $ | 9,990 |
|
Assets Measured on a Non-Recurring Basis
We apply fair value techniques on a non-recurring basis associated with valuing potential impairment losses related to our goodwill, indefinite-lived intangible assets, and long-lived assets.
We evaluate goodwill and indefinite-lived intangible assets annually for impairment and whenever circumstances occur indicating that goodwill might be impaired. We determine the fair value of our reporting unit based on a combination of inputs, including the market capitalization of Ligand, as well as Level 3 inputs such as discounted cash flows, which are not observable from the market, directly or indirectly. We determine the fair value of our indefinite-lived intangible assets using the income approach based on Level 3 inputs.
Other than a reduction in goodwill resulting from the sale of Vernalis R&D disclosed in “Note (2),Sale of Vernalis R&D and Promacta License”, there were 0 impairment of our goodwill, indefinite-lived assets, or long-lived assets recorded during the twelve months ended December 31, 2020.
Fair Value Measurements-2019 Convertible Senior Notesof Financial Instruments
In August 2014 the Companyand May 2018, we issued the 2019 Convertible Senior Notes. The Company uses aNotes and 2023 Notes, respectively. We use quoted market raterates in an inactive market, which isare classified as a Level 2 input, to estimate the current fair value of itsour 2019 Convertible Seniorand 2023 Notes. The estimated fair value of the 2019 Senior Convertible Notes was $446.4 million as of December 31, 2017. The carrying value of the notes does not reflect the market rate. See “Note 7 Financing Arrangements (7), Convertible Senior Notes” for additional information.information related to the fair value.
Viking6. Leases
We lease certain office facilities and equipment primarily under various operating leases and one finance lease. Our operating leases have remaining contractual terms up to three years, some of which include options to extend the leases for up to five years. Our lease agreements do not contain any material residual value guarantees, material restrictive covenants, or material termination options. Our operating lease costs are primarily related to facility leases for administration offices and research and development facilities, and our finance leases are immaterial in prior years.
The Company records its investment in Viking under
Lease assets and lease liabilities are recognized at the equity methodcommencement of accounting. The investmentan arrangement where it is subsequently adjusteddetermined at inception that a lease exists. Lease assets represent the right to use an underlying asset for the Company’s share of Viking's operating results,lease term, and if applicable, cash contributionslease liabilities represent the obligation to make lease payments arising from the lease. These assets and distributions. See Note 2 Investment in Viking for additional information. The marketliabilities are initially recognized based on the present value of lease payments over the Company's investmentlease term calculated using our incremental borrowing rate generally applicable to the location of the lease asset, unless the implicit rate is readily determinable. Lease assets also include any upfront lease payments made and lease incentives. Lease terms include options to extend or terminate the lease when it is reasonably certain that those options will be exercised.
In addition to base rent, certain of our operating leases require variable payments, such as insurance and common area maintenance. These variable lease costs, other than those dependent upon an index or rate, are expensed when the obligation for those payments is incurred. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and the expense for these short-term leases and for operating leases is recognized on a straight-line basis over the lease term.
The depreciable life of lease assets and leasehold improvements is limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.
In May 2020, we entered into an agreement with Hovione, our third-party manufacturer, to increase our manufacturing of Captisol. The agreement is considered to include an embedded finance lease under ASC 842, Leases, as it provides the Company the right to use the underlying equipment to exclusively manufacture Captisol. We allocated consideration in Viking was $25.6the agreement between lease and non-lease components using relative standalone prices. As of December 31, 2020, we have paid consideration of $35.3 million and have total future commitments of approximately $24.1 million through 2021. In October 2020, we determined the lease had commenced and recognized a right of use asset of $16.1 million. We allocated $25.8 million of the consideration paid to the non-lease component which is accounted for as prepaid inventory and have a remaining lease liability of $6.6 million as of December 31, 2017.2020. The right of use asset is to be amortized straight-line over the remaining 8 year lease term.
Operating and Finance Lease Assets and Liabilities (in thousands):
5. | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| Assets | | | |
| Operating lease assets | $ | 6,892 | | | $ | 10,353 | |
| Finance lease assets | 15,842 | | | 84 | |
| Total lease assets | $ | 22,734 | | | $ | 10,437 | |
| | | |
| Liabilities | | | |
| Current operating lease liabilities | $ | 1,885 | | | $ | 1,242 | |
| Current finance lease liabilities | 6,593 | | | 13 | |
| 8,478 | | | 1,255 | |
| Long-term operating lease liabilities | 5,643 | | | 9,970 | |
| Long-term finance lease liabilities | 112 | | | 71 | |
| Total lease liabilities | $ | 14,233 | | | $ | 11,296 | |
Maturity of Operating and Finance Lease ObligationsLiabilities as of December 31, 2020(in thousands):
The Company
| | | | | | | | | | | | | | |
| Maturity Dates | | Operating Leases | | Finance Leases |
| 2021 | | $ | 2,259 | | | $ | 6,649 | |
| 2022 | | 2,129 | | | 56 | |
| 2023 | | 1,766 | | | 49 | |
| 2024 | | 1,013 | | | 4 | |
| 2025 | | 792 | | | 0 | |
| Thereafter | | 700 | | | 0 | |
| Total lease payments | | 8,659 | | | 6,758 | |
| Less imputed interest | | (1,131) | | | (53) | |
| Present value of lease liabilities | | $ | 7,528 | | | $ | 6,705 | |
As of December 31, 2020, our operating leases office facilitieshave a weighted-average remaining lease term of 4.4 years and a weighted-average discount rate of 6%. Cash paid for amounts included in California and Kansas. These leases expire between 2018 and 2023. Total rent expense, net under all office leases for 2017, 2016 and 2015 was $0.3 million, $0.3 million and $0.4 million, respectively. The following table provides a summarythe measurement of operating lease obligations and payments expected to be received from sublease agreements as of liabilities was $2.4 million for the twelve months ended December 31, 2017 (in thousands):2020. Operating lease expense was $2.1 million (net of sublease income of $0.3 million) and $2.1 million (net of sublease income of $0.7 million) for the twelve months ended December 31, 2020 and 2019, respectively.
As of December 31, 2020, our finance leases have a weighted-average remaining lease term of 7.9 years and a weighted-average discount rate of 3.5%. Cash paid for amounts included in the measurement of finance lease liabilities was $9.7 million for the twelve months ended December 31, 2020. Finance lease expense, which was recorded in cost of Captisol, was $0.2 million for the twelve months ended December 31, 2020.
|
| | | | | | | | | | | | | | | | | | | | | | |
| Operating lease obligations: | | Lease Termination Date | | Less than 1 year | | 1-2 years | | 3-4 years | | Thereafter | | Total |
| Corporate headquarters-San Diego, CA | | April 2023 | | $ | 131 |
| | $ | 275 |
| | $ | 291 |
| | $ | 50 |
| | $ | 747 |
|
| Office and research facility-La Jolla, CA | | June 2019 | | 737 |
| | 373 |
| | — |
| | — |
| | 1,110 |
|
| Bioscience and Technology Business Center-Lawrence, KS | | December 2020 | | 57 |
| | 113 |
| | — |
| | — |
| | 170 |
|
| Office - Emeryville, CA | | August 2021 | | 253 |
| | 528 |
| | 186 |
| | — |
| | 967 |
|
| Research Facility - Emeryville, CA | | August 2021 | | 197 |
| | 412 |
| | 142 |
| | — |
| | $ | 751 |
|
| Total operating lease obligations | | | | $ | 1,375 |
| | $ | 1,701 |
| | $ | 619 |
| | $ | 50 |
| | $ | 3,745 |
|
| | | | | | | | | | | | | |
| Sublease payments expected to be received: | | | | | | | | | | | | |
| Office and research facility-La Jolla, CA | | June 2019 | | 641 |
| | 361 |
| | — |
| | — |
| | 1,002 |
|
| Net operating lease obligations | | | | $ | 734 |
| | $ | 1,340 |
| | $ | 619 |
| | $ | 50 |
| | $ | 2,743 |
|
6. Financing Arrangements
20197. Convertible Senior Notes
0.75% Convertible Senior Notes due 2019
In August 2014, the Companywe issued $245.0 million aggregate principal amount of its 2019 Convertible Senior Notes, resulting in net proceeds of $239.3 million. The implied estimated effective rate of the liability component of the 2019 Convertible SeniorNotes was 5.83%. The 2019 Notes are convertible into common stock at an initial conversion rate of 13.3251 shares per $1,000 principal amount of convertible notes, subject to adjustment upon certain events, which is equivalent to an initial conversion price of approximately $75.05 per share of common stock. The notes bear cash interest at a rate of 0.75% per year, payable semi-annually.
Holders of the 2019 Convertible Senior Notes may convert the notes at any time prior to the close of business on the business day immediately preceding May 15, 2019, under any of the following circumstances:
(1) during any fiscal quarter (and only during such fiscal quarter) commencing after December 31, 2014, if,
for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading day period ending on the last trading day of the immediately preceding fiscal quarter, the last reported sale price of the Company'sour common stock on such trading day is greater than 130% of the conversion price on such trading day;
(2) during the five5 business day period immediately following any 10 consecutive trading day period, in which the trading price per $1,000 principal amount of notes was less than 98% of the product of the last reported sale price of the Company'sour common stock on such trading day and the conversion rate on each such trading day; or
(3) upon the occurrence of certain specified corporate events as specified in the indenture governing the notes.
On May 22, 2018, we entered into a supplemental indenture whereby we made an irrevocable election to settle the entire 2019 Notes in cash. As of December 31 2017 and 2016, the Company's last reported sale price exceeded the 130% threshold described above and accordingly the Convertible Notessuch, we would have been classified as a current liability as of December 31, 2017 and 2016. As a result, the related unamortized discount of $18.9 million and $29.6 million, at December 31, 2017 and 2016, respectively, was classified as temporary equity component of currently redeemable convertible notes on our consolidated balance sheet. The determination of whether or not the Convertible Notes are convertible as described above is made each quarter until maturity, conversion or repurchase. It is possible that the Convertible Notes may not be convertible in future periods, in which case the Convertible Notes would be classified as long-term debt, and the unamortized discount would be classified as permanent equity unless one of the other conversion events described above wererequired to occur.
On or after May 15, 2019 until the close of business on the second scheduled trading day immediately preceding August 15, 2019, holders of the notes may convert all or a portion of their notes at any time. Upon conversion, Ligand must deliver cash to settle the principal and mayany premium due upon conversion. As a result of the requirement to deliver cash or shares of common stock, at the option of the Company, to settle any premium due upon conversion.
The Company accountedconversion, on May 22, 2018, we reclassified from equity to liability the conversion option (a derivative) fair value of $341.6 million. In accordance with ASC 815, Derivatives and Hedging, the derivative was adjusted to its fair value as of December 31, 2018 to $23.4 million with the resulting $118.7 million increase, net of payments made, reflected in other expense, net, in our consolidated statements of operations for the debtyear ended December 31, 2018.
In March and equity componentsApril 2018, we received notices for conversion of $21.8 million of principal amount of the 2019 Convertible Senior Notes by allocatingwhich were settled in May and June 2018. We paid the $245.0 million total proceeds betweennoteholders the debt component andconversion value of the embedded conversion option, or equity component, due to Ligand's ability to settle the 2019 Convertible Senior Notesnotes in cash, forup to the principal portion and to settle any premium in cash or common stock, at the Company's election. The debt allocation was performed in a manner that reflected the Company's non-convertible borrowing rate for similar debt of 5.83% derived from independent valuation analysis. The initial debt value of $192.5 million accretes at 5.83% to reach $245.0 million at the maturity date. The equity componentamount of the 2019 Convertible SeniorNotes. The excess of the conversion value over the principal amount, totaling $31.6 million, was paid in shares of common stock. In July and August 2018, we received notices for conversion of $195.9 million of principal amount of the 2019 Notes which were settled in October and November 2018. We paid the noteholders the $195.9 million principal amount and the excess of conversion value over the principal amount, totaling $439.6 million, in cash. The equity dilution and cash conversion premium payment upon conversion of the 2019 Notes was recognizedoffset by the reacquisition of the shares and cash under the convertible bond hedge transactions entered into in connection with the offering of the 2019 Notes. As a result of the conversions, we recorded a $3.2 million loss on extinguishment of debt calculated as a debt discount and represents the difference between the $245.0 million proceeds at issuanceestimated fair value of the debt and the carrying value of the 2019 Convertible Senior Notes andas of the settlement dates. To measure the fair value of the debt allocationconverted 2019 Notes as of the settlement dates, the applicable interest rates were estimated using Level 2 observable inputs and applied to the converted notes using the same methodology as in the issuance date valuation.
In June 2019, we received notices for conversion of $1.0 million of principal amount of the 2019 Notes, which were settled in cash upon the 2019 Notes' maturity date in August 2019. As a result, we paid the noteholders (1) the $1.0 million principal amount, and (2) the excess of conversion value over the principal portion in an amount of $0.5 million in cash.
On August 15, 2019, the 2019 Notes maturity date, we paid the noteholders the remaining $26.3 million principal amount and $11.9 million bond premium, which was classified as a derivative liability, in cash. We recorded the decrease in fair value of the derivative liability of $11.0 million in other expense, net, in our consolidated statements of operations for the twelve months ended December 31, 2019.
Convertible Bond Hedge and Warrant Transactions
In August 2014, we entered into convertible bond hedges and sold warrants covering 3,264,643 shares of our common stock to minimize the impact of potential dilution to our common stock and/or offset the cash payments we were required to make in excess of the principal amount upon conversion of the 2019 Notes.
The convertible bond hedges had an exercise price of $75.05 per share and are exercisable when and if the 2019 Notes were converted. If upon conversion of the 2019 Notes, the price of our common stock was above the exercise price of the convertible bond hedges, the counterparties would have delivered shares of common stock and/or cash with an aggregate value approximately equal to the difference between the price of common stock at the conversion date and the exercise price, multiplied by the number of shares of common stock related to the convertible bond hedge transaction being exercised. The convertible bond hedges and warrants described below were separate transactions entered into by us and were not part of the terms of the 2019 Notes. Holders of the 2019 Notes and warrants did not have any rights with respect to the convertible bond hedges. We paid $48.1 million for these convertible bond hedges and recorded the amount as a reduction to additional paid-in capital.
As a result of the irrevocable cash election, conversion notices received relating to the 2019 Notes after May 22, 2018 must be fully settled in cash and amounts paid in excess of the principal amount would be offset by an equal receipt of cash under the convertible bond hedge. We have accounted for the bond hedge as a derivative asset and market it to market at the end of each reporting period. We reclassified from equity to derivative asset the remaining bond hedge fair value of $340.0 million and marked it to market as of December 31, 2018 to $22.6 million with the resulting $119.4 million increase, net of $471.2 million in payments received, reflected in other expense, net, in our consolidated statements of operations for the twelve months ended December 31, 2018. Upon the 2019 Notes payoff on August 15, 2019, the bond hedge was settled, with the remaining $10.2 million fair value decrease reflected in other expense, net, in our consolidated statement of operations for the twelve months ended December 31, 2019.
Concurrently with the convertible bond hedge transactions, we entered into warrant transactions whereby we sold warrants to acquire 3,264,643 shares of common stock with an exercise price of $125.08 per share, subject to certain adjustments. The warrants had expired between November 13, 2019 and April 22, 2020. The warrants have a dilutive effect to the extent the market price per share of common stock exceeds the applicable exercise price of the warrants, as measured under the terms of the warrant transactions. We received $11.6 million for these warrants and recorded this amount to additional paid-in capital.
In November 2018, we modified agreements with one of the bond hedge counterparties to cash settle a total of 525,000 warrants. As the modifications required the warrants to be cash settled, the fair value of the warrants was reclassified from stockholders’ equity to a derivative liability on the modification dates, resulting in a $28.3 million deduction to additional paid-in-capital during 2018. We settled these repurchases for total consideration of $30.1 million and recorded a $1.8 million loss during 2018 on the change in the fair value of the derivative liabilities between their respectivemodification and settlement dates, which was included in other expense, net in the consolidated statement of operations for the twelve months ended December 31, 2018. As of December 31, 2020, there are 0 warrants outstanding.
0.75% Convertible Senior Notes due 2023
In May 2018, we issued $750 million aggregate principal amount of 2023 Notes, bearing cash interest at a rate of 0.75% per year, payable semi-annually. The net proceeds from the offering, after deducting the initial purchasers' discount and offering expenses, were approximately $733.1 million. The 2023 Notes will be convertible into cash, shares of common stock, or a combination of cash and shares of common stock, at our election, based on an initial conversion rate, subject to adjustment, of 4.0244 shares per $1,000 principal amount of the 2023 Notes which represents an initial conversion price of approximately $248.48 per share.
Holders of the 2023 Notes may convert the notes at any time prior to the close of business on the business day immediately preceding November 15, 2022, under any of the following circumstances:
(1) during any fiscal quarter (and only during such fiscal quarter) commencing after September 30, 2018, if, for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading day period ending on the last trading day of the immediately preceding fiscal quarter, the last reported sale price of our common stock on such trading day is greater than 130% of the conversion price on such trading day;
(2) during the 5 business day period immediately following any 10 consecutive trading day period, in which the trading price per $1,000 principal amount of notes was less than 98% of the product of the last reported sale price of our common stock on such trading day and the conversion rate on each such trading day; or
(3) upon the occurrence of certain specified corporate events as specified in the indenture governing the notes.
At the May 22, 2018 issuance dates.date of the 2023 Notes, we did not have the necessary number of authorized but unissued shares of our common stock available to settle the conversion option of the 2023 Notes in shares. Therefore, in accordance with guidance found in ASC 815-15 – Embedded Derivatives, the conversion option of the Notes was deemed an embedded derivative requiring bifurcation from the 2023 Notes (host contract) and separate accounting as a derivative liability. The fair value of the conversion option derivative liability at May 22, 2018 was $144.0 million, which was recorded as a reduction to the carrying value of the debt. This debt discount is amortized to interest expense over the term of the debt using the effective interest method overmethod. Up to the expected lifedate in which we received shareholder approval on June 19, 2018 to increase the authorized number of shares of our common stock, the conversion option was accounted for as a similar liability without an equity component.with the resulting change in fair value of $13.5 million during that period reflected in other expense, net, in our consolidated statements of operations for the twelve months ended December 31, 2018.
The notes will have a dilutive effect to the extent the average market price per share of common stock for a given reporting period exceeds the conversion price of $248.48. As of December 31, 2017,2020, the “if-converted value” exceededdid not exceed the principal amount of the 2019 Convertible Senior Notes by $202.0 million. 2023 Notes.
In connection with the issuance of the 2019 Convertible Senior2023 Notes, the Companywe incurred $5.7$16.9 million of issuance costs, which primarily consisted of underwriting, legal and other professional fees. The portionsportion of these costs allocated to the equity componentsconversion option totaling $1.2$3.2 million werewas recorded as a reduction to additional paid-in capital.interest expense for the twelve months ended December 31, 2019. The portionsportion of these costs allocated to the liability componentscomponent totaling $4.5$13.7 million were recorded as assets onis amortized to interest expense using the balance sheet ateffective interest method over the timefive year expected life of the debt was issued. Beginning2023 Notes.
It is our intent and policy to settle conversions through combination settlement, which essentially involves payment in 2016, the unamortized issuance costs allocatedcash equal to the liability components are recordedprincipal portion and delivery of shares of common stock for the excess of the conversion value over the principal portion.
During 2020, we repurchased $254.7 million in principal of the 2023 Notes for $222.8 million in cash, including accrued interest of $0.6 million. We accounted for the repurchase as parta debt extinguishment, which resulted (1) a loss of $2.5 million reflected in other income (expense), net, in our consolidated statement of operations for the twelve months ended December 31, 2020; (2) a $35.0 million reduction in debt discount, onand (3) a $3.2 million reduction to additional paid-in-capital, net of tax, related to the reacquisition of the equity component in our condensed consolidated balance sheet upon the Company's respective adoption of ASU 2015-03, Interest-Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs. Issuance cost included in the unamortized debt discount was $1.6 million and $2.5 million as of December 31, 2017 and 2016, respectively.
The Company determined2020. After the expected liferepurchases, approximately $495.3 million in principal amount of the debt discount for the 2019 Convertible Senior2023 Notes to be equal to the original five-year term of the notes. The carrying value of the equity component related to the 2019 Convertible Senior Notes as of December 31, 2017, net of issuance costs, was $51.3 million.remain outstanding.
Convertible Bond Hedge and Warrant Transactions
In August 2014, to minimizeconjunction with the impact of potential dilution to the Company's common stock upon conversion of the 2019 Convertible Senior2023 Notes, the Companyin May 2018, we entered into convertible bond hedges and sold warrants covering 3,264,6433,018,327 shares of itsour common stock.stock to minimize the impact of potential dilution to our common stock and/or offset the cash payments we are required to make in excess of the principal amount upon conversion of the 2023 Notes. The convertible bond hedges have an exercise price of $75.05$248.48 per share and are exercisable when and if the 2019 Convertible Senior2023 Notes are converted. We paid $140.3 million for these convertible bond hedges. If upon conversion of the 2019 Convertible Senior2023 Notes, the price of the Company'sour common stock is above the exercise price of the convertible bond hedges, the counterparties will deliver shares of common stock and/or cash with an aggregate value approximately equal to the difference between the price of common stock at the conversion date and the exercise price, multiplied by the number of shares of common stock related to the convertible bond hedge transaction being exercised. The convertible bond hedges and warrants described below are separate transactions entered into by the Companyus and are not part of the terms of the 2019 Convertible Senior2023 Notes. Holders of the 2019 Convertible Senior2023 Notes and warrants will not have any rights with respect to the convertible bond hedges. The Company paid $48.1 million for these convertible bond hedges and recorded the amount as a reduction to additional paid-in capital.
Concurrently with the convertible bond hedge transactions, the Companywe entered into warrant transactions whereby itwe sold warrants to acquire approximately 3,264,643covering 3,018,327 shares of common stock with an exercise price of approximately $125.08$315.38 per share, subject to certain adjustments. None of the warrants have been exercised as of December 31, 2017.We received $90.0 million for these warrants. The warrants have various expiration dates ranging from November 13, 2019August 15, 2023 to April 22, 2020.February 6, 2024. The warrants will have a dilutive effect to the extent the market price per share of common stock exceeds the applicable exercise price of the warrants, as measured under the terms of the warrant transactions. The Company received $11.6 million for these warrants and recorded this amount to additional paid-in capital. The common stock issuable upon exercise of the warrants will be in unregistered shares, and the Company doeswe do not have the obligation and doesdo not intend to file any registration statement with the Securities and Exchange CommissionSEC registering the issuance of the shares under the warrants.
For the period from May 22, 2018, the issuance date of the bond hedge and warrant transactions, to June 19, 2018, the date shareholders approved an increase in our authorized shares of common stock, the bond hedges and warrants required cash settlement and were accounted for as a derivative asset and liability, respectively, with the resulting increase in fair value of $19.2 million and $7.5 million reflected in other expense, net, in our consolidated statements of operations for twelve months ended December 31, 2018.
In April 2020, in connection with the repurchases of $234.4 million in principal of the 2023 Notes for $203.8 million in cash, including accrued interest of $0.6 million, during the quarter ended March 31, 2020, we entered into amendments with Barclays Bank PLC, Deutsche Bank AG, London Branch, and Goldman Sachs & Co. LLC to the convertible note hedges transactions we initially entered into in connection with the issuance of the 2023 Notes. The amendments provide that the options under the convertible note hedges corresponding to such repurchased 2023 Notes will remain outstanding notwithstanding such repurchase.
On January 28, 2021, in connection with the repurchases of approximately $20.3 million in principal of the 2023 Notes for approximately $19.1 million in cash, including accrued interest of $0.1 million, during the quarter ended December 31, 2020, we entered into amendments with Barclays Bank PLC, Deutsche Bank AG, London Branch, and Goldman Sachs & Co. LLC to the convertible note hedges transactions we initially entered into in connection with the issuance of the 2023 Notes. The amendments provide that the options under the convertible note hedges corresponding to such repurchased 2023 Notes will remain outstanding notwithstanding such repurchase.
The following table summarizes information about the equity and liability components of the Company's financing arrangement (dollars in2023 Notes (in thousands):.
| | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| Principal amount of 2023 Notes outstanding | $ | 495,280 | | | $ | 750,000 | |
| Unamortized discount (including unamortized debt issuance cost) | (52,987) | | | (111,041) | |
| Total long-term portion of notes payable | $ | 442,293 | | | $ | 638,959 | |
| Carrying value of equity component of 2023 Notes | $ | 48,397 | | | $ | 101,422 | |
| Fair value of convertible senior notes outstanding (Level 2) | $ | 466,053 | | | $ | 647,280 | |
|
| | | | | | | |
| | December 31, 2017 | | December 31, 2016 |
|
| 2019 Convertible Senior Notes | | | |
| Principal amount outstanding | $ | 245,000 |
| | $ | 245,000 |
|
| Unamortized discount | (20,471 | ) | | (32,090 | ) |
| Total current portion of notes payable | $ | 224,529 |
| | $ | 212,910 |
|
As of December 31, 2017,2020, there were no events of default or violation of any covenants under the Company'sour financing obligations.
7.8. Balance Sheet Account Details
Short-term Investments
Excluding our investments in Viking, the following table summarizes the various investment categories at December 31, 20172020 and 20162019 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Cost | | Gross unrealized gains | | Gross unrealized losses | | Estimated fair value |
| December 31, 2020 | | | | | | | |
| Short-term investments | | | | | | | |
| Mutual fund | $ | 151,512 | | | $ | 386 | | | $ | 0 | | | $ | 151,898 | |
| Bank deposits | 84,120 | | | 35 | | | (1) | | | 84,154 | |
| Commercial paper | 45,459 | | | 27 | | | (1) | | | 45,485 | |
| Corporate bonds | 30,512 | | | 99 | | | (1) | | | 30,610 | |
| Agency bonds | 4,499 | | | 2 | | | 0 | | | 4,501 | |
| Corporate equity securities | 4,466 | | | 360 | | | (1,388) | | | 3,438 | |
| Treasury bill | 3,999 | | | 0 | | | 0 | | | 3,999 | |
| Warrants | 0 | | | 393 | | | 0 | | | 393 | |
| $ | 324,567 | | | $ | 1,302 | | | $ | (1,391) | | | $ | 324,478 | |
| December 31, 2019 | | | | | | | |
| Short-term investments | | | | | | | |
| Bank deposits | $ | 411,690 | | | $ | 188 | | | $ | (3) | | | $ | 411,875 | |
| Corporate bonds | 63,818 | | | 161 | | | 0 | | | 63,979 | |
| Corporate equity securities | 4,506 | | | 416 | | | (1,850) | | | 3,072 | |
| Commercial paper | 210,525 | | | 43 | | | (16) | | | 210,552 | |
| Warrants | 0 | | | 125 | | | 0 | | | 125 | |
| Mutual Fund | 250,636 | | | 0 | | | (249) | | | 250,387 | |
| $ | 941,175 | | | $ | 933 | | | $ | (2,118) | | | $ | 939,990 | |
|
| | | | | | | | | | | | | | | |
| | Cost | | Gross unrealized gains | | Gross unrealized losses | | Estimated fair value |
| December 31, 2017 | | | | | | | |
| Short-term investments | | | | | | | |
| Bank deposits | $ | 80,095 |
| | $ | 6 |
| | $ | (42 | ) | | $ | 80,059 |
|
| Corporate bonds | 55,335 |
| | — |
| | (96 | ) | | 55,239 |
|
| Corporate equity securities | 207 |
| | 1,689 |
| | — |
| | 1,896 |
|
| Commercial paper | 27,933 |
| | — |
| | (20 | ) | | 27,913 |
|
| Agency bonds | 4,991 |
| | — |
| | (1 | ) | | 4,990 |
|
| U.S. Government bonds | 8,939 |
| | — |
| | (10 | ) | | 8,929 |
|
| Municipal bonds | 2,028 |
| | — |
| | (13 | ) | | 2,015 |
|
| | $ | 179,528 |
| | $ | 1,695 |
| | $ | (182 | ) | | $ | 181,041 |
|
| December 31, 2016 | | | | | | | |
| Short-term investments | | | | | | | |
| Bank deposits | $ | 40,715 |
| | $ | 19 |
| | $ | — |
| | $ | 40,734 |
|
| Corporate bonds | 11,031 |
| | — |
| | (5 | ) | | 11,026 |
|
| Corporate equity securities | 1,512 |
| | 1,542 |
| | — |
| | 3,054 |
|
| Commercial paper | 33,074 |
| | 2 |
| | (9 | ) | | 33,067 |
|
| Agency bonds | 7,294 |
| | 1 |
| | — |
| | 7,295 |
|
| U.S. Government bonds | 7,508 |
| | — |
| | (1 | ) | | 7,507 |
|
| Municipal bonds | 19,624 |
| | — |
| | (11 | ) | | 19,613 |
|
| | $ | 120,758 |
| | $ | 1,564 |
| | $ | (26 | ) | | $ | 122,296 |
|
In addition, as of December 31, 2020 and December 31, 2019, we recorded shares of Viking common stock we own at fair value of $32.8 million and $48.4 million, respectively, in “Short-term investments” in our consolidated balance sheets. We also own warrants to purchase up to 1.5 million shares of Viking's common stock at an exercise price of $1.50 per share. We recorded the warrants in “Short-term investments” in our consolidated balance sheet at fair value of $6.3 million and $9.9 million at December 31, 2020 and December 31, 2019, respectively.
Gain (loss) from short-term investments on our consolidated statements of operations includes both realized and unrealized gain (loss) from our short-term investments in public equity and warrant securities.
Other current assets consist of the
The following table summarizes our available-for-sale debt securities by contractual maturity (in thousands):
| | | | | | | | | | | |
| December 31, 2020 |
| Amortized Cost | | Fair Value |
| Within one year | $ | 141,732 | | | $ | 141,793 | |
| After one year through five years | 26,856 | | | 26,956 | |
| After five years | 0 | | | 0 | |
| Total | $ | 168,588 | | | $ | 168,749 | |
The following table summarizes our available-for-sale debt securities in an unrealized loss position (in thousands):
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| Prepaid expenses | $ | 1,017 |
| | $ | 1,864 |
|
| Other receivables | 497 |
| | 311 |
|
| | $ | 1,514 |
| | $ | 2,175 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Less than 12 months | | 12 months or greater | | Total |
| Gross
Unrealized
Losses | | Estimated
Fair Value | | Gross
Unrealized
Losses | | Estimated
Fair Value | | Gross
Unrealized
Losses | | Estimated
Fair Value |
| December 31, 2020 | | | | | | | | | | | |
| Bank deposits | $ | (1) | | | $ | 14,013 | | | $ | 0 | | | $ | 0 | | | $ | (1) | | | $ | 14,013 | |
| Corporate bonds | (1) | | | 4,526 | | | 0 | | | 0 | | | (1) | | | 4,526 | |
| Commercial paper | (1) | | | 7,693 | | | 0 | | | 0 | | | (1) | | | 7,693 | |
| Total | $ | (3) | | | $ | 26,232 | | | $ | 0 | | | $ | 0 | | | $ | (3) | | | $ | 26,232 | |
| | | | | | | | | | | |
| December 31, 2019 | | | | | | | | | | | |
| Bank deposits | $ | (3) | | | $ | 58,584 | | | $ | 0 | | | $ | 0 | | | $ | (3) | | | $ | 58,584 | |
| Commercial paper | (16) | | | 79,362 | | | 0 | | | 0 | | | (16) | | | 79,362 | |
| Total | $ | (19) | | | $ | 137,946 | | | $ | 0 | | | $ | 0 | | | $ | (19) | | | $ | 137,946 | |
Our investment policy is capital preservation and we only invested in U.S.-dollar denominated investments. We held a total of 14 positions which were in an unrealized loss position as of December 31, 2020. We believe that we will collect the principal and interest due on our debt securities that have an amortized cost in excess of fair value. The unrealized losses are largely due to changes in interest rates and not to unfavorable changes in the credit quality associated with these securities that impacted our assessment on collectability of principal and interest. We do not intend to sell these securities nor do we believe that we will be required to sell these securities before the recovery of the amortized cost basis. Accordingly, no credit losses were recognized for the twelve months ended December 31, 2020.
Property and equipment isare stated at cost and consists of the following (in thousands):
| | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| Lab and office equipment | $ | 14,666 | | | $ | 6,307 | |
| Leasehold improvements | 3,519 | | | 2,729 | |
| Computer equipment and software | 1,056 | | | 999 | |
| 19,241 | | | 10,035 | |
| Less accumulated depreciation and amortization | (4,807) | | | (2,850) | |
| $ | 14,434 | | | $ | 7,185 | |
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| Lab and office equipment | $ | 3,460 |
| | $ | 1,067 |
|
| Leasehold improvements | 1,917 |
| | 1,754 |
|
| Computer equipment and software | 697 |
| | 569 |
|
| | 6,074 |
| | 3,390 |
|
| Less accumulated depreciation and amortization | (1,862 | ) | | (1,571 | ) |
| | $ | 4,212 |
| | $ | 1,819 |
|
Depreciation of equipment is computed using the straight-line method over the estimated useful lives of the assets which rangeranges from three to ten years. Leasehold improvements are amortized using the straight-line method over their estimated useful lives or their related lease term, whichever is shorter. Depreciation expense of $0.4$1.8 million, $0.2$1.5 million, and $0.2$0.9 million was recognized for the yearstwelve months ended December 31, 2017, 2016,2020, 2019, and 2015,2018, respectively, and iswas included in operating expenses.
Goodwill and identifiable intangible assets consist of the following (in thousands):
| | | | | | | | | | | |
| As of December 31, |
| 2020 | | 2019 |
| Indefinite-lived intangible assets | | | |
| Goodwill | $ | 189,662 | | | $ | 95,229 | |
| Definite-lived intangible assets | | | |
| Complete technology | 277,740 | | | 242,813 | |
| Less: Accumulated amortization | (63,600) | | | (50,203) | |
| Trade name | 2,642 | | | 2,642 | |
| Less: Accumulated amortization | (1,312) | | | (1,180) | |
| Customer relationships | 40,700 | | | 29,600 | |
| Less: Accumulated amortization | (15,597) | | | (13,224) | |
| Contractual relationships | 362,000 | | | — | |
| Less: Accumulated amortization | (7,243) | | | 0 | |
| Total goodwill and other identifiable intangible assets, net | $ | 784,992 | | | $ | 305,677 | |
| | | |
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| Indefinite lived intangible assets | | | |
| IPR&D | $ | 7,923 |
| | $ | 12,246 |
|
| Goodwill | 85,959 |
| | 72,207 |
|
| Definite lived intangible assets | | | |
| Complete technology | 222,900 |
| | 182,577 |
|
| Less: Accumulated amortization | (23,301 | ) | | (12,792 | ) |
| Trade name | 2,642 |
| | 2,642 |
|
| Less: Accumulated amortization | (916 | ) | | (784 | ) |
| Customer relationships | 29,600 |
| | 29,600 |
|
| Less: Accumulated amortization | (10,264 | ) | | (8,784 | ) |
| Total goodwill and other identifiable intangible assets, net | $ | 314,543 |
| | $ | 276,912 |
|
Amortization of finite livedfinite-lived intangible assets is computed using the straight-line method over the estimated useful life of the asset of 20 years. Amortization expense of $11.3$23.4 million, $10.6$16.9 million, and $2.4$15.8 million was recognized for the years ended December 31, 20172020 and 2016,2019, and 2015.2018, respectively. Estimated amortization expense for the years ending December 31, 20182021 through 20222025 is $12.8$47.1 million per year. For each of the years ended December 31, 2017, 2016,2020, 2019, and 2015,2018, there was no0 material impairment of intangible assets with finite lives.
Accrued liabilities consist of the following (in thousands):
| | | | | | | | | | | |
| | December 31, |
| | 2020 | | 2019 |
| Compensation | $ | 8,810 | | | $ | 1,986 | |
| Professional fees | 977 | | | 1,135 | |
| Amounts owed to former licensees | 421 | | | 381 | |
| Royalties owed to third parties | 693 | | | 0 | |
| Return reserve | 687 | | | 3,027 | |
| Acquisition related liabilities | 1,500 | | | 0 | |
| Subcontractor | 733 | | | 0 | |
| Supplier | 604 | | | 0 | |
| Other | 4,105 | | | 2,052 | |
| $ | 18,530 | | | $ | 8,581 | |
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| Compensation | $ | 4,085 |
| | $ | 2,603 |
|
| Legal | 430 |
| | 829 |
|
| Amounts owed to former licensees | 396 |
| | 899 |
|
| Royalties owed to third parties | 954 |
| | 942 |
|
| Deferred revenue | 173 |
| | — |
|
| Other | 1,339 |
| | 1,124 |
|
| | $ | 7,377 |
| | $ | 6,397 |
|
Contingent liabilities:
In connection with the acquisition of Crystal in October 2017, we entered into contingent liabilities based on achievement of certain research and business milestones as well as certain revenue goal.
In connection with the acquisition of CyDex in January 2011, we issued a series of CVRs and also assumed certain contingent liabilities. We may be required to make additional payments upon achievement of certain clinical and regulatory milestones to the CyDex shareholders and former license holders. We paid CyDex shareholders, through 2016, 20% of all CyDex-related revenue, but only to the extent that, and beginning only when, CyDex-related revenue for the year exceeds $15.0 million; plus an additional 10% of all CyDex-related revenue recognized during such year, but only to the extent, and beginning only when aggregate CyDex-related revenue for such year exceeds $35.0 million.
In connection with the acquisition of Metabasis in January 2010, we entered into four CVR agreements with Metabasis shareholders. The CVRs entitle the holders to cash payments as frequently as every six months as proceeds are received by us upon the sale or licensing of any of the Metabasis drug development programs and upon the achievement of specified milestones.
Contingent liabilities consist of the following (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2015 | Payments | Fair Value Adjustment | December 31, 2016 | Payments | Fair Value Adjustment | Additions | December 31, 2017 |
| Cydex | $ | 9.5 |
| $ | (6.2 | ) | $ | 3.3 |
| $ | 6.6 |
| (5.0 | ) | $ | — |
| $ | — |
| $ | 1.6 |
|
| Metabasis | 4.0 |
| (2.6 | ) | 0.1 |
| 1.5 |
| — |
| 2.5 |
| — |
| 4.0 |
|
| Crystal | — |
| — |
| — |
| — |
| — |
| — |
| 8.4 |
| 8.4 |
|
| Total | $ | 13.5 |
| $ | (8.8 | ) | $ | 3.4 |
| $ | 8.1 |
| $ | (5.0 | ) | $ | 2.5 |
| $ | 8.4 |
| $ | 14.0 |
|
For CVRs associated with the Pfenex and Icagen acquisitions, see “Note (4), Acquisitions” for more information.
Other long-term liabilities consist of the following (in thousands):
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| Deferred rent | $ | 321 |
| | $ | 357 |
|
| Deposits | 43 |
| | 43 |
|
| Other | 359 |
| | 287 |
|
| | $ | 723 |
| | $ | 687 |
|
8. Stockholders’ Equity
Share-based Compensation Expense
The following table summarizes stock-basedrollfoward of contingent liabilities as of December 2020 and 2019 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2018 | Payments | Fair Value Adjustment | | | Repurchases | December 31, 2019 | Additional Contingent Liabilities | Payments | Fair Value Adjustment | Repurchases | December 31, 2020 |
| Cydex | $ | 514 | | $ | (50) | | $ | (116) | | | | $ | 0 | | $ | 348 | | $ | 0 | | $ | 0 | | $ | 160 | | $ | 0 | | $ | 508 | |
| Metabasis | 5,551 | | 0 | | 904 | | | | (520) | | 5,935 | | 0 | | 0 | | (1,867) | | (247) | | 3,821 | |
| Crystal | 6,477 | | (3,000) | | (818) | | | | 0 | | 2,659 | | 0 | | (1,800) | | (59) | | 0 | | 800 | |
| Icagen | 0 | | 0 | | 0 | | | | 0 | | 0 | | 4,800 | | (525) | | 2,129 | | 0 | | 6,404 | |
| Pfenex | 0 | | 0 | | 0 | | | | 0 | | 0 | | 37,000 | | 0 | | 600 | | 0 | | 37,600 | |
| Total | $ | 12,542 | | $ | (3,050) | | $ | (30) | | | | $ | (520) | | $ | 8,942 | | $ | 41,800 | | $ | (2,325) | | $ | 963 | | $ | (247) | | $ | 49,133 | |
9. Stockholders’ Equity
Share-based Compensation Expense
The following table summarizes non-cash share-based compensation expense (in thousands):
| | | | | | | | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 | | 2018 |
| Share-based compensation expense as a component of: | | | | | |
| Research and development expenses | $ | 13,497 | | | $ | 9,641 | | | $ | 8,352 | |
| General and administrative expenses | 17,230 | | | 14,874 | | | 12,494 | |
| $ | 30,727 | | | $ | 24,515 | | | $ | 20,846 | |
|
| | | | | | | | | | | |
| | December 31, |
| | 2017 | | 2016 | | 2015 |
| Stock-based compensation expense as a component of: | | | | | |
| Research and development expenses | $ | 14,235 |
| | $ | 8,836 |
| | $ | 4,080 |
|
| General and administrative expenses | 10,680 |
| | 10,057 |
| | 8,378 |
|
| | $ | 24,915 |
| | $ | 18,893 |
| | $ | 12,458 |
|
Stock Plans
In May 2012 and May 2016, the Company’s stockholders approved an amendment and restatement of the Company’sDecember 2020, our 2002 Stock Incentive Plan was amended to increase the number of shares available for issuance by 1.81.1 million and 0.9 million shares, respectively. shares. As of December 31, 2017,2020, there were 0.81.1 million shares available for future option grants or direct issuance under the Amended 2002 Plan.
Following is a summary of the Company’sour stock option plan activity and related information:
| | | | | | | | | | | | | | | | | | | | | | | |
| Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term in Years | | Aggregate Intrinsic Value (In thousands) |
| Balance at January 1, 2018 | 1,876,332 | | | $ | 53.17 | | | 5.77 | | $ | 157,340 | |
| Granted | 228,362 | | | $ | 162.00 | | | | | |
| Exercised | (358,162) | | | $ | 55.24 | | | | | |
| Forfeited | (10,228) | | | $ | 114.53 | | | | | |
| Balance at December 31, 2018 | 1,736,304 | | | $ | 66.71 | | | 5.47 | | 125,858 | |
| Exercisable at December 31, 2018 | 1,313,374 | | | $ | 47.03 | | | 4.56 | | 117,314 | |
| Options vested and expected to vest as of December 31, 2018 | 1,736,304 | | | $ | 66.71 | | | 5.47 | | $ | 125,858 | |
| Granted | 338,617 | | | $ | 116.69 | | | | | |
| Exercised | (112,011) | | | $ | 23.65 | | | | | |
| Forfeited | (6,531) | | | $ | 139.37 | | | | | |
| Balance at December 31, 2019 | 1,956,379 | | | $ | 77.54 | | | 5.45 | | 72,002 | |
| Exercisable at December 31, 2019 | 1,454,726 | | | $ | 61.82 | | | 4.42 | | 70,345 | |
| Options vested and expected to vest as of December 31, 2019 | 1,956,379 | | | $ | 77.54 | | | 5.45 | | $ | 72,002 | |
| Granted | 806,300 | | | $ | 92.93 | | | | | |
| Exercised | (156,845) | | | $ | 21.26 | | | | | |
| Forfeited | (44,012) | | | $ | 91.30 | | | | | |
| Balance at December 31, 2020 | 2,561,822 | | | $ | 85.59 | | | 6.09 | | 59,033 | |
| Exercisable at December 31, 2020 | 1,611,830 | | | $ | 76.05 | | | 4.54 | | 53,286 | |
| Options vested and expected to vest as of December 31, 2020 | 2,561,822 | | | $ | 85.59 | | | 6.09 | | $ | 59,033 | |
|
| | | | | | | | | | | | |
| | Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term in Years | | Aggregate Intrinsic Value (In thousands) |
| Balance at December 31, 2016 | 1,754,275 |
| | $ | 42.12 |
| | 6.19 | | $ | 104,247 |
|
| Granted | 273,353 |
| | 112.58 |
| | | | |
| Exercised | (148,252 | ) | | 31.58 |
| | | | |
| Forfeited | (3,044 | ) | | 79.74 |
| | | | |
| Balance at December 31, 2017 | 1,876,332 |
| | 53.17 |
| | 5.77 | | 157,340 |
|
| Exercisable at December 31, 2017 | 1,431,245 |
| | 40.08 |
| | 4.95 | | 138,616 |
|
| Options vested and expected to vest as of December 31, 2017 | 1,876,332 |
| | $ | 53.17 |
| | 5.77 | | $ | 157,340 |
|
The weighted-average grant-date fair value of all stock options granted during 2017, 20162020, 2019 and 20152018 was $53.17, $46.53$41.39, $48.65 and $35.39$58.85 per share, respectively. The total intrinsic value of all options exercised during 2017, 20162020, 2019 and 20152018 was approximately $13.3$11.9 million, $12.0$10.4 million and $20.7$51.9 million,, respectively.
Cash received from options exercised, net of fees paid, in 2017, 20162020, 2019 and 20152018 was $4.7$2.5 million, $6.2$2.6 million and $8.7$19.8 million,, respectively.
Following is a further breakdown of the options outstanding as of December 31, 2017:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Range of exercise prices | Options outstanding | | Weighted average remaining life in years | | Weighted average exercise price | | Options exercisable | | Weighted average exercise price |
| $10.05-$14.47 | 284,184 | | | 0.86 | | $ | 13.08 | | | 270,184 | | | $ | 13.00 | |
| $21.92-$56.26 | 344,629 | | | 2.88 | | $ | 35.34 | | | 344,629 | | | $ | 35.34 | |
| $63.58-$74.42 | 307,356 | | | 5.20 | | $ | 71.96 | | | 220,650 | | | $ | 73.41 | |
| $82.90-$95.35 | 185,033 | | | 6.23 | | $ | 86.22 | | | 140,400 | | | $ | 86.32 | |
| $95.68 | 305,106 | | | 9.12 | | $ | 95.68 | | | 63,059 | | | $ | 95.68 | |
| $97.92 | 4,976 | | | 5.02 | | $ | 97.92 | | | 4,976 | | | $ | 97.92 | |
| $98.20 | 270,850 | | | 9.26 | | $ | 98.20 | | | 0 | | | $ | 98.20 | |
| $100.02-$113.76 | 257,914 | | | 6.69 | | $ | 104.12 | | | 220,092 | | | $ | 103.96 | |
| $117.58 | 19,744 | | | 9.44 | | $ | 117.58 | | | 0 | | | $ | 117.58 | |
| $117.97-$195.91 | 582,030 | | | 7.56 | | $ | 137.18 | | | 347,840 | | | $ | 141.38 | |
| 2,561,822 | | | 6.09 | | $ | 85.59 | | | 1,611,830 | | | $ | 76.05 | |
|
| | | | | | | | | | | | | | | | |
| Range of exercise prices | Options outstanding | | Weighted average remaining life in years | | Weighted average exercise price | | Options exercisable | | Weighted average exercise price |
| $8.58 - $10.05 | 208,032 |
| | 2.88 | | $ | 9.97 |
| | 208,032 |
| | $ | 9.97 |
|
| $10.12 - $12.81 | 71,850 |
| | 3.95 | | 11.44 |
| | 71,850 |
| | 11.44 |
|
| $14.47 - $14.47 | 285,879 |
| | 4.11 | | 14.47 |
| | 271,879 |
| | 14.47 |
|
| $16.14 - $17.88 | 72,777 |
| | 1.16 | | 16.32 |
| | 72,777 |
| | 16.32 |
|
| $21.92 - $21.92 | 207,004 |
| | 5.13 | | 21.92 |
| | 207,004 |
| | 21.92 |
|
| $32.00 - $56.26 | 226,287 |
| | 6.72 | | 50.50 |
| | 160,301 |
| | 48.49 |
|
| $63.58 - $68.62 | 25,757 |
| | 6.50 | | 67.17 |
| | 23,726 |
| | 67.34 |
|
| $74.42 - $74.42 | 216,118 |
| | 6.11 | | 74.42 |
| | 206,828 |
| | 74.42 |
|
| $85.79 - $97.92 | 238,675 |
| | 6.99 | | 88.93 |
| | 138,712 |
| | 90.54 |
|
| $100.38 - $141.61 | 323,953 |
| | 9.12 | | 112.75 |
| | 70,136 |
| | 106.78 |
|
| $8.58 – $141.61 | 1,876,332 |
| | 5.77 | | $ | 53.17 |
| — |
| 1,431,245 |
| | $ | 40.08 |
|
The assumptions used for the specified reporting periods and the resulting estimates of weighted-average grant date fair value per share of options granted:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2020 | | 2019 | | 2018 | |
| Risk-free interest rate | 0.2%-1.4% | | 1.4%-2.6% | | 2.7%-3.0% | |
| Expected volatility | 47%-71% | | 40%-49% | | 33%-36% | |
| Expected term | 4.7 to 5.1 years | | 4.6 to 5.9 years | | 5.1 to 5.8 years | |
| | | | | | |
| | | | | | |
|
| | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 | |
| Risk-free interest rate | 2.0%-2.2% | | 1.3%-1.9% | | 1.7%-2.0% | |
| Expected volatility | 43%-47% | | 48%-50% | | 50%-58% | |
| Expected term | 6.5 to 6.8 years | | 6.6 to 6.7 years | | 6.5 years | |
As of December 31, 2017,2020, there was $19.4$37.2 million of total unrecognized compensation cost related to non-vested stock options. That cost is expected to be recognized over a weighted average period of 2.522.9 years.
Restricted Stock Activity
The following is a summary of the Company’sour restricted stock activity and related information:
| | | | | | | Shares | | Weighted-Average Grant Date Fair Value |
| | Shares | | Weighted-Average Grant Date Fair Value | |
| Outstanding at December 31, 2016 | 308,700 |
| | $ | 86.61 |
| |
| Outstanding at January 1, 2018 | | Outstanding at January 1, 2018 | 133,294 | | | $ | 91.60 | |
| Granted | 73,799 |
| | 99.53 |
| Granted | 62,133 | | | $ | 169.92 | |
| Vested | (187,864 | ) | | 84.50 |
| Vested | (61,989) | | | $ | 86.19 | |
| Forfeited | (61,341 | ) | | 97.78 |
| Forfeited | (1,165) | | | $ | 125.16 | |
| Outstanding at December 31, 2017 | 133,294 |
| | $ | 91.60 |
| |
| Outstanding at December 31, 2018 | | Outstanding at December 31, 2018 | 132,273 | | | $ | 130.63 | |
| Granted | | Granted | 118,498 | | | $ | 115.90 | |
| Vested | | Vested | (102,846) | | | $ | 121.55 | |
| Forfeited | | Forfeited | (666) | | | $ | 134.36 | |
| Outstanding at December 31, 2019 | | Outstanding at December 31, 2019 | 147,259 | | | $ | 125.11 | |
| Granted | | Granted | 111,306 | | | $ | 89.73 | |
| Vested | | Vested | (52,363) | | | $ | 121.69 | |
| Forfeited | | Forfeited | 0 | | | $ | 0 | |
| Outstanding at December 31, 2020 | | Outstanding at December 31, 2020 | 206,202 | | | $ | 106.88 | |
As of December 31, 2017,2020, unrecognized compensation cost related to non-vested stock awards amounted to $6.5$10.6 million. That cost is expected to be recognized over a weighted average period of 1.341.5 years.
Employee Stock Purchase Plan
As of December 31, 2017, 67,3942020, 52,808 shares of the Company'sour common stock are available for future issuance under it'sthe Amended Employee Stock Purchase Plan, or ESPP. The ESPP permits eligible employees to purchase up to 1,250 shares of Ligand common stock per calendar year at a discount through payroll deductions. The price at which stock is purchased under the ESPP is equal to 85% of the fair market value of the common stock on the first of a six month offering period or purchase date, whichever is lower. There were 3,061, 1,9616,455, 4,745 and 3,3743,386 shares issued under the ESPP in 2017, 20162020, 2019 and 2015,2018, respectively.
Share Repurchases
During the years ended December 31, 2017, 2016 and 2015 the Company repurchased 14,000 shares for $2.0 million, 40,500 shares for $3.9 million, 6,120 shares for $0.5 million, respectively.
In May 2018, in conjunction with our 2023 Notes debt offering, we repurchased 260,000 shares of our common stock at a cost of $191.14 per share. In September 2015,2018, the Company's Boardboard of Directorsdirectors authorized the Companyus to repurchase up to $200.0 million of its ownour common stock in privately negotiated and open market transactions forfrom time to time over a period of up to three years subject(the “Repurchase Program”). On January 23, 2019, the board of directors elected to increase the Company's evaluation of market conditions. AuthorizationRepurchase Program, authorizing us to repurchase up to an additional $193.6a maximum of $350.0 million of itsour outstanding common stock under the Repurchase Program.
On September 11, 2019, our Board of Directors approved a stock repurchase program authorizing the repurchase of up to $500.0 million of our common stock from time to time over the next three years. We expect to acquire shares primarily through open-market transactions and have entered into a Rule 10b5-1 trading plan, and may enter into additional Rule 10b5-1 trading
plans in the future, to facilitate open-market repurchases. The timing and amount of repurchase transactions will be determined by management based on our evaluation of market conditions, share price, legal requirements and other factors. Our prior $350.0 million stock repurchase program mentioned above was terminated in connection with the approval of the new stock repurchase program. Authorization to repurchase $248.8 million of our common stock remained available as of December 31, 2017.2020.
During the twelve months ended December 31, 2020, 2019 and 2018, we repurchased 934,079 shares for $78.0 million, 4,122,133 shares for $448.4 million, and 782,248 shares for $127.5 million, respectively.
9. Litigation
The Company records10. Commitment and Contingencies: Legal Proceedings
We record an estimate of a loss when the loss is considered probable and estimable. Where a liability is probable and there is a range of estimated loss and no amount in the range is more likely than any other number in the range, The Company recordswe record the minimum estimated liability related to the claim in accordance with FASB ASC Topic 450, Contingencies.Contingencies. As additional information becomes available, the Company assesseswe assess the potential liability related to itsour pending litigation and revises itsour estimates. Revisions in the Company'sour estimates of potential liability could materially impact itsour results of operations.
In November 2016, a putative shareholder class action lawsuit was filed in the United States District Court for the Southern District of California against the Company, its chief executive officer and chief financial officer. The complaint was voluntarily dismissed without prejudice on May 15, 2017.
In November 2017,On April 9, 2019, CyDex, our wholly ownedwholly-owned subsidiary, received a paragraphParagraph IV certification Notice Letter from Teva Pharmaceuticals USA, Inc.Alembic Global Holdings SA (“Alembic”) stating that Alembic had submitted an ANDA to the FDA, seeking approval to manufacture, offer to sell, and sell a generic version of EVOMELA® prior to the expiration of any of the ’077 patent; the ’088 patent, the ’582 patent, or U.S. Patent No. 10,040,872 (“the ’872 patent”), Teva Pharmaceutical Industries Ltd. and Actavis, LLC (collectively “Teva”) alleging that certainthese patents, each of our patents relatedwhich relates to Captisol wereCaptisol®, are invalid, unenforceable, and/or willwould not be infringed by Teva’sAlembic’s ANDA related to Spectrum Pharmaceuticals’ NDA for Evomela.product. On December 20, 2017,May 23, 2019, CyDex filed a complaint against TevaAlembic, Alembic Pharmaceuticals, Ltd., and Alembic Pharmaceuticals, Inc. in the U.S. District Court for the District of Delaware, asserting that Teva’sthe filing of Alembic’s ANDA constitutes infringement of each of the ’088 patent and the ’582 patent. On July 29, 2019, Alembic filed an answer and counterclaims seeking declarations of non-infringement and invalidity as to each of the asserted patents and, on August 19, 2019, CyDex filed an answer to Alembic’s counterclaims. On April 7, 2020, the Court ordered that the Scheduling Order be amended such that, inter alia, the fact discovery cut off occurred on November 2, 2020, the close of expert discovery was set for March 22, 2021, and that May 17, 2021 would infringe our patents.remain the first day of a five-to-six-day bench trial.
On September 16, 2019, CyDex received a Paragraph IV certification Notice Letter from Lupin Ltd. (“Lupin”) stating that Lupin had submitted an ANDA to the FDA, seeking approval to manufacture, offer to sell, and sell a generic version of EVOMELA® prior to the expiration of any of the ’077 patent; the ’088 patent, the ’582 patent, or the ’872 patent, and alleging that these patents, each of which relates to Captisol®, are invalid, unenforceable, and/or would not be infringed by Lupin’s ANDA product. CyDex filed a complaint on October 29, 2019, alleging patent infringement against Lupin. Lupin filed an answer on December 11, 2019 and counterclaimed for declaratory judgments of invalidity and non-infringement as to all 4 patents and CyDex filed its answer to Lupin’s counterclaims on January 2, 2020. Fact discovery is ongoing. The Court’s scheduling order sets close of discovery on May 7, 2021 and a five day bench trial starting on December 13, 2021. 10.
On October 31, 2019, we received 3 civil complaints filed in the US District Court for the Northern District of Ohio on behalf of several Indian tribes. The Northern District of Ohio is the Court that the Judicial Panel on Multi-District Litigation (“JPML”) has assigned more than one thousand civil cases which have been designated as a Multi-District Litigation (“MDL”) and captioned In Re: National Prescription Opiate Litigation. The allegations in these complaints focus on the activities of defendants other than the company and no individualized factual allegations have been advanced against us in any of the 3 complaints. We reject all claims raised in the complaints and intend to vigorously defend these matters.
In May and August of 2019, Pfenex Inc., which was acquired by us in October 2020, filed three petitions (IPR2019- 01027, IPR2019-01028 and IPR2019-01478) for inter partes review of U.S. Patent No. 9,422,345 (“the ‘345 patent”; entitled “Expression System”), which is owned by GlaxoSmithKline Biologicals S.A., with the Patent Trial and Appeal Board (“PTAB”) of the U.S. Patent and Trademark Office. In November 2019 and February 2020, the Board instituted trial on the invalidity grounds in IPR2019-01028, but exercised its discretion not to institute trial on IPR2019-01027 or IPR2019-01478. In May 2020, GlaxoSmithKline Biologicals S.A. (“GSK”) filed two petitions (IPR2020-00890 and IPR2020-00962) for inter partes review of U.S. Pat. No. 8,530,171 (“the ‘171 patent,” entitled “High Level Expression of Recombinant Toxin Proteins”), which is owned by Pfenex, with the PTAB of the U.S. Patent and Trademark Office. On June 29, 2020, GSK filed a motion to withdraw IPR2020-00890, which was granted on August 28, 2020. In October 2020, Pfenex and GSK executed a confidential settlement agreement agreeing to terminate the proceedings before the PTAB resolving these issues. Pfenex and GSK filed a joint motion to terminate IPR2019-01028 and IPR2020-00962 on October 30, 2020, and an amended joint motion to terminate on November 4, 2020. A decision granting the parties’ joint motion to terminate in IPR2019-01028 was issued on November 12, 2020. The PTAB subsequently granted the parties’ joint motion to terminate in IPR2020-00962 on December 30, 2020.
On January 12, 2021, Abvivo submitted a JAMS arbitration demand naming the Company as respondent. Abvivo claims that the Company is in violation of the assignment provision of that certain Commercial Platform License and Services Agreement, dated October 9, 2019, by and among OMT and Crystal, on the one hand, and Abvivo, on the other hand because the Company allegedly withheld its consent to a proposed assignment required for Abvivo to negotiate a discovery and development alliance with certain third parties. On January 26, 2021, we submitted a response to the demand, denying all claims and alleging counterclaims against Abvivo and Brian Lundstrom, a Company employee and the sole owner of Abvivo. We allege that Mr. Lundstrom breached his fiduciary duty of loyalty to the Company and that Abvivo and Mr. Lundstrom fraudulently induced the Company, OMT and Crystal into certain business transactions and contracts. Abvivo and Mr. Lundstrom’s response to these counterclaims was due on February 9, 2021, but they did not submit a response. Under JAMS rules, the counterclaims are deemed denied. On February 22, 2021, Abvivo submitted documents to JAMS which indicated that it seeks to dismiss its claim without prejudice. The arbitration will be conducted by a three arbitrator panel, who have not yet been appointed. The parties must each appoint one arbitrator by February 26, 2021, and the two arbitrators will then appoint a third arbitrator. We intend to vigorously defend ourselves against this action.
11. Income Taxes
The Tax Act was enacted on December 22, 2017 and includes a number of changes to existing tax laws that impact the Company, most notably it reduces the US federal corporate tax rate from 35% to 21%, effective January 1, 2018. At December 31, 2017, we have made a reasonable estimate of the effects on our existing deferred tax balances. In other cases, we have not been able to make a reasonable estimate and continue to account for those items based on our existing accounting under ASC 740, Income Taxes, and the provisions of the tax laws that were in effect immediately prior to enactment. For the items for which we were able to determine a reasonable estimate, we recognized a provisional amount of $32.4 million, which is included as a component of income tax expense from continuing operations.
In conjunction with the tax law changes, the SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Act.
The components of the income tax expense (benefit) for continuing operations are as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2020 | | 2019 | | 2018 |
| Current expense (benefit): | | | | | |
| Federal | $ | 10,889 | | | $ | 89,471 | | | $ | 0 | |
| State | 589 | | | 3,103 | | | 424 | |
| Foreign | 23 | | | (66) | | | (158) | |
| 11,501 | | | 92,508 | | | 266 | |
| Deferred expense (benefit): | | | | | |
| Federal | (15,672) | | | 74,627 | | | 29,928 | |
| State | (3,382) | | | 202 | | | (185) | |
| $ | (7,553) | | | $ | 167,337 | | | $ | 30,009 | |
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 | |
| Current expense (benefit): | | | | | | |
| Federal | $ | — |
| | $ | 21 |
| | $ | 11 |
| |
| State | 111 |
| | 12 |
| | 7 |
| |
| Foreign | 261 |
| | — |
| | — |
| |
| | 372 |
| | 33 |
| | 18 |
| |
| Deferred expense (benefit): | | | | | | |
| Federal | 44,075 |
| | 10,534 |
| | (167,413 | ) | |
| State | 228 |
| | (240 | ) | | (24,720 | ) | |
| Foreign | — |
| | — |
| | — |
| |
| | $ | 44,675 |
| | $ | 10,327 |
| | $ | (192,115 | ) | |
A reconciliation of income tax expense (benefit) from continuing operations to the amount computed by applying the statutory federal income tax rate to the net income (loss) from continuing operations is summarized as follows:follows (in thousands):
| | | | Year Ended December 31, | | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2020 | | 2019 | | 2018 |
| Tax at federal statutory rate | $ | 20,031 |
| | $ | 2,786 |
| | $ | 13,198 |
| Tax at federal statutory rate | $ | (2,213) | | | $ | 167,294 | | | $ | 36,400 | |
| State, net of federal benefit | 622 |
| | 175 |
| | 386 |
| State, net of federal benefit | (1,456) | | | 2,466 | | | 1,635 | |
| Contingent liabilities | 903 |
| | 1,225 |
| | 1,684 |
| Contingent liabilities | (278) | | | 18 | | | 948 | |
| Stock-based compensation | (4,019 | ) | | 263 |
| | 140 |
| |
| Share-based compensation | | Share-based compensation | (362) | | | (819) | | | (8,131) | |
| FDII | | FDII | (1,652) | | | (402) | | | 0 | |
| Research and development credits | (2,821 | ) | | (1,525 | ) | | 304 |
| Research and development credits | (699) | | | (879) | | | (2,758) | |
| Change in uncertain tax positions | 1,308 |
| | 1,423 |
| | 27,188 |
| Change in uncertain tax positions | (650) | | | 441 | | | 858 | |
| Rate change for changes in federal or state law | 32,429 |
| | 25 |
| | (5,756 | ) | Rate change for changes in federal or state law | (173) | | | (210) | | | 178 | |
| Provision to return adjustments | | Provision to return adjustments | (4,803) | | | (184) | | | (150) | |
| Foreign tax differential on income/loss of foreign subsidiaries | | Foreign tax differential on income/loss of foreign subsidiaries | (3,839) | | | 57 | | | (14) | |
| Change in valuation allowance | (4,169 | ) | | 6,283 |
| | (231,370 | ) | Change in valuation allowance | (121,876) | | | (1,193) | | | (4,225) | |
| Sale of Vernalis R&D | | Sale of Vernalis R&D | 127,372 | | | 0 | | | 0 | |
| Expired NOLs and credits | | Expired NOLs and credits | 0 | | | 0 | | | 3,054 | |
| Change in derivatives | | Change in derivatives | 0 | | | 0 | | | 615 | |
| Other | 391 |
| | (328 | ) | | 2,111 |
| Other | 3,076 | | | 748 | | | 1,599 | |
| | $ | 44,675 |
| | $ | 10,327 |
| | $ | (192,115 | ) | | $ | (7,553) | | | $ | 167,337 | | | $ | 30,009 | |
We remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. However, we are still analyzing certain aspects of the Tax Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded related to the remeasurement of our deferred tax balance was $32.4 million.
Significant components of the Company’sour deferred tax assets and liabilities as of December 31, 20172020 and 20162019 are shown below. The Company assessesWe assess the positive and negative evidence to determine if sufficient future taxable income will be generated to use the existing deferred tax assets. The Company'sOur evaluation of evidence resulted in management concluding that the majority of the Company'sour deferred tax assets will be realized. However, the Company maintainswe maintain a valuation allowance to offset certain net deferred tax assets as management believes realization of such assets are uncertain as of December 31, 2017, 20162020, 2019 and 2015.2018. The valuation allowance decreased $8.4$116.5 million in 2017,2020, increased $6.3$136.9 million in 2016
2019 and decreased $231.7$2.5 million in 2015.2018. |
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| | (in thousands) |
| Deferred assets: | | | |
| Net operating loss carryforwards | $ | 90,272 |
| | $ | 150,226 |
|
| Research credit carryforwards | 30,677 |
| | 26,878 |
|
| Fixed assets and intangibles | 1,984 |
| | 4,385 |
|
| Accrued expenses | 845 |
| | 943 |
|
| Contingent liabilities | 354 |
| | 578 |
|
| Deferred revenue | 17 |
| | — |
|
| Present value of royalties | — |
| | 591 |
|
| Deferred rent | 28 |
| | 45 |
|
| Capital Loss Carryforward | 1,609 |
| | 4,432 |
|
| Viking Equity Method Investment | 5,137 |
| | 5,692 |
|
| Other | 12,117 |
| | 19,312 |
|
| | 143,040 |
| | 213,082 |
|
| Valuation allowance for deferred tax assets | (6,987 | ) | | (15,349 | ) |
| Net deferred tax assets | $ | 136,053 |
| | $ | 197,733 |
|
| Deferred tax liabilities: | | | |
| Retrophin fair value adjustment | $ | (243 | ) | | $ | (52 | ) |
| Convertible debt | (737 | ) | | (1,196 | ) |
| Identified intangibles | (48,237 | ) | | (68,631 | ) |
| Identified indefinite lived intangibles | (2,414 | ) | | (3,963 | ) |
| Total | $ | 84,422 |
| | $ | 123,891 |
|
We offset all deferred tax assets and liabilities by jurisdiction, as well as any related valuation allowance, and present them on our consolidated balance sheet as a non-current deferred income tax asset or liability (as applicable). Deferred tax assets (liabilities) are comprised of the following:
| | | | | | | | | | | |
| | December 31, |
| | 2020 | | 2019 |
| | (in thousands) |
| Deferred tax assets: | | | |
| Net operating loss carryforwards | $ | 64,147 | | | $ | 150,727 | |
| Research credit carryforwards | 19,623 | | | 14,843 | |
| Stock Compensation | 11,994 | | | 9,544 | |
| Other | 13,120 | | | 10,602 | |
| 108,884 | | | 185,716 | |
| Valuation allowance for deferred tax assets | (24,858) | | | (141,338) | |
| Net deferred tax assets | $ | 84,026 | | | $ | 44,378 | |
| | | |
| Deferred tax liabilities: | | | |
| Identified intangibles | (119,381) | | | (40,768) | |
| Other | (4,923) | | | (10,939) | |
| Net deferred tax liabilities | $ | (124,304) | | | $ | (51,707) | |
| | | |
| Deferred income taxes, net | $ | (40,278) | | | $ | (7,329) | |
As of December 31, 2017, the Company2020, we had federal and state net operating loss carryforwards set to expire through 20362037 of $387.9$162.4 million and $126.5$129.3 million of state net operating loss carryforwards. The Companycarryforwards that begin to expire in 2031. We also has $23.8have $9.2 million of federal research and development credit carryforwards, which expire through 2036. The Company has $20.72040. We have $23.1 million of California research and development credit carryforwards that have no expiration date. In addition, we have approximately $110.1 million of non-U.S. net operating loss carryovers and approximately $17.6 million of non-U.S. capital loss carryovers that have no expiration date. At December 31, 2019 we had approximately $713.8 million of non-U.S. net operating loss carryovers and approximately $14.6 million of non-U.S. capital loss carryovers. The year over year decrease in non-U.S. deferred tax assets was attributable to the sale of Vernalis in December 2020. The remaining non-U.S. deferred tax assets as of December 31, 2020 were attributable to the portion of the Vernalis business that we did not sell. We have a full valuation allowance against these non-U.S. tax attributes. See detail in “Note (2), Sale of Vernalis R&D and Promacta License."
Pursuant to Section 382 and 383 of the Internal Revenue Code of 1986, as amended, utilization of the Company’sour net operating losses and credits may be subject to annual limitations in the event of any significant future changes in its ownership structure. These annual limitations may result in the expiration of net operating losses and credits prior to utilization. The deferred tax assets as of December 31, 20172020 are net of any previous limitations due to Section 382 and 383.
The Company accountsWe account for income taxes by evaluating a probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Company’sOur remaining liabilities for uncertain tax positions are presented net of the deferred tax asset balances on the accompanying consolidated balance sheet.
A reconciliation of the amount of unrecognized tax benefits at December 31, 2017, 20162020, 2019 and 20152018 is as follows (in thousands):
| | | | December 31, | | December 31, |
| | 2017 | | 2016 | | 2015 | | 2020 | | 2019 | | 2018 |
| Balance at beginning of year | $ | 38,770 |
| | $ | 36,452 |
| | $ | 8,524 |
| Balance at beginning of year | $ | 28,736 | | | $ | 30,289 | | | $ | 29,363 | |
| Additions based on tax positions related to the current year | 1,067 |
| | 70 |
| | 154 |
| Additions based on tax positions related to the current year | 3,911 | | | 543 | | | 1,247 | |
| Additions for tax positions of prior years | 109 |
| | 2,408 |
| | 28,224 |
| Additions for tax positions of prior years | 179 | | | 0 | | | 336 | |
| Reductions for tax positions of prior years | (10,583 | ) | | (160 | ) | | (450 | ) | Reductions for tax positions of prior years | (955) | | | (2,096) | | | (657) | |
| Balance at end of year | $ | 29,363 |
| | $ | 38,770 |
| | $ | 36,452 |
| Balance at end of year | $ | 31,871 | | | $ | 28,736 | | | $ | 30,289 | |
Included in the balance of unrecognized tax benefits at December 31, 20172020 is $26.8$30.2 million of tax benefits that, if recognized would impact the effective rate. There are no positions for which it is reasonably possible that the uncertain tax benefit will significantly increase or decrease within twelve months.
The Company recognizesWe recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 20172020 and December 31, 2016, the Company2019, we recognized an immaterial amount of interest and penalties. The Company filesWe file income tax returns in the United States, and in various state jurisdictions, United Kingdom, and Canada with varying statutes of limitations. The federal statute of limitation remains open for the 20132017 tax year to the present. The state income tax returns generally remain open for the 20122016 tax year through the present. Net operating loss and research credit carryforwards arising prior to these years are also open to examination if and when utilized.
We are subject to taxation in the U.S. and various states and foreign jurisdictions. With few exceptions, as of December 31, 2020, we are no longer subject to state, local or foreign examinations by tax authorities for tax years before 2016 and we are no longer subject to U.S. federal income or payroll tax examinations for tax years before 2017. No tax returns are currently under examination by any tax authorities. Net operating loss and research credit carryforwards arising prior to these years are also open to examination if and when utilized. We believe our reserve for unrecognized tax benefits and contingent tax issues is adequate with respect to all open years. 11.
12. Summary of Unaudited Quarterly Financial Information
The following financial information reflects all normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the results and cash flows of interim periods. Summarized quarterly data for 20172020 and 20162019 are as follows (in thousands, except per share amounts):
| | | | | | | | | | | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
| | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | |
| 2016 | | | | | | | | |
| 2020 | | 2020 | | | | | | | |
| Total revenues | $ | 29,648 |
| | $ | 19,521 |
| | $ | 21,619 |
| | $ | 38,185 |
| Total revenues | $ | 33,161 | | | $ | 41,420 | | | $ | 41,848 | | | $ | 69,990 | |
| Total operating costs and expenses | 14,552 |
| | 15,552 |
| | 16,153 |
| | 18,831 |
| Total operating costs and expenses | 29,373 | | | 34,320 | | | 38,101 | | | 75,894 | |
| Income tax (expense) benefit | (3,694 | ) | | 3,881 |
| | (160 | ) | | (10,354 | ) | Income tax (expense) benefit | 6,284 | | | (6,033) | | | 4,911 | | | 2,391 | |
| Net income (loss) | 6,608 |
| | (6,170 | ) | | 1,051 |
| | (3,125 | ) | Net income (loss) | (24,131) | | | 22,086 | | | (6,701) | | | 5,761 | |
| Basic per share amounts: | | | | | | | | Basic per share amounts: | |
| Net income (loss) | $ | 0.32 |
| | $ | (0.30 | ) | | $ | 0.05 |
| | $ | 0.15 |
| Net income (loss) | $ | (1.46) | | | $ | 1.38 | | | $ | (0.42) | | | $ | 0.36 | |
| Diluted per share amounts: | | | | | | | | Diluted per share amounts: | | | | | | | |
| Net income (loss) | $ | 0.30 |
| | $ | (0.30 | ) | | $ | 0.05 |
| | $ | 0.15 |
| Net income (loss) | $ | (1.46) | | | $ | 1.32 | | | $ | (0.42) | | | $ | 0.35 | |
| | | | | | | | | | | | | | | | |
| Weighted average shares—basic | 20,708 |
| | 20,832 |
| | 20,887 |
| | 20,898 |
| Weighted average shares—basic | 16,529 | | 16,055 | | 16,082 | | 16,077 |
| Weighted average shares—diluted | 22,284 |
| | 20,832 |
| | 22,997 |
| | 20,898 |
| Weighted average shares—diluted | 16,529 | | 16,694 | | 16,082 | | 16,684 |
| | | | | | | | | |
| 2017 | | | | | | | | |
| | | First Quarter(1) | | Second Quarter | | Third Quarter | | Fourth Quarter |
| 2019 | | 2019 | | | | | | | |
| Total revenues | $ | 29,267 |
| | $ | 27,995 |
| | $ | 33,375 |
| | $ | 50,465 |
| Total revenues | $ | 43,484 | | | $ | 24,987 | | | $ | 24,808 | | | $ | 27,003 | |
| Total operating costs and expenses | 19,051 |
| | 14,980 |
| | 16,882 |
| | 22,113 |
| Total operating costs and expenses | 29,738 | | | 29,117 | | | 29,966 | | | 37,182 | |
| Income tax (expense) benefit | (1,114 | ) | | (2,242 | ) | | (3,645 | ) | | (37,674 | ) | Income tax (expense) benefit | (176,376) | | | 3,609 | | | 4,620 | | | 810 | |
| Net Income (loss) | 5,079 |
| | 6,058 |
| | 8,426 |
| | (7,007 | ) | |
| Net income (loss) | | Net income (loss) | 666,337 | | | (14,419) | | | (15,251) | | | (7,365) | |
| Basic per share amounts: | | | | | | | | Basic per share amounts: | |
| Net income | $ | 0.24 |
| | $ | 0.29 |
| | $ | 0.40 |
| | $ | (0.33 | ) | |
| Net income (loss) | | Net income (loss) | $ | 32.59 | | | $ | (0.74) | | | $ | (0.81) | | | $ | (0.43) | |
| Diluted per share amounts: | | | | | | | | Diluted per share amounts: | | | | | | | |
| Net income | $ | 0.22 |
| | $ | 0.26 |
| | $ | 0.36 |
| | $ | (0.33 | ) | |
| Net income (loss) | | Net income (loss) | $ | 31.32 | | | $ | (0.74) | | | $ | (0.81) | | | $ | (0.43) | |
| | | | | | | | | | | | | | | | |
| Weighted average shares—basic | 20,938 |
| | 21,013 |
| | 21,071 |
| | 21,109 |
| Weighted average shares—basic | 20,447 | | 19,558 | | 18,770 | | 17,243 |
| Weighted average shares—diluted | 23,019 |
| | 23,216 |
| | 23,551 |
| | 21,109 |
| Weighted average shares—diluted | 21,277 | | 19,558 | | 18,770 | | 17,243 |
| (1) Includes pre-tax gain from sale of Promacta license of $812,797. | | (1) Includes pre-tax gain from sale of Promacta license of $812,797. | |
|
| | | | |
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
|
| | | | |
| Item 9A. | Controls and Procedures |
(a) Evaluation of Disclosure Controls and Procedures
We are responsible for maintaining disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports we file under the Exchange Act is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. As of the end of the period covered by this Annual Report on Form 10-K, we have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, and have concluded our disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2017.2020.
Changes in Internal Control over Financial Reporting
As disclosed in Form 10-K for the year ended December 31, 2016, we have concluded the material weakness in the internal control over financial reporting as described below was not remediated at December 31, 2016:
During fiscal 2017, in response to the material weakness identified, management has evaluated the design and operating effectiveness of internal controls related to tax accounting for complex transactions that have a significant tax impact, and has taken the following steps including implementing additional controls and procedures to remediate the identified material weakness:
Conducted multiple enhanced trainings of accounting personnel responsible for the review of our income tax matters including complex transactions that have significance tax impact
| |
• | Implemented additional controls and procedures to enhance precision of the detailed quarterly analysis of the Company’s deferred tax assets and liabilities including the impact of complex tax transactions to assist senior management’s review of the quarterly tax provision prepared by 3rd party
|
Implemented process improvements to enhance management oversight of the analysis documentation necessary for the accurate presentation of deferred income taxes related to complex transactions including but not limited to detailed review and inquiries to understand the information and assumptions used in the analysis, as well as alternative practice if applicable
During fiscal 2017, management tested the remedial controls related to the material weakness described above for a sufficient period of time and management has concluded, through testing, that by the end of the fourth quarter of fiscal 2017, these controls were operating effectively. Therefore, we have concluded that the material weakness previously identified in the Company’s internal control over financial reporting has been remediated at December 31, 2017
During fiscal year 2017, we implemented internal controls to help ensure we adequately evaluated our customer contracts and properly assessed the impact of the new revenue recognition accounting standard to our consolidated financial statements in order to facilitate our adoption on January 1, 2018, We expect to continue to implement additional internal controls related to the adoption of this standard in the first quarter of 2018.
We also continue to evaluate the impact of the Tax Act on our internal controls over financial reporting, but do not currently expect this new legislation will require us to make significant changes to our existing internal controls related to income taxes.
Except for the changes mentioned above, thereThere have been no changes in our internal control over financial reporting that occurred in our fourth fiscalduring the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
(b) Management’s Report on Internal Control overOver Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with generally accepted accounting principles; providing reasonable assurance that receipts and expenditures are made in accordance with our management and directors; and providing reasonable assurance that
unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework established by the COSOCommittee of Sponsoring Organizations of the Treadway Commission (COSO) as set forth in the 2013 Internal Control-Integrated Framework. Based on our evaluation under the 2013 framework in Internal Control - Integrated Framework, management concluded that our internal controls over financial reporting were effective as of December 31, 2017.2020.
A registrant may omit an assessment of an acquired business’s internal control over financial reporting from the registrant’s assessment of its internal control; however, such an exclusion may not extend beyond one year from the date of the acquisition, nor may such assessment be omitted from more than one annual management report on internal control over financial reporting. We acquired Pfenex in October 2020, and we excluded from the assessment of the effectiveness of our internal control over financial reporting as of December 31, 2020, the acquired entity’s internal control over financial reporting associated with total assets of $14.2 million (exclusive of net intangible assets and goodwill of $468.1 million), total revenue of $2.0 million and net loss of $19.3 million included in our consolidated financial statements as of and for the year ended December 31, 2020.
Ernst & Young LLP, an independent registered public accounting firm, has audited the Company’s consolidated financial statements included in this Annual Report on Form 10-K and has issued an attestation report, included herein, on the effectiveness of our internal control over financial reporting as of December 31, 2017.2020.
Report of Independent Registered Public Accounting Firm
TheTo the Stockholders and the Board of Directors and Stockholders of Ligand Pharmaceuticals Incorporated.Incorporated
Opinion on Internal Control overOver Financial Reporting
We have audited Ligand Pharmaceuticals Incorporated’s internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Ligand Pharmaceuticals Incorporated (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2020, based on the COSO criteria.
As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Pfenex Inc., which is included in the 2020 consolidated financial statements of the Company and constituted $14.2 million of assets (exclusive of goodwill and intangibles), as of December 31, 2020 and $2 million and $19.3 million of revenues and net loss, respectively, for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Pfenex Inc.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Ligand Pharmaceuticals Incorporatedthe Company as of December 31, 20172020 and 2016,2019, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years thenin the period ended December 31, 2020, and the related notes and our report dated March 1, 2018February 24, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control overOver Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
San Diego, California
March 1, 2018February 24, 2021
| | | | | |
| Item 9B. | Other Information |
None.
Part III
|
| | | | |
| Item 10. | Directors, Executive Officers and Corporate Governance |
Code of Conduct
The Board of Directors has adopted a Code of Conduct and Ethics Policy (“Code of Conduct”) that applies to all officers, directors and employees. The Company will promptly disclose (1) the nature of any amendment to the Code of Conduct that applies to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions and (2) the nature of any waiver, including an implicit waiver, from a provision of our Code of Conduct that is granted to one of these specified officers, the name of such person who is granted the waiver and the date of the waiver on our website in the future. The Code of Conduct can be accessed via our website (http://www.ligand.com), Corporate Overview page. You may also request a free copy by writing to: Investor Relations, Ligand Pharmaceuticals Incorporated, 3911 Sorrento Valley Blvd, Suite 110, San Diego, CA 92121.
The other information under Item 10 is hereby incorporated by reference to Ligand’s Definitive Proxy Statement to be filed with the SEC within 120 days of December 31, 2017.2020.
|
| | | | |
| Item 11. | Executive Compensation |
Item 11 is hereby incorporated by reference to Ligand’s Definitive Proxy Statement to be filed with the SEC within 120 days of December 31, 2017.2020.
|
| | | | |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Item 12 is hereby incorporated by reference to Ligand’s Definitive Proxy Statement to be filed with the SEC within 120 days of December 31, 2017.2020.
|
| | | | |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence |
Item 13 is hereby incorporated by reference to Ligand’s Definitive Proxy Statement to be filed with the SEC within 120 days of December 2017.31, 2020.
|
| | | | |
| Item 14. | Principal Accountant Fees and Services |
Item 14 is hereby incorporated by reference to Ligand’s Definitive Proxy Statement to be filed with the SEC within 120 days of December 31, 2017.
2020.
PART IV
|
| | | | |
| Item 15. | Exhibits and Financial Statement Schedule |
(a) The following documents are included as part of this Annual Report on Form 10-K.
(1) Financial statements
(2) Schedules not included herein have been omitted because they are not applicable or the required information is in the consolidated financial statements or notes thereto.
(3) The following exhibits are filed as part of this Form 10-K and this list includes the Exhibit Index.
| | | | | | | | | | | | | | | | | | | | |
| | Incorporated by Reference | |
Exhibit Number | Description of Exhibit | Form | File Number | Date of Filing | Exhibit Number | Filed Herewith |
| Rule 2.7 Announcement issued by Ligand Holdings UK Ltd., dated August 9, 2018 | 8-K | 001-33093 | August 9, 2018 | 2.1 | |
| Asset Purchase Agreement, dated March 5, 2019, by and among Ligand Pharmaceuticals Incorporated and RPI Financial Trust | 8-K | 001-33093 | March 5, 2019 | 2.1 | |
| Asset Purchase Agreement, dated February 11, 2020, (as amended on April 1, 2020), by and among Ligand Pharmaceuticals Incorporated, Icagen Inc., Icagen Corp., XRPro Sciences, Inc. and Caldera Discovery, Inc. | 10-Q | 001-33093 | May 8, 2020 | 2.1 | |
| Agreement and Plan of Merger, dated as of August 10, 2020, by and among Pfenex Inc., Ligand Pharmaceuticals Incorporated and Pelican Acquisition Sub, Inc. | 8-K | 001-33093 | August 11, 2020 | 2.1 | |
| Agreement and Plan of Merger, dated September 8, 2020, among Ligand Pharmaceuticals Incorporated, xCella Biosciences, Inc. and Eton Venture Services, Ltd. Co., as stockholders’ representative | 8-K | 001-33093 | September 10, 2020 | 10.1 | |
| Agreement and Plan of Merger, dated September 9, 2020, among Ligand Pharmaceuticals Incorporated, Taurus Biosciences, LLC and the other signatories listed therein | 8-K | 001-33093 | September 10, 2020 | 10.2 | |
| Agreement for the Sale and Purchase of the Entire Issued Share Capital of Vernalis (R&D) Limited, dated as of October 11, 2020, by and among Ligand Pharmaceuticals Incorporated, Vernalis Limited, HitGen UK Ltd and HitGen Inc. | 8-K | 001-33093 | October 13, 2020 | 2.1 | |
| Amended and Restated Certificate of Incorporation of the Company. | S-4 | 333-58823 | July 9, 1998 | 3.1 | |
| Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, dated June 14, 2000 | 10-K | 0-20720 | March 29, 2001 | 3.5 | |
| | | | | Incorporated by Reference | | |
Exhibit Number | Description of Exhibit | Form | File Number | Date of Filing | Exhibit Number | Filed Herewith | |
| Agreement and Plan of Merger, dated January 14, 2011 by and among the Company, CyDex Pharmaceuticals, Inc., and Caymus Acquisition, Inc., | 8-K | 001-33093 | January 26, 2011 | 10.1 | | |
| Agreement and Plan of Merger, dated as of December 17, 2015, by and among Ligand Pharmaceuticals Incorporated, Open Monoclonal Technology, Inc., OMT, LLC, Schrader 1 Acquisition, Inc., Schrader 2 Acquisition, Inc. and Fortis Advisors LLC | 8-K | 001-33093 | December 18, 2015 | 2.1 | | |
| Amended and Restated Certificate of Incorporation of the Company. | S-4 | 333-58823 | July 9, 1998 | 3.1 | | |
| Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, dated June 14, 2000 | 10-K | 0-20720 | March 29, 2001 | 3.5 | | |
| Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, dated June 30, 2004 | 10-Q | 0-20720 | August 5, 2004 | 3.6 | | | Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, dated June 30, 2004 | 10-Q | 0-20720 | August 5, 2004 | 3.6 | |
| Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, dated November 17, 2010 | 8-K | 001-33093 | November 19, 2010 | 3.1 | | | Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, dated November 17, 2010 | 8-K | 001-33093 | November 19, 2010 | 3.1 | |
| Amended Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock of the Company | 10-Q | 0-20720 | May 14, 1999 | 3.3 | | | Certificate of Amendment of the Amended and Restated Certification of Incorporation of the Company, dated June 19, 2018 | S-8 | 333-233130 | August 8, 2019 | 3.6 | |
| Third Amended and Restated Bylaws of the Company | 8-K | 001-33093 | September 10, 2015 | 3.1 | | | Fourth Amended and Restated Bylaws of the Company | 8-K | 001-33093 | October 30, 2020 | 3.1 | |
| Specimen stock certificate for shares of the common stock of the Company | S-1 | 33-47257 | April 16, 1992 | | | Specimen stock certificate for shares of the common stock of the Company | 10-K | 001-33093 | March 1, 2018 | 4.1 | |
| 2006 Preferred Shares Rights Agreement, by and between the Company and Mellon Investor Services LLC, dated October 13, 2006 | 8-K | 000-20720 | October 17, 2006 | 4.1 | | | Indenture, dated as of May 22, 2018, between the Company and Wilmington Trust, National Association, as trustee, including the form of 0.75% Convertible Senior Notes due 2023 | 8-K | 001-33093 | May 22, 2018 | 4.1 | |
| First Amendment to 2006 Preferred Shares Rights Agreement, by and between the Company and Computershare Shareowner Services LLC (f/k/a Mellon Investor Services LLC), dated June 19, 2013 | 8-K | 001-33093 | June 20, 2013 | 4.1 | | | Description of Registered Securities | | X |
| | | 2002 Stock Incentive Plan (as amended and restated effective December 15, 2020) | | X |
| | | 2002 Employee Stock Purchase Plan (as amended and restated effective June 6, 2019) | DEF | 001-33093 | April 24, 2019 | Appendix B | |
| | | Form of Stock Option Grant Notice and Stock Option Agreement under the Company’s 2002 Stock Incentive Plan | 10-K | 001-33093 | February 24, 2014 | 10.5 | |
| | | Form of Stock Issuance Agreement for non-employee directors under the Company’s 2002 Stock Incentive Plan | S-1 | 333-131029 | January 13, 2006 | 10.289 | |
| | | Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement under the Company’s 2002 Stock Incentive Plan | 10-K | 001-33093 | March 1, 2018 | 10.6 | |
| | | Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement under the Company’s 2002 Stock Incentive Plan - Performance-Based RSU Form | 10-K | 001-33093 | March 1, 2018 | 10.7 | |
| | | Form of Executive Officer Change in Control Severance Agreement | 8-K | 001-33093 | August 22, 2007 | 10.1 | |
| | | Amended and Restated Severance Plan, dated December 20, 2008 | 8-K | 001-33093 | December 24, 2008 | 10.2 | |
| | | Amended and Restated Director Compensation and Stock Ownership Policy, effective March 28, 2019 | 10-K | 001-33093 | February 27, 2020 | 10.9 | |
| | | TR Beta Contingent Value Rights Agreement, dated January 27, 2010, among the Company, Metabasis Therapeutics, Inc., David F. Hale and Mellon Investor Services LLC | 8-K | 001-33093 | January 28, 2010 | 10.2 | |
| | | Glucagon Contingent Value Rights Agreement, dated January 27, 2010, among the Company, Metabasis Therapeutics, Inc., David F. Hale and Mellon Investor Services LLC | 8-K | 001-33093 | January 28, 2010 | 10.3 | |
| | | General Contingent Value Rights Agreement, dated January 27, 2010, among the Company, Metabasis Therapeutics, Inc., David F. Hale and Mellon Investor Services LLC | 8-K | 001-33093 | January 28, 2010 | 10.4 | |
| | | Amendment of General Contingent Value Rights Agreement, dated January 26, 2011, among the Company, Metabasis Therapeutics, Inc., David F. Hale and Mellon Investor Services LLC | 8-K | 001-33093 | January 31, 2011 | 10.1 | |
| | | Amendment of General Contingent Value Rights Agreement dated May 20, 2014 among the Company, Metabasis Therapeutics, Inc., David F. Hale and Computershare Inc. | 8-K | 001-33093 | May 22, 2014 | 10.1 | |
| | | Amendment of TR Beta Contingent Value Rights Agreement dated May 20, 2014 among the Company, Metabasis Therapeutics, Inc., David F. Hale and Computershare, Inc. | 8-K | 001-33093 | May 22, 2014 | 10.2 | |
|
| | | | | | |
| Indenture dated August 18, 2014 between the Company and Wilmington Trust, National Association | 8-K | 001-33093 | August 18, 2014 | 4.1 | |
| 2002 Stock Incentive Plan (as amended and restated through May 23, 2016) | S-8 | 333-212775 | July 29, 2016 | 10.1 | |
| 2002 Employee Stock Purchase Plan (as amended effective July 1, 2009) | S-8 | 333-160132 | June 22, 2009 | 10.2 | |
| Form of Stock Option Grant Notice and Stock Option Agreement under the Company’s 2002 Stock Incentive Plan | 10-K | 001-33093 | February 24, 2014 | 10.5 | |
| Form of Stock Issuance Agreement for non-employee directors under the Company’s 2002 Stock Incentive Plan | S-1 | 333-131029 | January 13, 2006 | 10.289 | |
| Form of Letter Agreement regarding Change of Control Severance Benefits between the Company and its officers | 10-K | 001-33093 | March 16, 2007 | 10.309 | |
| Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement under the Company’s 2002 Stock Incentive Plan | | | | | X |
| Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement under the Company’s 2002 Stock Incentive Plan - Performance-Based RSU Form | | | | | X |
| Form of Executive Officer Change in Control Severance Agreement | 8-K | 001-33093 | August 22, 2007 | 10.1 | |
| Amended and Restated Severance Plan, dated December 20, 2008 | 8-K | 001-33093 | December 24, 2008 | 10.2 | |
| Amended and Restated Director Compensation and Stock Ownership Policy, effective as of June 1, 2011 | 10-Q | 001-33093 | August 8, 2011 | 10.24 | |
| 10.11† | Research, Development and License Agreement, dated December 29, 1994, between SmithKline Beecham Corporation and the Company . | S-1 S-3 | 33-87598 33-87600 | December 20, 1994 | | |
| Amended and Restated Research, Development and License Agreement, dated December 1, 2005, between the Company and Wyeth (formerly American Home Products Corporation) | S-1 | 333-131029 | January 13, 2006 | 10.287 | |
| Lease, dated August 20, 2003, between Pharmacopeia, Inc. and Eastpark at 8A (Building 3000) | 10-K | 001-33093 | March 16, 2009 | 10.327 | |
| Collaboration and License Agreement, dated July 9, 2003 and effective August 8, 2003, between Pharmacopeia, Inc. and Schering-Plough Ltd | 10-K | 001-33093 | March 16, 2009 | 10.324 | |
| Collaboration and License Agreement, dated July 9, 2003 and effective August 8, 2003, between Pharmacopeia, Inc. and Schering Corporation | 10-K | 001-33093 | March 16, 2009 | 10.325 | |
| Amendment No. 1, dated July 27, 2006, to the Collaboration and License Agreements, effective as of July 9, 2003, between (i) Pharmacopeia, Inc. and Schering Corporation and (ii) Pharmacopeia, Inc. and Schering-Plough Ltd. | 8-K | 000-50523 | August 2, 2006 | 10.1 | |
| Settlement Agreement and Mutual Release, by and between the Company and The Rockefeller University, dated February 11, 2009 | 10-Q | 001-33093 | May 11, 2009 | 10.318 | |
| TR Beta Contingent Value Rights Agreement, dated January 27, 2010, among the Company, Metabasis Therapeutics, Inc., David F. Hale and Mellon Investor Services LLC | 8-K | 001-33093 | January 28, 2010 | 10.2 | |
| Glucagon Contingent Value Rights Agreement, dated January 27, 2010, among the Company, Metabasis Therapeutics, Inc., David F. Hale and Mellon Investor Services LLC | 8-K | 001-33093 | January 28, 2010 | 10.3 | |
| General Contingent Value Rights Agreement, dated January 27, 2010, among the Company, Metabasis Therapeutics, Inc., David F. Hale and Mellon Investor Services LLC | 8-K | 001-33093 | January 28, 2010 | 10.4 | |
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| Amendment of General Contingent Value Rights Agreement, dated January 26, 2011, among the Company, Metabasis Therapeutics, Inc., David F. Hale and Mellon Investor Services LLC | 8-K | 001-33093 | January 31, 2011 | 10.1 | |
| Captisol® Supply Agreement, dated December 20, 2002, among CyDex, Inc., Hovione LLC, Hovione FarmaCiencia S.A., Hovione Pharmascience Limited and Hovione International Limited | 10-K | 001-33093 | March 3, 2011 | 10.100 | |
| 1st Amendment to Captisol® Supply Agreement, dated July 29, 2005, among CyDex, Inc., Hovione LLC, Hovione FarmaCiencia S.A., Hovione Pharmascience Limited and Hovione International Limited | 10-K | 001-33093 | March 3, 2011 | 10.101 | |
| 2nd Amendment to Captisol® Supply Agreement, dated March 1, 2007, among CyDex, Inc., Hovione LLC, Hovione FarmaCiencia S.A., Hovione Pharmascience Limited, and Hovione International Limited | 10-K | 001-33093 | March 3, 2011 | 10.102 | |
| 3rd Amendment to Captisol® Supply Agreement, dated January 25, 2008, among CyDex, Inc., Hovione LLC, Hovione FarmaCiencia S.A., Hovione Pharmascience Limited, and Hovione International Limited | 10-K | 001-33093 | March 3, 2011 | 10.103 | |
| 4th Amendment to Captisol® Supply Agreement, dated September 28, 2009, among CyDex Pharmaceuticals, Inc., Hovione LLC, Hovione FarmaCiencia S.A., Hovione Pharmascience Limited and Hovione International Limited | 10-K | 001-33093 | March 3, 2011 | 10.104 | |
| License Agreement, dated September 3, 1993, between CyDex L.C. and The University of Kansas | 10-K | 001-33093 | March 3, 2011 | 10.105 | |
| Second Amendment to License Agreement, dated August 4, 2004, between CyDex, Inc. and The University of Kansas | 10-K | 001-33093 | March 3, 2011 | 10.107 | |
| Acknowledgement Agreement, dated February 22, 2008, between CyDex, Inc. and The University of Kansas | 10-K | 001-33093 | March 3, 2011 | 10.111 | |
| Exclusive License Agreement, dated June 4, 1996, between Pfizer, Inc. and The University of Kansas | 10-K | 001-33093 | March 3, 2011 | 10.108 | |
| Addendum to Nonexclusive License Agreement, dated December 11, 2001, between CyDex, Inc. and Pfizer, Inc. | 10-K | 001-33093 | March 3, 2011 | 10.110 | |
| License Agreement, dated January 4, 2006, between CyDex, Inc. and Prism Pharmaceuticals, Inc. | 10-K | 001-33093 | March 3, 2011 | 10.112 | |
| Amendment to License Agreement, dated May 12, 2006, between CyDex, Inc. and Prism Pharmaceuticals, Inc. | 10-K | 001-33093 | March 3, 2011 | 10.113 | |
| Supply Agreement, dated March 5, 2007, between CyDex, Inc. and Prism Pharmaceuticals, Inc. | 10-K | 001-33093 | March 3, 2011 | 10.114 | |
| License and Supply Agreement, dated October 12, 2005, between CyDex Pharmaceuticals, Inc. and Proteolix, Inc. | 10-K | 000-28298 | February 23, 2010 | 10.22 | |
| Supply Agreement, dated June 13, 2011 by and between CyDex Pharmaceuticals, Inc. and Merck Sharp & Dohme Corporation | 10-Q/A | 001-33093 | November 2, 2017 | 10.26 | |
| License Agreement, by and between CyDex Pharmaceuticals, Inc. and Spectrum Pharmaceuticals, Inc., dated as of March 8, 2013 | 10-Q | 001-33093 | May 8, 2013 | 10.2 | |
| Supply Agreement, by and between CyDex Pharmaceuticals, Inc. and Spectrum Pharmaceuticals, Inc., dated as of March 8, 2013 | 10-Q | 001-33093 | May 8, 2013 | 10.3 | |
| Royalty Stream and Milestone Payments Purchase Agreement, dated April 29, 2013, between the Company and Selexis S.A. | 10-Q | 001-33093 | August 1, 2013 | 10.2 | |
| Amendment of “General” Contingent Value Rights Agreement dated May 20, 2014 among the Company, Metabasis Therapeutics, Inc., David F. Hale and Computershare Inc. | 8-K | 001-33093 | May 22, 2014 | 10.1 | |
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| Amendment of “TR Beta” Contingent Value Rights Agreement dated May 20, 2014 among the Company, Metabasis Therapeutics, Inc., David F. Hale and Computershare, Inc. | 8-K | 001-33093 | May 22, 2014 | 10.2 | |
| Loan and Security Agreement dated May 21, 2014 between the Company and Viking Therapeutics, Inc. | 10-Q | 001-33093 | August 5, 2014 | 10.1 | |
| Master License Agreement dated May 21, 2014 among the Company, Metabasis Therapeutics, Inc. and Viking Therapeutics, Inc. | 10-Q | 001-33093 | August 5, 2014 | 10.2 | |
| Letter Agreement, dated as of August 12, 2014, between Bank of America, N.A. and the Company regarding the Base Convertible Note Hedge Transaction | 8-K | 001-33093 | August 18, 2014 | 10.1 | |
| Letter Agreement, dated as of August 12, 2014, between Bank of America, N.A. and the Company regarding the Base Issuer Warrant Transaction | 8-K | 001-33093 | August 18, 2014 | 10.2 | |
| Letter Agreement, dated as of August 12, 2014, between Deutsche Bank AG, London Branch and the Company regarding the Base Convertible Bond Hedge Transaction | 8-K | 001-33093 | August 18, 2014 | 10.3 | |
| Letter Agreement, dated as of August 12, 2014, between Deutsche Bank AG, London Branch and the Company regarding the Base Issuer Warrant Transaction | 8-K | 001-33093 | August 18, 2014 | 10.4 | |
| Letter Agreement, dated as of August 14, 2014, between Bank of America, N.A. and the Company regarding the Additional Convertible Bond Hedge Transaction | 8-K | 001-33093 | August 18, 2014 | 10.5 | |
| Letter Agreement, dated as of August 14, 2014, between Bank of America, N.A. and the Company regarding the Additional Issuer Warrant Transaction | 8-K | 001-33093 | August 18, 2014 | 10.6 | |
| Letter Agreement, dated as of August 14, 2014, between Deutsche Bank AG, London Branch and the Company regarding the Additional Convertible Bond Hedge Transaction | 8-K | 001-33093 | August 18, 2014 | 10.7 | |
| Letter Agreement, dated as of August 14, 2014, between Deutsche Bank AG, London Branch and the Company regarding the Additional Issuer Warrant Transaction | 8-K | 001-33093 | August 18, 2014 | 10.8 | |
| First Amendment to Master License Agreement dated September 6, 2014 among the Company, Metabasis Therapeutics, Inc. and Viking Therapeutics, Inc. | 10-Q | 001-33093 | October 31, 2014 | 10.9 | |
| Second Amendment to Master License Agreement, dated April 8, 2015, among the Company, Metabasis Therapeutics, Inc. and Viking Therapeutics, Inc. | 10-Q | 001-33093 | August 5, 2015 | 10.1 | |
| First Amendment to Loan and Security Agreement, dated April 8, 2015, among the Company, Metabasis Therapeutics, Inc. and Viking Therapeutics, Inc. | 10-Q | 001-33093 | August 5, 2015 | 10.2 | |
| Amendment No. 4 to Sublicense Agreement, dated September 17, 2015, among the Company, Pharmacopeia, LLC and Retrophin, Inc. | 10-Q/A | 001-33093 | December 23, 2015 | 10.1 | |
| Lease, dated November 3, 2015, between the Company and 3911/3931 SVB, LLC | 8-K | 001-33093 | November 10, 2015 | 10.1 | |
| Amended and Restated Director Compensation and Stock Ownership Policy, effective as of March 2014 | 10-Q | 001-33093 | November 14, 2016 | 10.1 | |
| Interest Purchase Agreement, dated May 3, 2016, between the Company and CorMatrix Cardiovascular, Inc. | 8-K/A | 001-33093 | May 9, 2016 | 10.1 | |
| Second Amendment to Loan and Security Agreement, dated January 22, 2016, between the Company and Viking Therapeutics, Inc. | 10-Q/A | 001-33093 | November 14, 2016 | 10.1 | |
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| FormContingent Value Rights Agreement, dated as of IndemnificationSeptember 30, 2020, by and between Ligand Pharmaceuticals Incorporated and American Stock Transfer & Trust Company, LLC | 10-Q | 001-33093 | November 6, 2020 | 2.5 | |
| Captisol® Supply Agreement, dated December 20, 2002, among CyDex, Inc., Hovione LLC, Hovione FarmaCiencia S.A., Hovione Pharmascience Limited and Hovione International Limited | 10-K | 001-33093 | March 3, 2011 | 10.1 | |
| 1st Amendment to Captisol® Supply Agreement, dated July 29, 2005, among CyDex, Inc., Hovione LLC, Hovione FarmaCiencia S.A., Hovione Pharmascience Limited and Hovione International Limited | 10-K | 001-33093 | March 3, 2011 | 10.101 | |
| 2nd Amendment to Captisol® Supply Agreement, dated March 1, 2007, among CyDex, Inc., Hovione LLC, Hovione FarmaCiencia S.A., Hovione Pharmascience Limited, and Hovione International Limited | 10-K | 001-33093 | March 3, 2011 | 10.102 | |
| 3rd Amendment to Captisol® Supply Agreement, dated January 25, 2008, among CyDex, Inc., Hovione LLC, Hovione FarmaCiencia S.A., Hovione Pharmascience Limited, and Hovione International Limited | 10-K | 001-33093 | March 3, 2011 | 10.103 | |
| 4th Amendment to Captisol® Supply Agreement, dated September 28, 2009, among CyDex Pharmaceuticals, Inc., Hovione LLC, Hovione FarmaCiencia S.A., Hovione Pharmascience Limited and Hovione International Limited | 10-K | 001-33093 | March 3, 2011 | 10.104 | |
| License Agreement, dated September 3, 1993, between CyDex L.C. and The University of Kansas | 10-K | 001-33093 | March 3, 2011 | 10.105 | |
| First Amendment to License Agreement, dated August 4, 2004, between CyDex, Inc. and The University of Kansas | 10-K | 001-33093 | March 3, 2011 | 10.106 | |
| Second Amendment to License Agreement, dated August 4, 2004, between CyDex, Inc. and The University of Kansas | 10-K | 001-33093 | March 3, 2011 | 10.107 | |
| Acknowledgement Agreement, dated February 22, 2008, between CyDex, Inc. and The University of Kansas | 10-K | 001-33093 | March 3, 2011 | 10.111 | |
| Exclusive License Agreement, dated June 4, 1996, between Pfizer, Inc. and The University of Kansas | 10-K | 001-33093 | March 3, 2011 | 10.108 | |
| Addendum to Nonexclusive License Agreement, dated December 11, 2001, between CyDex, Inc. and Pfizer, Inc. | 10-K | 001-33093 | March 3, 2011 | 10.11 | |
| Amendment to License Agreement, dated May 12, 2006, between CyDex, Inc. and Prism Pharmaceuticals, Inc. | 10-K | 001-33093 | March 3, 2011 | 10.113 | |
| Supply Agreement, dated March 5, 2007, between CyDex, Inc. and Prism Pharmaceuticals, Inc. | 10-K | 001-33093 | March 3, 2011 | 10.114 | |
| License and Supply Agreement, dated October 12, 2005, between CyDex Pharmaceuticals, Inc. and Proteolix, Inc. | 10-K | 000-28298 | February 23, 2010 | 10.22 | |
| License Agreement, by and between CyDex Pharmaceuticals, Inc. and Spectrum Pharmaceuticals, Inc., dated as of March 8, 2013 | 10-Q | 001-33093 | May 8, 2013 | 10.2 | |
| Supply Agreement, by and between CyDex Pharmaceuticals, Inc. and Spectrum Pharmaceuticals, Inc., dated as of March 8, 2013 | 10-Q | 001-33093 | May 8, 2013 | 10.3 | |
| Royalty Stream and Milestone Payments Purchase Agreement, dated April 29, 2013, between the Company and each of its directorsSelexis S.A. | 10-Q | 001-33093 | August 1, 2013 | 10.2 | X |
| Form of IndemnificationMaster License Agreement betweendated May 21, 2014 among the Company, Metabasis Therapeutics, Inc. and each of its officersViking Therapeutics, Inc. | 10-Q | 001-33093 | August 5, 2014 | 10.2 | X |
| Subsidiaries of the Company | | | | | X |
| Consent of independent registered public accounting firm-Ernst & Young LLP | | | | | X |
| Consent of independent registered public accounting firm-Grant Thornton LLP | | | | | X |
| 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. | | | | | X |
| 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. | | | | | X |
| 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. | | | | | X |
101.INS | XBRL Instance Document. | | | | | |
101.SCH | XBRL Taxonomy Extension Schema Document. | | | | | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | | | | | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | | | | | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | | | | | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | | | | | |
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| Letter Agreement, dated as of August 12, 2014, between Bank of America, N.A. and the Company regarding the Base Issuer Warrant Transaction | 8-K | 001-33093 | August 18, 2014 | 10.2 | |
| Letter Agreement, dated as of August 12, 2014, between Deutsche Bank AG, London Branch and the Company regarding the Base Issuer Warrant Transaction | 8-K | 001-33093 | August 18, 2014 | 10.4 | |
| Letter Agreement, dated as of August 14, 2014, between Bank of America, N.A. and the Company regarding the Additional Issuer Warrant Transaction | 8-K | 001-33093 | August 18, 2014 | 10.6 | |
| Letter Agreement, dated as of August 14, 2014, between Deutsche Bank AG, London Branch and the Company regarding the Additional Issuer Warrant Transaction | 8-K | 001-33093 | August 18, 2014 | 10.8 | |
| First Amendment to Master License Agreement dated September 6, 2014 among the Company, Metabasis Therapeutics, Inc. and Viking Therapeutics, Inc. | 10-Q | 001-33093 | October 31, 2014 | 10.9 | |
| Second Amendment to Master License Agreement, dated April 8, 2015, among the Company, Metabasis Therapeutics, Inc. and Viking Therapeutics, Inc. | 10-Q | 001-33093 | August 5, 2015 | 10.1 | |
| Development Funding and Royalties Agreement, dated December 13, 2018, by and between Ligand Pharmaceuticals Incorporated and Palvella Therapeutics, Inc. | 10-K | 001-33093 | February 28, 2019 | 10.48 | |
| Sublicense Agreement between the Company, Pharmacopeia, Inc. and Retrophin LLC dated as of February 16, 2012, as amended through Amendment No. 5 to Sublicense Agreement, dated March 20, 2018. | 10-K | 001-33093 | February 27, 2020 | 10.42 | |
| Lease, dated November 3, 2015, between the Company and 3911/3931 SVB, LLC | 8-K | 001-33093 | November 10, 2015 | 10.1 | |
| Interest Purchase Agreement, dated May 3, 2016, between the Company and CorMatrix Cardiovascular, Inc. | 8-K/A | 001-33093 | May 9, 2016 | 10.1 | |
| Amended and Restated Interest Purchase Agreement, dated May 31, 2017, between the Company and CorMatrix Cardiovascular, Inc. | 10-Q | 001-033093 | August 9, 2017 | 10.2 | |
| Letter Agreement, dated as of May 17, 2018, between Barclays Capital Inc. and the Company regarding the Base Convertible Note Hedge Transaction | 8-K | 001-00393 | May 22, 2018 | 10.1 | |
| Letter Agreement, dated as of May 17, 2018, between Barclays Capital Inc. and the Company regarding the Base Warrant Transaction | 8-K | 001-00393 | May 22, 2018 | 10.2 | |
| Letter Agreement, dated as of May 17, 2018, between Deutsche Bank AG and the Company regarding the Base Convertible Note Hedge Transaction | 8-K | 001-00393 | May 22, 2018 | 10.3 | |
| Letter Agreement, dated as of May 17, 2018, between Deutsche Bank AG and the Company regarding the Base Warrant Transaction | 8-K | 001-00393 | May 22, 2018 | 10.4 | |
| Letter Agreement, dated as of May 17, 2018, between Goldman Sachs & Co. LLC and the Company regarding the Base Convertible Note Hedge Transaction | 8-K | 001-00393 | May 22, 2018 | 10.5 | |
| Letter Agreement, dated as of May 17, 2018, between Goldman Sachs & Co. LLC and the Company regarding the Base Warrant Transaction | 8-K | 001-00393 | May 22, 2018 | 10.6 | |
| Letter Agreement, dated as of May 18, 2018, between Barclays Capital Inc. and the Company regarding the Additional Convertible Note Hedge Transaction | 8-K | 001-00393 | May 22, 2018 | 10.7 | |
| Letter Agreement, dated as of May 18, 2018, between Barclays Capital Inc. and the Company regarding the Additional Warrant Transaction | 8-K | 001-00393 | May 22, 2018 | 10.8 | |
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| Letter Agreement, dated as of May 18, 2018, between Deutsche Bank AG and the Company regarding the Additional Convertible Note Hedge Transaction | 8-K | 001-00393 | May 22, 2018 | 10.9 | |
| Letter Agreement, dated as of May 18, 2018, between Deutsche Bank AG and the Company regarding the Additional Warrant Transaction | 8-K | 001-00393 | May 22, 2018 | 10.10 | |
| Letter Agreement, dated as of May 18, 2018, between Goldman Sachs & Co. LLC and the Company regarding the Additional Convertible Note Hedge Transaction | 8-K | 001-00393 | May 22, 2018 | 10.11 | |
| Letter Agreement, dated as of May 18, 2018, between Goldman Sachs & Co. LLC and the Company regarding the Additional Warrant Transaction | 8-K | 001-00393 | May 22, 2018 | 10.12 | |
| Platform License Agreement, dated March 23, 2015, by and between Open Monoclonal Technology, Inc. and WuXi AppTec Biopharmaceuticals Co., Ltd. | 10-Q | 001-33093 | August 8, 2018 | 10.13 | |
| Amendment Number 1 to Platform License Agreement, dated June 11, 2017, by and between Open Monoclonal Technology, Inc. and WuXi Biologics (Hong Kong) Limited (as successor-in-interest to WuXi AppTec Biopharmaceuticals Co., Ltd.) | 10-Q | 001-33093 | August 8, 2018 | 10.14 | |
| Amendment Number 2 to Platform License Agreement, dated June 25, 2018, by and between Open Monoclonal Technology, Inc. and WuXi Biologics Ireland Limited (as successor-in-interest to WuXi Biologics (Hong Kong) Limited). | 10-Q | 001-33093 | August 8, 2018 | 10.15 | |
| Form of Indemnification Agreement between the Company and each of its directors | 10-K | 001-33093 | March 1, 2018 | 10.60 | |
| Form of Indemnification Agreement between the Company and each of its officers | 10-K | 001-33093 | March 1, 2018 | 10.60 | |
| Addendum, dated May 22, 2019, by and among Ligand Pharmaceuticals Incorporated, CyDex Pharmaceuticals, Inc., and Acrotech Biopharma LLC (as successor-in-interest to Spectrum Pharmaceuticals, Inc.), to that certain License Agreement between Ligand Pharmaceuticals Incorporated and Spectrum Pharmaceuticals, Inc., dated March 8, 2013 | 10-Q | 001-33093 | August 8, 2019 | 10.1 | |
| Call Option Amendment Agreed, dated April 6, 2020, between the Registrant and Barclays Bank PLC | 10-Q | 001-33093 | May 8, 2020 | 10.1 | |
| Call Option Amendment Agreed, dated April 6, 2020, between the Registrant and Deutsche Bank AG, London Branch | 10-Q | 001-33093 | May 8, 2020 | 10.2 | |
| Call Option Amendment Agreed, dated April 6, 2020, between the Registrant and Goldman Sachs & Co. LLC | 10-Q | 001-33093 | May 8, 2020 | 10.3 | |
| Call Option Amendment Agreed, dated January 28, 2021, between the Registrant and Barclays Bank PLC | | | | | X |
| Call Option Amendment Agreed, dated January 28, 2021, between the Registrant and Deutsche Bank AG, London Branch | | | | | X |
| Call Option Amendment Agreed, dated January 28, 2021, between the Registrant and Goldman Sachs & Co. LLC | | | | | X |
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| Contingent Value Rights Agreement, dated September 9, 2020, between Ligand Pharmaceuticals Incorporated and Vaughn Smider, as Members' Representative (regarding Taurus Biosciences, LLC acquisition) (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on September 10, 2020) | 10-Q | 001-33093 | November 6, 2020 | 2.4 | |
| Commercial License Agreement, dated September 9, 2020, between Taurus Biosciences, LLC and Minotaur Therapeutics, Inc. (incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on September 10, 2020) | 10-Q | 001-33093 | November 6, 2020 | 10.1 | |
| Supply agreement, dated December 22, 2015, by and between Cydex Pharmaceuticals, Inc. and Gilead Sciences, Inc. | | | | | X |
| Amendment to Supply Agreement, dated September 21, 2020, by and between Cydex Pharmaceuticals, Inc. and Gilead Sciences, Inc., which amends that certain Supply Agreement, dated December 2, 2015, by and between Cydex Pharmaceuticals, Inc. and Gilead Sciences, Inc. | 10-Q | 001-33093 | November 6, 2020 | 10.2 | |
| Subsidiaries of the Company | | | | | X |
| Consent of Independent Registered Public Accounting Firm | | | | | X |
| 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. | | | | | X |
| 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. | | | | | X |
| 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. | | | | | X |
| 101 | The following financial information from our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, formatted in iXBRL (inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statement of Comprehensive Income, (iv) Consolidated Statements of Stockholders' Equity, (v) Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements. | | | | | X |
| 104 | The cover page from the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020, formatted in Inline XBRL and contained in Exhibit 101. | | | | | X |
† Confidential treatment has been requested for portions of this exhibit. These portions have been omitted and submitted separately to the Securities and Exchange Commission.
# Indicates management contract or compensatory plan.
* Certain schedules and annexes have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or annex will be furnished as a supplement to the U.S. Securities and Exchange Commission upon request.
| | | | | |
†Item 16. | Confidential treatment has been requested for portions of this exhibit. These portions have been omitted and submitted separately to the Securities and Exchange Commission.Form 10-K Summary |
| |
# | Indicates management contract or compensatory plan. |
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | |
| LIGAND PHARMACEUTICALS INCORPORATED |
| |
LIGAND PHARMACEUTICALS INCORPORATED |
| |
| By: | /S/ JOHN L. HIGGINS |
| John L. Higgins, |
| Chief Executive Officer |
Date: March 1, 2018February 24, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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| Signature | | Title | | Date |
| | | | |
/s/ JOHN L. HIGGINS | | Chief Executive Officer and Director (Principal Executive Officer) | | February 24, 2021 |
| John L. Higgins | | |
| | | | |
Signature | | Title | | Date |
| | | | |
/s/ JOHN L. HIGGINS
| | Chief Executive Officer and Director (Principal Executive Officer) | | March 1, 2018 |
John L. Higgins | | |
| | | | |
| /s/ MATTHEW KORENBERG | | Executive Vice President, Finance and Chief Financial Officer (Principal Financial and Accounting Officer) | | March 1, 2018February 24, 2021 |
| Matthew Korenberg | | |
| | | | |
| /s/ JOHN W. KOZARICH | | Director and Chairman of the Board | | February 24, 2021 |
| John W. Kozarich | | |
| | | | |
| /s/ JASON M. ARYEH | | Director | | February 24, 2021 |
| Jason M. Aryeh | | |
| | | | |
| /s/ SARAH BOYCE | | Director | | February 24, 2021 |
| Sarah Boyce | | |
| | | | |
| /s/ TODD C. DAVIS | | Director | | March 1, 2018February 24, 2021 |
| Todd C. Davis | | |
| | | | |
| /s/ NANCY R. GRAY | | Director | | February 24, 2021 |
| Nancy R. Gray | | |
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| /s/ JOHN L. LAMATTINA | | Director | | February 24, 2021 |
| John L. LaMattina | | |
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| /s/ SUNIL PATEL | | Director | | March 1, 2018February 24, 2021 |
| Sunil Patel | | |
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| /s/ STEPHEN L. SABBA | | Director | | March 1, 2018February 24, 2021 |
| Stephen L. Sabba | | |
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/s/ JOHN W. KOZARICH | | Director | | March 1, 2018 |
John W. Kozarich | | |
| | | | |
/s/ JOHN L. LAMATTINA | | Director | | March 1, 2018 |
John L. Lamattina | | |
| | | | |
/s/ JASON M. ARYEH | | Director | | March 1, 2018 |
Jason M. Aryeh | | |
| | | | |
/s/ NANCY R. GRAY | | Director | | March 1, 2018 |
Nancy R. Gray | | |
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