On August 4, 2016 Ligand Pharmaceuticals Incorporated (NASDAQ: LGND) reported financial results for the three and six months ended June 30, 2016, and provided an operating forecast and program updates (Press release, Ligand, AUG 4, 2016, View Source [SID:1234514247]). Ligand management will host a conference call today beginning at 9:00 a.m. Eastern time to discuss this announcement and answer questions.

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"The past few months have been very active and rewarding with excellent revenue reports from our key licensees and important clinical, regulatory and commercial accomplishments by our partners," said John Higgins, Chief Executive Officer of Ligand. "Royalties are up nearly 50% over a year ago, driven by significant increases for Promacta and Kyprolis. One of our licensed products with the highest royalty rate is EVOMELA, and we are pleased to see its approval and commercial launch over the past few months. The OmniAb platform technology we acquired early this year continues to be validated with new and expanded licensing agreements, and adds considerable value in addition to our growing roster of Captisol-enabled programs. We now have more than 150 shots-on-goal, or fully funded programs partnered or licensed with other companies."

Second Quarter 2016 Financial Results

Total revenues for the second quarter of 2016 were $19.5 million, compared with $18.4 million for the same period in 2015. Royalty revenues were $9.8 million, compared with $6.6 million for the same period in 2015 primarily due to higher royalties from Promacta and Kyprolis. Material sales were $3.9 million, compared with $10.7 million for the same period in 2015 due to timing of Captisol purchases for use in clinical trials and commercial products. License and milestone revenues were $5.9 million, compared with $1.1 million for the same period in 2015 due primarily to the timing of milestones and upfront license fees.

Cost of goods sold was $0.7 million for the second quarter of 2016, compared with $2.6 million for the same period in 2015 due to the timing and mix of Captisol sales. Amortization of intangibles was $2.7 million, compared with $0.6 million for the same period in 2015 due primarily to additional amortization of intangibles related to the acquisition of OMT. Research and development expense was $4.5 million, compared with $3.4 million for the same period of 2015 as a result of timing of spending on internal development programs and non-cash stock-based compensation expense. General and administrative expense was $6.9 million, compared with $7.2 million for the same period in 2015.

GAAP net loss for the second quarter of 2016 was $5.8 million, or $0.28 per share, compared with GAAP net income for the same period of 2015 of $23.6 million, or $1.11 per diluted share. GAAP net loss includes a $10 million non-cash write-down in the value of the Company’s equity holdings of Viking, or $0.48 per share due to its ownership in Viking being reduced from 49% to 33% as a result of Viking’s financing completed during the second quarter. Currently, the Company records the value of Viking shares using the Equity Method, which requires the Company to estimate the dilution to its position upon Viking issuing new shares to third-parties. Adjusted net income for the second quarter of 2016 was $10.8 million, or $0.50 per diluted share, compared with adjusted net income for the same period in 2015 of $38.5 million, or $1.85 per diluted share.

As of June 30, 2016, Ligand had cash, cash equivalents and short-term investments of $107.0 million.

Year-to-Date Financial Results

Total revenues for the six months ended June 30, 2016 were $49.2 million, compared with $33.0 million for the same period in 2015. Royalty revenues were $24.1 million, compared with $16.9 million for the same period in 2015 primarily due to higher royalties from Promacta and Kyprolis. Material sales were $9.2 million, compared with $14.4 million for the same period in 2015 due to timing of Captisol purchases for use in clinical trials and commercial products. License and milestone revenues were $15.8 million, compared with $1.7 million for the same period in 2015 due primarily to the timing of milestones and upfront license fees.

Cost of goods sold was $1.7 million for the six months ended June 30, 2016, compared with $3.7 million for the same period in 2015 due to the timing and mix of Captisol sales. Amortization of intangibles was $5.2 million, compared with $1.2 million for the same period in 2015 due primarily to additional amortization of intangibles related to the acquisition of OMT. Research and development expense was $8.5 million, compared with $6.8 million for the same period of 2015 as a result of timing of spending on internal development programs and non-cash stock-based compensation expense. General and administrative expense was $13.7 million, compared with $13.2 million for the same period in 2015 due to costs associated with OmniAb and non-cash stock-based compensation expense.

GAAP net income for the six months ended June 30, 2016 was $0.8 million, or $0.04 per diluted share, compared with GAAP net income for the same period of 2015 of $24.3 million, or $1.16 per diluted share. GAAP net income includes a $10 million non-cash write-down in the value of the Company’s equity holdings of Viking, or $0.44 per share due to its ownership in Viking being reduced as a result of Viking’s financing completed during the second quarter. Adjusted net income for the six months ended June 30, 2016 was $31.8 million, or $1.47 per diluted share, compared with adjusted net income for the same period in 2015 of $45.4 million, or $2.19 per diluted share.

Financial Forecast

The Company affirms expectations for full-year 2016 total revenues to be between $115 million and $119 million, and adjusted earnings per diluted share to be between $3.41 and $3.46. Second half total revenues are projected to be in the range of $66 million to $70 million, and adjusted earnings per share are projected to be in the range of $1.94 to $1.99.

The adjusted earnings per diluted share guidance excludes non-cash stock-based compensation expense, non-cash debt-related costs, amortization related to acquisitions, changes in contingent liabilities, non-cash net losses of Viking Therapeutics equity, mark-to-market adjustment for amounts owed to licensors, fair value adjustments to Viking Therapeutics convertible note receivable and warrants, non-cash tax benefit (expense), unissued shares related to the anti-dilutive effect of second quarter 2016 GAAP net loss, unissued shares relating to the Senior Convertible Note and adjustments for discontinued operations, net of non-cash tax expense.

Second Quarter 2016 and Recent Business Highlights

Portfolio Program Progress

Promacta/Revolade

Novartis announced Q2 2016 net sales of Promacta (eltrombopag) of $158 million, a $27 million or 21% increase over Q1 2016. This is the largest quarter-over-quarter increase in net sales and comes one year after Novartis’s acquisition of the product from GSK in early 2015.
The European Commission approved Revolade (eltrombopag), a Novartis product, for the treatment of pediatric (age 1 and above) chronic immune (idiopathic) thrombocytopenic purpura (ITP) patients who are refractory to other treatments (e.g., corticosteroids, immunoglobulins). The approval includes the use of tablets as well as a new oral suspension formulation of Revolade, which is designed for younger children who may not be able to swallow tablets.
Kyprolis (carfilzomib), an Amgen Product Utilizing Captisol

On July 3, 2016, Amgen announced that the European Commission approved an expanded indication for Kyprolis (carfilzomib), to be used in combination with dexamethasone alone, for adult patients with multiple myeloma who have received at least one prior therapy.
On July 4, 2016, Ono Pharmaceuticals, holder of Kyprolis (carfilzomib) marketing rights in Japan, announced approval in Japan for treatment of patients with relapsed or refractory multiple myeloma.
On May 26, 2016, Amgen announced that the Kyprolis Global Economic Model (K-GEM) was published in the Journal of Medical Economics showing that in the United States, Kyprolis (carfilzomib) in combination with lenalidomide and dexamethasone is cost-effective compared with lenalidomide and dexamethasone alone in patients with relapsed or refractory multiple myeloma and demonstrated an incremental cost-effectiveness ratio of $107,250 per Quality-Adjusted Life Year.
Additional Pipeline and Partner Developments

Spectrum Pharmaceuticals announced that the FDA granted seven years of Orphan Drug Exclusivity for EVOMELA for use as a high-dose conditioning treatment prior to hematopoietic progenitor (stem) cell transplantation in patients with multiple myeloma.
Coherus BioSciences announced data demonstrating the equivalence of its etanercept biosimilar (CHS-0214) to Enbrel (etanercept), the reference product, with respect to efficacy as measured by the primary endpoint, ACR20 at 24 weeks.
Sage Therapeutics presented data that expanded scientific, clinical and burden-of-illness data for SAGE-547 at the 68th American Academy of Neurology Annual Meeting. Data from the open-label Phase 1/2 trial of SAGE-547 in super-refractory status epilepticus (SRSE) demonstrated that the 77% key efficacy endpoint response rate was not related to age, gender, ethnicity, co-morbid medical condition or underlying antiepileptic or third-line agents. Additional data presented illustrated that SRSE has a high burden of illness with significant morbidity, lengthy hospitalizations and significant utilization of ICU and overall hospital resources.
Oncobiologics announced that its Phase 3 clinical plan for ONS-3010 (Humira biosimilar) received the first of its European Union clinical trial authorization approvals, including in the United Kingdom, Germany and Spain, for the biosimilarity study portion of the Phase 3 clinical program.
Viking Therapeutics highlighted positive data from a Phase 1b trial of VK2809 (TR Beta) in subjects with mild hypercholesterolemia at the 65th Annual Scientific Session and Expo of the American College of Cardiology.
Viking Therapeutics announced positive top-line results from a proof-of-concept study of VK0214 in a mouse model of X-linked adrenoleukodystrophy (X-ALD), showing that VK0214 rapidly reduced plasma very long chain fatty acid levels by more than 25% in treated animals compared with vehicle controls (p < 0.01).
Merrimack Pharmaceuticals announced that the FDA granted seribantumab (MM-121) Fast Track designation for development in patients with heregulin-positive, locally advanced or metastatic non-small cell lung cancer (NSCLC) whose disease has progressed following immunotherapy.
Merrimack Pharmaceuticals announced initiation of a Phase 1 study of MM-151 in combination with ONIVYDE plus fluorouracil (5-FU) and Leucovorin in patients with RAS wild-type metastatic colorectal cancer, as well as the initiation of a biomarker-selected, multi-arm Phase 1 study for MM-151/MM-121 in metastatic colorectal, NSCLC and head and neck cancer that uses a combination of genetic and nongenetic biomarkers to match patients to appropriate novel combinations of investigational drug regimens based on their cancer’s molecular signature.
Millennium/Takeda highlighted Phase 1b data on pevonedistat + chemotherapy at the 2016 ASCO (Free ASCO Whitepaper) meeting.
Opthea announced that the Phase 1 dose-escalation study of OPT-302 met its primary objective demonstrating safety and tolerability as monotherapy and in combination with the current wet AMD standard of care Lucentis. Opthea is currently recruiting patients for its Phase 2a dose-expansion trial and expects data by the end of 2016.
Upsher-Smith announced that it commenced the first clinical study of its CXCR4 antagonist USL311 in patients with advanced solid tumors, triggering a $500,000 milestone payment to Ligand.
Marinus Pharmaceuticals announced that the FDA granted Orphan Drug designation to ganaxalone IV for the treatment of status epilepticus and that the company dosed the first subject in its Phase 1 clinical trial for the program.
An OmniAb licensee broadened its access to the platform by adding OmniFlic. Prior to the option exercise, this licensee’s access to the OmniAb technology was limited to OmniRat.
Wuxi out-licensed China rights to an undisclosed IND-ready antibody it discovered with the OmniAb platform and its sub-licensee will be responsible for all future costs related to the program.
Eli Lilly added a drug candidate to its Captisol platform license and supply agreement, first entered into in December of 2011.
New Licensing Deals

Ligand announced a license agreement for its LTP technology with Nucorion Pharmaceuticals, a venture-funded biotechnology company focused on developing anti-cancer and anti-viral agents initially directed to China, of which Ligand is a minority shareholder. Three initial programs fall under the license: NUC-202, a targeted anti-cancer analog for the treatment of hepatocellular carcinoma; NUC-404, a targeted nucleotide analog for the treatment of hepatitis B; and NUC-101, a targeted nucleotide analog for the treatment of hepatitis C. Ligand is eligible to receive milestones in addition to royalties ranging from 5% to 9% on future net sales of any approved program.
Ligand announced a worldwide license agreement with Gilead Sciences that allows Gilead to use the OmniAb platform to discover fully human mono- and bispecific antibodies. Ligand is eligible to receive annual access payments, milestone payments and royalties on future net sales of any antibodies discovered under the license.
Ligand entered a worldwide license agreement with F-Star Biotechnology Limited that allows F-Star to use the OmniAb platform to discover fully human mono- and bispecific antibodies. Ligand is eligible to receive annual access payments, milestone payments and royalties on future net sales of any antibodies discovered under the license.
Internal Glucagon Receptor Antagonist (GRA) Program

Ligand scientists gave an oral presentation on GRA at ENDO 2016 and presented a poster at the Levine-Riggs Diabetes Research Symposium, which highlighted data from the Phase 1b trial demonstrating that GRA significantly reduced fasting and post-prandial glucose in subjects with type 2 diabetes. Ligand expects to initiate a Phase 2 trial for the program in Q3 2016.
Recent Acquisitions

In May 2016, Ligand acquired economic rights to multiple programs owned by CorMatrix. Ligand paid $17.5 million to receive a portion of revenue from CorMatrix’s existing marketed products and will have the right to receive future royalties from potential future products.
Adjusted Financial Measures

The adjusted financial measures discussed above and in the tables below for the three and six months ended June 30, 2016 and 2015 exclude non-cash stock-based compensation expense, non-cash debt-related costs, amortization related to acquisitions, changes in contingent liabilities, non-cash net losses of Viking Therapeutics equity, mark-to-market adjustment for amounts owed to licensors, fair value adjustments to Viking Therapeutics convertible note receivable and warrants, non-cash tax benefit (expense), unissued shares related to the anti-dilutive effect of second quarter 2016 GAAP net loss, unissued shares relating to the Senior Convertible Note and adjustments for discontinued operations, net of non-cash tax expense.

Management has presented net income, net income per share in accordance with GAAP and on an adjusted basis. Ligand believes the presentation of adjusted financial measures provides useful supplementary information to investors and reflects amounts that are more closely aligned with the cash profits for the period. Ligand uses these adjusted financial measures in connection with its own budgeting and financial planning. These adjusted financial measures are in addition to, and not a substitute for, or superior to, measures of financial performance prepared in conformity with GAAP.