Notes to Condensed Consolidated Financial Statements
(Unaudited)
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
Basis of Presentation
Our condensed consolidated financial statements include the financial statements of Ligand and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. We have included all adjustments, consisting only of normal recurring adjustments, which we considered necessary for a fair presentation of our financial results. These unaudited condensed consolidated financial statements and accompanying notes should be read together with the audited consolidated financial statements included in our 2020 Annual Report. Interim financial results are not necessarily indicative of the results that may be expected for the full year.
Reclassifications
Certain amounts in the prior period condensed consolidated financial statements have been reclassified to conform with the current period presentation. Specifically, “contract revenue” and “service revenue” presented in the condensed consolidated statement of operations for the three months ended March 31, 2020 have been combined into “contract revenue” in the condensed consolidated statement of operations to conform with the current period presentation. In addition, “gain (loss) from Viking” and a portion of “other expense, net” that related to other short-term investments presented in the condensed consolidated statement of operations for the three months ended March 31, 2020 have been combined into “gain (loss) from short-term investments” in the condensed consolidated statement of operations to conform with the current period presentation.
Significant Accounting Policies
We have described our significant accounting policies in Note 1, Basis of Presentation and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements in our 2020 Annual Report.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with 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 estimates.
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. In addition, certain of our OmniAb 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 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, 2021, including interim periods within those fiscal years. Early adoption is 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 this standard on our consolidated financial statements and related disclosures. We intend 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 condensed consolidated financial statements or disclosures.
Revenue
Our revenue is generated primarily from royalties on sales of products commercialized by our partners, Captisol material sales, and contract revenue for services, license fees and development, regulatory and sales based milestone payments.
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 the product is sold. Our partners generally report sales information to us on a one quarter lag. Thus, we estimate the expected royalty proceeds based on an analysis of historical experience and interim data provided by our partners including their publicly announced sales. Differences between actual and estimated royalty revenues are adjusted for in the period in which they become known, typically the following quarter.
Contract Revenue
Our contract revenue includes service revenue, license fees and future 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 we estimate it will take us to complete the activities, or costs we 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 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 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 when 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 or after the development milestone or regulatory approval.
Captisol Sales
We recognize revenue when control of Captisol material 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 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 or 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 for 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 incremental costs of obtaining a contract during the periods reported.
Deferred Revenue
Depending on the terms of the arrangement, we may also defer a portion of the consideration received because 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.
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 consolidated balance sheet. Except for royalty revenue and certain service revenue, we generally receive payment at the point we satisfy our obligation or soon after. Therefore, we do not generally carry a contract asset balance. Any fees billed in advance of being earned are recorded as deferred revenue. During the three months ended March 31, 2021, the amount recognized as revenue that was deferred at December 31, 2020 was $7.3 million. During the three months ended March 31, 2020, the amount recognized as revenue that was deferred at December 31, 2019 was $1.0 million.
Disaggregation of Revenue
The following table represents disaggregation of royalties, Captisol and contract revenue (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31,
|
|
|
2021
|
|
2020
|
Royalties
|
|
|
|
|
Kyprolis
|
$
|
4,287
|
|
|
$
|
4,405
|
|
|
Evomela
|
2,333
|
|
|
1,576
|
|
|
Other
|
492
|
|
|
584
|
|
|
|
$
|
7,112
|
|
|
$
|
6,565
|
|
|
|
|
|
Captisol
|
|
$
|
31,272
|
|
|
$
|
21,109
|
|
|
|
|
|
|
Contract revenue
|
|
|
|
|
Service Revenue
|
$
|
5,462
|
|
|
$
|
3,357
|
|
|
License Fees
|
1,043
|
|
|
975
|
|
|
Milestone
|
8,417
|
|
|
334
|
|
|
Other
|
1,844
|
|
|
821
|
|
|
|
$
|
16,766
|
|
|
$
|
5,487
|
|
|
|
|
|
|
Total
|
$
|
55,150
|
|
|
$
|
33,161
|
|
Short-term Investments
Our short-term investments consist of the following at March 31, 2021 and December 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
Amortized cost
|
|
Gross unrealized gains
|
|
Gross unrealized losses
|
|
Estimated fair value
|
|
Amortized cost
|
|
Gross unrealized gains
|
|
Gross unrealized losses
|
|
Estimated fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank deposits
|
$
|
51,232
|
|
|
$
|
25
|
|
|
$
|
(4)
|
|
|
$
|
51,253
|
|
|
$
|
84,120
|
|
|
$
|
35
|
|
|
$
|
(1)
|
|
|
$
|
84,154
|
|
Corporate bonds
|
25,853
|
|
|
72
|
|
|
(8)
|
|
|
25,917
|
|
|
30,512
|
|
|
99
|
|
|
(1)
|
|
|
30,610
|
|
Agency bonds
|
4,501
|
|
|
—
|
|
|
(4)
|
|
|
4,497
|
|
|
4,499
|
|
|
2
|
|
|
—
|
|
|
4,501
|
|
Commercial paper
|
19,815
|
|
|
9
|
|
|
—
|
|
|
19,824
|
|
|
45,459
|
|
|
27
|
|
|
(1)
|
|
|
45,485
|
|
Corporate equity securities
|
4,456
|
|
|
3,736
|
|
|
—
|
|
|
8,192
|
|
|
4,466
|
|
|
360
|
|
|
(1,388)
|
|
|
3,438
|
|
Mutual fund
|
151,830
|
|
|
53
|
|
|
—
|
|
|
151,883
|
|
|
151,512
|
|
|
386
|
|
|
—
|
|
|
151,898
|
|
Treasury bill
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,999
|
|
|
—
|
|
|
—
|
|
|
3,999
|
|
Warrants
|
—
|
|
|
1,422
|
|
|
—
|
|
|
1,422
|
|
|
—
|
|
|
393
|
|
|
—
|
|
|
393
|
|
|
$
|
257,687
|
|
|
$
|
5,317
|
|
|
$
|
(16)
|
|
|
$
|
262,988
|
|
|
$
|
324,567
|
|
|
$
|
1,302
|
|
|
$
|
(1,391)
|
|
|
$
|
324,478
|
|
Viking common stock
|
|
|
|
|
|
|
44,366
|
|
|
|
|
|
|
|
|
32,763
|
|
Viking warrants
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
6,326
|
|
Total short-term investments
|
|
|
|
|
|
|
$
|
307,354
|
|
|
|
|
|
|
|
|
$
|
363,567
|
|
During the three months ended March 31, 2021, we sold 0.3 million shares of Viking and recognized a realized gain of $2.2 million.
During the three months ended March 31, 2021, we exercised all outstanding Viking warrants to purchase 1.5 million shares of Viking's common stock at an exercise price of $1.50 per share. As of March 31, 2021, we have zero Viking warrants outstanding.
Gain (loss) from short-term investments in our condensed consolidated statements of operations includes both realized and unrealized gain (loss) from our short-term investments in public equity and warrant securities.
Allowances are recorded for available-for-sale debt securities with unrealized losses. This limits of the amount of credit losses that can be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized credit losses if fair value increases. The provisions of the credit losses standard did not have a material impact on our available-for-sale debt securities during the three months ended March 31, 2021.
The following table summarizes our available-for-sale debt securities by contractual maturity (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
Amortized Cost
|
|
Fair Value
|
Within one year
|
$
|
77,913
|
|
|
$
|
77,981
|
|
After one year through five years
|
23,488
|
|
|
23,509
|
|
Total
|
$
|
101,401
|
|
|
$
|
101,490
|
|
Our investment policy is capital preservation and we only invested in U.S.-dollar denominated investments. We held a total of 11 positions which were in an unrealized loss position as of March 31, 2021. 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 and it is not more-likely-than-not 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 three months ended March 31, 2021.
Accounts Receivable and Allowance for Credit Losses
Our accounts receivable arise primarily from sales on credit to customers. We establish an allowance for credit losses to present the net amount of accounts receivable expected to be collected. The allowance is determined by using the 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 the three months ended March 31, 2021, 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 $0.02 million of allowance for credit losses as of March 31, 2021.
Inventory
Inventory, which consists of finished goods, is stated at the lower of cost or net realizable value. We determine cost using the first-in, first-out method or the specific identification method.
Goodwill and Other Identifiable Intangible Assets
Goodwill and other identifiable intangible assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
2021
|
|
2020
|
Indefinite-lived intangible assets
|
|
|
|
Goodwill
|
$
|
190,515
|
|
|
$
|
189,662
|
|
Definite lived intangible assets
|
|
|
|
Complete technology
|
277,980
|
|
|
277,740
|
|
Less: accumulated amortization
|
(67,441)
|
|
|
(63,600)
|
|
Trade name
|
2,642
|
|
|
2,642
|
|
Less: accumulated amortization
|
(1,345)
|
|
|
(1,312)
|
|
Customer relationships
|
40,700
|
|
|
40,700
|
|
Less: accumulated amortization
|
(16,264)
|
|
|
(15,597)
|
|
Contractual relationships
|
362,000
|
|
|
362,000
|
|
Less: accumulated amortization
|
(14,487)
|
|
|
(7,243)
|
|
Total goodwill and other identifiable intangible assets, net
|
$
|
774,300
|
|
|
$
|
784,992
|
|
|
|
|
|
Commercial License and Other Economic Rights
Commercial license and other economic rights consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
|
Gross
|
|
Adjustments(1)
|
|
Net
|
|
Gross
|
|
Adjustments(2)
|
|
Net
|
Aziyo and CorMatrix
|
|
$
|
17,696
|
|
|
$
|
(9,530)
|
|
|
$
|
8,166
|
|
|
$
|
17,696
|
|
|
$
|
(9,588)
|
|
|
$
|
8,108
|
|
Selexis and Dianomi
|
|
10,602
|
|
|
(8,317)
|
|
|
2,285
|
|
|
10,602
|
|
|
(7,731)
|
|
|
2,871
|
|
Total
|
|
$
|
28,298
|
|
|
$
|
(17,847)
|
|
|
$
|
10,451
|
|
|
$
|
28,298
|
|
|
$
|
(17,319)
|
|
|
$
|
10,979
|
|
(1) Amounts represent accumulated amortization to principal of $11.9 million and credit loss adjustments of $6.0 million as of March 31, 2021.
(2) Amounts represent accumulated amortization to principal of $11.3 million and credit loss adjustments of $6.0 million as of December 31, 2020.
Commercial license and other economics rights represent a portfolio of future milestone and royalty payment rights acquired from Selexis in April 2013 and April 2015, CorMatrix in May 2016, and Dianomi in January 2019. Commercial license rights acquired are accounted for as financial assets and other economic rights are accounted for as funded research and developments as further discussed below and in Note 1, Basis of Presentation and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements in our 2020 Annual Report.
In May 2017, we entered into a Royalty Agreement with Aziyo pursuant to which we will receive royalties from certain marketed products that Aziyo acquired from CorMatrix. We account for the Aziyo commercial license right as a financial asset, and in accordance with ASC 310, Receivables, we 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 Aziyo as of March 31, 2021 is 23%. Revenue is calculated by multiplying the carrying value of the commercial license right by the effective interest.
The payments received during the three months ended March 31, 2021 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. Starting in 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 March 31, 2021 is 21%. Revenue is calculated by multiplying the carrying value of the commercial license right by the effective interest. The payments received during the three months ended March 31, 2021 were accordingly allocated between revenue and the amortization of the commercial license rights.
We recorded a $5.5 million pre-tax reserve for credit losses upon adoption of the credit losses standard (ASU 2016-13) on January 1, 2020. We estimated the credit losses at the individual asset level by considering the performance against the programs, the company operating performance and the macroeconomic forecast. In addition, we have judgmentally applied credit loss risk factors to the future expected payments with consideration given to the timing of the payment. Given the higher inherent credit risk associated with longer term receivables, we applied a lower risk factor to the earlier years and progressively higher risk factors to the later years. During the three months ended March 31, 2021, we further considered the current and expected future economic and market conditions surrounding novel coronavirus (COVID-19) pandemic and concluded no further adjustment was needed on the allowance for credit losses as of March 31, 2021.
Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
2021
|
|
2020
|
Compensation
|
$
|
3,347
|
|
|
$
|
8,810
|
|
Professional fees
|
958
|
|
|
977
|
|
Amounts owed to former licensees
|
468
|
|
|
421
|
|
Royalties owed to third parties
|
102
|
|
|
693
|
|
Return reserve
|
682
|
|
|
687
|
|
Acquisition related liabilities
|
1,500
|
|
|
1,500
|
|
Subcontractor
|
1,034
|
|
|
733
|
|
Supplier
|
788
|
|
|
604
|
|
Accrued interest
|
1,086
|
|
|
464
|
|
Other
|
2,145
|
|
|
3,641
|
|
Total accrued liabilities
|
$
|
12,110
|
|
|
$
|
18,530
|
|
Share-Based Compensation
Share-based compensation expense for awards to employees and non-employee directors is a non-cash expense and is recognized on a straight-line basis over the vesting period until the last tranche vests. The following table summarizes share-based compensation expense recorded as components of research and development expenses and general and administrative expenses for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
SBC - Research and development expenses
|
$
|
3,939
|
|
|
$
|
2,397
|
|
|
|
|
|
|
|
|
|
SBC - General and administrative expenses
|
4,466
|
|
|
3,256
|
|
|
|
|
|
|
|
|
|
|
$
|
8,405
|
|
|
$
|
5,653
|
|
|
|
|
|
|
|
|
|
The fair-value for options that were awarded to employees and directors was estimated at the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
March 31,
|
|
2021
|
|
2020
|
Risk-free interest rate
|
0.5%
|
|
1.4%
|
Dividend yield
|
—
|
|
—
|
Expected volatility
|
63%
|
|
47%
|
Expected term
|
5.0
|
|
4.7
|
A limited amount of performance-based restricted stock units (PSUs) contain a market condition based on our relative total shareholder return ranked on a percentile basis against the NASDAQ Biotechnology Index over a three-year performance period, with a range of 0% to 200% of the target amount granted to be issued under the award. Share-based compensation cost for these PSUs is measured using the Monte-Carlo simulation valuation model and is not adjusted for the achievement, or lack thereof, of the performance conditions.
Net Income (Loss) Per Share
Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed based on the sum of the weighted average number of common shares and potentially dilutive common shares outstanding during the period.
Potentially dilutive common shares consist of shares issuable under the 2023 Notes, stock options and restricted stock. The 2023 Notes have a dilutive impact when the average market price of our common stock exceeds the applicable conversion price of the respective notes. It is our intent and policy to settle conversions through combination settlement, which 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. 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 and the average amount of unrecognized compensation expense for the awards. See Note 4, Convertible Senior Notes and Note 6, Stockholders’ Equity.
The following table presents the calculation of weighted average shares used to calculate basic and diluted earnings per share (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
March 31,
|
|
2021
|
|
2020
|
Weighted average shares outstanding:
|
16,435
|
|
|
16,529
|
|
Dilutive potential common shares:
|
|
|
|
Restricted stock
|
112
|
|
|
—
|
|
Stock options
|
701
|
|
|
—
|
|
Shares used to compute diluted income per share
|
17,248
|
|
|
16,529
|
|
Potentially dilutive shares excluded from calculation due to anti-dilutive effect
|
4,277
|
|
|
10,144
|
|
|
|
|
|
2. Fair Value Measurements
Assets and Liabilities Measured on a Recurring Basis
The following table presents the hierarchy for our assets and liabilities measured at fair value (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments, excluding Viking(1)
|
|
$
|
8,193
|
|
|
$
|
253,373
|
|
|
$
|
1,422
|
|
|
$
|
262,988
|
|
|
$
|
3,438
|
|
|
$
|
320,647
|
|
|
$
|
393
|
|
|
$
|
324,478
|
|
Investment in Viking common stock
|
|
44,366
|
|
|
—
|
|
|
—
|
|
|
44,366
|
|
|
32,763
|
|
|
—
|
|
|
—
|
|
|
32,763
|
|
Investment in Viking warrants(2)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,326
|
|
|
—
|
|
|
—
|
|
|
6,326
|
|
Total assets
|
|
$
|
52,559
|
|
|
$
|
253,373
|
|
|
$
|
1,422
|
|
|
$
|
307,354
|
|
|
$
|
42,527
|
|
|
$
|
320,647
|
|
|
$
|
393
|
|
|
$
|
363,567
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crystal contingent liabilities(3)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
800
|
|
|
$
|
800
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
800
|
|
|
$
|
800
|
|
CyDex contingent liabilities
|
|
—
|
|
|
—
|
|
|
496
|
|
|
496
|
|
|
—
|
|
|
—
|
|
|
508
|
|
|
508
|
|
Metabasis contingent liabilities(4)
|
|
—
|
|
|
4,182
|
|
|
—
|
|
|
4,182
|
|
|
—
|
|
|
3,821
|
|
|
—
|
|
|
3,821
|
|
Icagen contingent liabilities(5)
|
|
—
|
|
|
—
|
|
|
7,439
|
|
|
7,439
|
|
|
—
|
|
|
—
|
|
|
6,404
|
|
|
6,404
|
|
Pfenex contingent liabilities(6)
|
|
—
|
|
|
—
|
|
|
37,900
|
|
|
37,900
|
|
|
—
|
|
|
—
|
|
|
37,600
|
|
|
37,600
|
|
xCella contingent liabilities(7)
|
|
—
|
|
|
—
|
|
|
240
|
|
|
240
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amounts owed to former licensor
|
|
73
|
|
|
—
|
|
|
—
|
|
|
73
|
|
|
60
|
|
|
—
|
|
|
—
|
|
|
60
|
|
Total liabilities
|
|
$
|
73
|
|
|
$
|
4,182
|
|
|
$
|
46,875
|
|
|
$
|
51,130
|
|
|
$
|
60
|
|
|
$
|
3,821
|
|
|
$
|
45,312
|
|
|
$
|
49,193
|
|
1.Excluding our investment in Viking, our short-term investments in marketable debt and equity securities are classified as available-for-sale securities based on management's intentions and are at 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. Short-term investments in mutual funds are valued at their net asset value (NAV) on the last day of the period. 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 Seelos Therapeutics Inc. milestone payments that were settled in shares during the first quarter of 2019 and are at level 3 of the fair value hierarchy, based on Black Scholes value estimated by management on the last day of the period.
2.Investment in Viking warrants, which we received as a result of Viking’s partial repayment of the Viking note receivable and our purchase of Viking common stock and warrants in April 2016, are classified as level 1 as the fair value is determined using quoted market prices in active markets for the same securities. The change of the fair value is recorded in "Gain (loss) from short-term investments" in our condensed consolidated statement of operations. During the three months ended March 31, 2021, we exercised all of the outstanding Viking warrants.
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. Changes in these estimates may materially affect the fair value.
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 different 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 million of development, regulatory and commercial milestones and tiered royalties on potential future sales including a $10 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. Changes in these estimates may materially affect the fair value.
6.The fair value of Pfenex contingent liabilities 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.
7.The fair value of xCella contingent liabilities is determined when it is probable that the earnout liability will occur and the amount can be reasonably estimated. Management concluded that no earnout liability would be recognized at the acquisition date in September 2020. In the three months ended March 31, 2021, management recorded an earnout liability to be allocated to the cost of the acquired assets due to contingencies being met as part of the acquisition agreement.
A reconciliation of the level 3 financial instruments as of March 31, 2021 is as follows (in thousands):
|
|
|
|
|
|
Fair value of level 3 financial instruments as of December 31, 2020
|
$
|
45,312
|
|
Fair value adjustments to contingent liabilities
|
1,323
|
|
Contingent liabilities from xCella asset acquisition
|
240
|
Fair value of level 3 financial instruments as of March 31, 2021
|
$
|
46,875
|
|
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.
There were no triggering events identified and no indication of impairment of our goodwill, indefinite-lived intangible assets, or long-lived assets during the three months ended March 31, 2021.
3. Acquisitions
Pfenex Acquisition
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 in cash based on a certain specified milestone with an 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 the purchase price was reduced by $1.5 million that was determined to be post-combination expense. 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 market participants' cost of debt reflective of the Company, which was 7.1%. 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.
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 merger agreement. The acceleration of vesting required us to allocate the fair value of the equity 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.
The following table sets forth an allocation of the preliminary purchase price to the identifiable tangible and intangible assets acquired and liabilities assumed, with the excess recorded to goodwill (in thousands):
|
|
|
|
|
|
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)
|
91,837
|
|
Accounts payable
|
(6,814)
|
|
Accrued liabilities
|
(8,455)
|
|
Deferred revenue
|
(3,908)
|
|
Lease liabilities
|
(3,070)
|
|
Other liabilities
|
(1,382)
|
|
Deferred tax liabilities, net
|
(53,296)
|
|
|
$
|
465,109
|
|
(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 Pfenex and expected synergies. None of the goodwill is expected to be deductible for tax purposes.
Acquired intangibles include $362 million of contractual relationships and $23 million of core technology. 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, collaboration and product revenue streams derived from the licensing of the related technologies over the estimated contractual relationship period. The fair value of the contractual relationships is being amortized on a straight-line basis over the weighted average estimated useful life of 12.9 years. 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 total acquired intangibles are being amortized on a straight-line basis over the weighted average estimated useful life of 13.0 years.
The estimated 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 date.
The following summary presents our unaudited pro forma consolidated results of operations for the quarter ended March 31, 2020 as if the Pfenex acquisition had occurred on January 1, 2020, which gives effect to certain transaction accounting adjustments, including amortization of acquired intangibles and share based compensation expense for retained Pfenex employees. The pro forma financial information is not necessarily indicative of the operating results that would have occurred had the acquisition been consummated as of the date indicated, nor is it necessarily indicative of future operating results (in thousands, except per share amounts):
|
|
|
|
|
|
|
Three Months Ended
March 31, 2020
|
Revenue
|
$
|
33,843
|
|
Net loss
|
$
|
(37,939)
|
|
Net loss per common share:
|
|
Basic and diluted
|
$
|
(2.30)
|
|
Taurus Acquisition
On September 9, 2020, we acquired Taurus, which discovers and develops novel antibodies from immunized cows and cow-derived libraries. 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 evaluated this acquisition in accordance with ASC 805, Business Combinations, to discern whether the assets and operations of Taurus met the definition of a business. We concluded that substantially all of the fair value of the gross assets acquired is concentrated in the acquired core technology.
Accordingly, we accounted for this transaction as an asset acquisition. Of the $5.1 million consideration transferred, we recognized (1) $0.05 million of tangible assets acquired, and (2) $5.0 million of core completed technology intangibles acquired. 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. None of the CVRs are recognized as of March 31, 2021.
xCella Acquisition
On September 8, 2020, we acquired xCella, an antibody discovery company. 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 concluded that substantially all of the fair value of the gross assets acquired is concentrated in the acquired core technology. Accordingly, we accounted for this transaction as an asset acquisition. Of the $7.1 million consideration transferred, we recognized (1) $0.2 million of tangible assets acquired, (2) $(0.1) million of liabilities assumed, (3) $7.8 million of core completed technology acquired, and (4) $(0.8) million of deferred tax liability. 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. None of the earnout rights are recognized as of the acquisition date. During the three months ended March 31, 2021, we recognized $0.2 million in earnout rights when certain contingencies were resolved during the period.
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 acquisition was accounted for as a business combination and we applied the acquisition method of accounting. Accordingly, we recorded the tangible and intangible assets acquired and liabilities assumed at their estimated fair values as of the applicable date of acquisition. We did not incur any material acquisition-related costs.
The purchase price of $19.9 million included $15.1 million cash consideration paid upon acquisition, and a contingent earn-out payment 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 Icagen. Refer to Note 2, Fair Value Measurement, for further discussion. The liability will be periodically assessed based on events and circumstances related to the underlying milestones, and any change in fair value will be 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. There was no change in the fair value of the contingent liabilities during the second quarter of 2020. 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 allocation of the purchase price consisted of (1) $1.8 million of fair value of tangible assets acquired, (2) $(0.8) million of liabilities assumed, (3) $12.8 million of acquired intangibles, (4) $(3.7) million of deferred revenue in connection with assumed performance obligations under a collaboration agreement, (5) $0.8 million of deferred tax asset associated with the deferred revenue, and (6) $9.0 million of goodwill, the majority of which 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 was 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. These projected cash flows were discounted to present value using a discount rate of 17%. The fair value of the core technology is being amortized on a straight-line basis over the estimated useful life of 10 years. The total acquired intangibles are being amortized on a straight-line basis over the estimated useful life of 9.7 years.
4. Convertible Senior Notes
0.75% Convertible Senior Notes due 2023
In May 2018, we issued $750.0 million aggregate principal amount of 0.75% convertible senior notes. 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 five 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.
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 March 31, 2021, the “if-converted value” did not exceed the principal amount of the 2023 Notes. In connection with the issuance of the 2023 Notes, we incurred $16.9 million of issuance costs, which primarily consisted of underwriting, legal and other professional fees. The portion of these costs allocated to the liability component totaling $13.7 million is amortized to interest expense using the effective interest method over the five year expected life of the 2023 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 March 2021, we repurchased $104.5 million in principal of the 2023 Notes for $109.1 million in cash, including accrued interest of $0.2 million. We accounted for the repurchase as a debt extinguishment, which resulted in (1) a loss of $4.8 million reflected in other income (expense), net, in our condensed consolidated statement of operations for the three months ended March 31, 2021; (2) a $9.6 million reduction in debt discount, and (3) a $9.1 million reduction to additional paid in capital, net of tax, related to the reacquisition of the equity component in our condensed consolidated balance sheet as of March 31, 2021. After the repurchases, approximately $390.8 million in principal amount of the 2023 Notes remain outstanding.
Convertible Bond Hedge and Warrant Transactions
In conjunction with the 2023 Notes, in May 2018, we entered into convertible bond hedges and sold warrants covering 3,018,327 shares of our common 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 $248.48 per share and are exercisable when and if the 2023 Notes are converted. We paid $140.3 million for these convertible bond hedges. If upon conversion of the 2023 Notes, the price of our 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 us and are not part of the terms of the 2023 Notes. Holders of the 2023 Notes and warrants will not have any rights with respect to the convertible bond hedges.
Concurrently with the convertible bond hedge transactions, we entered into warrant transactions whereby we sold warrants covering approximately 3,018,327 shares of common stock with an exercise price of approximately $315.38 per share, subject to certain adjustments. We received $90.0 million for these warrants. The warrants have various expiration dates ranging from August 15, 2023 to 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 common stock issuable upon exercise of the warrants will be in unregistered shares, and we do not have the obligation and do not intend to file any registration statement with the SEC registering the issuance of the shares under the warrants.
In January 2021, we entered into amendments with Barclays Bank PLC, Deutsche Bank AG, 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.
In March 2021, in connection with the repurchases of $104.5 million in principal of the 2023 Notes for $109.1 million in cash, including accrued interest of $0.2 million, during the quarter ended March 31, 2021, we entered into Warrant Early Unwind Agreements and Bond Hedge Unwind Agreements with Barclays Bank PLC, Deutsche Bank AG, and Goldman Sachs & Co. LLC to unwind a portion of the convertible note hedges transactions we initially entered into in connection with the issuance of the 2023 Notes. We paid $16.5 million as part of the Warrant Early Unwind Agreements reducing the number of shares covered by the warrants from 3,018,327 to 2,597,750. We received $16.9 million as part of the Bond Hedge Early Unwind Agreements reducing the number of options under the convertible bond hedges to 645,500. These unwind transactions resulted in a $0.4 million net increase in additional paid-in-capital in our condensed consolidated balance sheet as of March 31, 2021.
The following table summarizes information about the 2023 Notes (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
Principal amount of the 2023 Notes outstanding
|
$
|
390,780
|
|
|
$
|
495,280
|
|
Unamortized discount (including unamortized debt issuance cost)
|
(38,467)
|
|
|
(52,987)
|
|
Total long-term portion of notes payable
|
$
|
352,313
|
|
|
$
|
442,293
|
|
|
|
|
|
Carrying value of equity component of the 2023 Notes
|
$
|
35,135
|
|
|
$
|
48,397
|
|
Fair value of the 2023 Notes outstanding (Level 2)
|
$
|
404,477
|
|
|
$
|
466,053
|
|
|
|
|
|
|
|
|
|
5. Income Tax
Our effective tax rate may vary from the U.S. federal statutory tax rate due to the change in the mix of earnings in various state jurisdictions with different statutory rates, benefits related to tax credits, and the tax impact of non-deductible expenses, stock award activities and other permanent differences between income before income taxes and taxable income. The effective tax rate for the three months ended March 31, 2021 and 2020 was (214.1)% and 20.7%, respectively. The variance from the U.S. federal statutory tax rate of 21% for the three months ended March 31, 2021 was significantly impacted by discrete tax benefits related to net excess tax windfalls from share-based compensation resulting from increased stock option exercise activity, stock award vesting and appreciation of our stock price during the period.
6. Stockholders’ Equity
We grant options and awards to employees and non-employee directors pursuant to a stockholder approved stock incentive plan, which is described in further detail in Note 9, Stockholders’ Equity, of the Notes to Consolidated Financial Statements in our 2020 Annual Report.
The following is a summary of our stock option and restricted stock activity and related information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
Restricted Stock Awards
|
|
Shares
|
|
Weighted-Average Exercise Price
|
|
Shares
|
|
Weighted-Average Grant Date Fair Value
|
Balance as of December 31, 2020
|
2,561,822
|
|
|
$
|
85.59
|
|
|
206,202
|
|
|
$
|
106.88
|
|
Granted
|
265,529
|
|
|
$
|
172.39
|
|
|
153,166
|
|
|
$
|
173.32
|
|
Options exercised/RSUs vested
|
(522,172)
|
|
|
$
|
51.98
|
|
|
(88,959)
|
|
|
$
|
127.16
|
|
Forfeited
|
(58,862)
|
|
|
$
|
101.77
|
|
|
(5,024)
|
|
|
$
|
110.91
|
|
Balance as of March 31, 2021
|
2,246,317
|
|
|
$
|
103.24
|
|
|
265,385
|
|
|
$
|
138.85
|
|
As of March 31, 2021, outstanding options to purchase 1.2 million shares were exercisable with a weighted average exercise price per share of $89.20.
Employee Stock Purchase Plan
The price at which common stock is purchased under the Amended Employee Stock Purchase Plan, or ESPP, is equal to 85% of the fair market value of the common stock on the first or last day of the offering period, whichever is lower. As of March 31, 2021, 52,808 shares were available for future purchases under the ESPP.
Share Repurchases
We did not have any share repurchases during the first quarter of 2021.
On September 11, 2019, our Board of Directors approved a stock repurchase program authorizing, but not obligating, 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 may enter into Rule 10b5-1 trading plans, 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. Authorization to repurchase $248.8 million of our common stock remained available as of March 31, 2021.
7. 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, we record the minimum estimated liability related to the claim in accordance with ASC 450, Contingencies. As additional information becomes available, we assess the potential liability related to our pending litigation and revises our estimates. Revisions in our estimates of potential liability could materially impact our results of operations.
On April 9, 2019, CyDex, our wholly-owned subsidiary, received a Paragraph IV certification Notice Letter from 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”), and alleging that these patents, each of which relates to Captisol®, are invalid, unenforceable, and/or would not be infringed by Alembic’s ANDA product. On May 23, 2019, CyDex filed a complaint against Alembic, Alembic Pharmaceuticals, Ltd., and Alembic Pharmaceuticals, Inc. in the U.S. District Court for the District of Delaware, asserting that the 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 remain the first day of a five-to-six-day bench trial. On November 2, 2020, the District Court issued an order construing the disputed issues of claim construction, adopting the claim construction positions urged by CyDex. On January 13, 2021, the District Court entered an order noting that the parties were engaged in ongoing settlement efforts, and ordering that (i) all deadlines in the litigation be stayed, and (ii) the parties submit a joint status report within 30 days. In early February, and again in early March, the parties submitted status reports stating that they have made substantial progress toward finalizing an agreement. All deadlines are presently stayed.
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 four patents and CyDex filed its answer to Lupin’s counterclaims on January 2, 2020. The parties entered into a settlement agreement on April 26, 2021 and the lawsuit has been dismissed.
On October 31, 2019, we received three 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 three 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. (“GSK”) , 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 invalidity grounds in IPR2019-01028, but exercised its discretion not to institute trial on IPR2019-01027 or IPR2019-01478. In May 2020, GSK filed two petitions (IPR2020-00890 and IPR2020-00962) for inter partes review of U.S. Patent 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 (“CPLSA”), 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, which we oppose. On February 25, 2021, we submitted additional counterclaims against Abvivo and Mr. Lundstrom. These counterclaims allege that Abvivo and Mr. Lundstrom made false promises regarding the CPLSA, Abvivo’s breach of and failure to perform under the CPLSA, and Abvivo’s infringement of certain Ligand trademarks. On March 11, 2021, Abvivo and Mr. Lundstrom submitted an answer to our amended counterclaims denying all of the claims and asserting various affirmative defenses. The arbitration will be conducted by a three arbitrator panel, the members of which were appointed on March 30, 2021. We intend to vigorously defend ourselves against this action.