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Ligand Pharmaceuticals Inc. Reports Operating Results (10-Q)

May 05, 2010 | About:
10qk

10qk

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Ligand Pharmaceuticals Inc. (LGND) filed Quarterly Report for the period ended 2010-03-31.

Ligand Pharmaceuticals Inc. has a market cap of $220.6 million; its shares were traded at around $1.88 with and P/S ratio of 5.6. Ligand Pharmaceuticals Inc. had an annual average earning growth of 3.7% over the past 10 years.LGND is in the portfolios of Daniel Loeb of Third Point, LLC, Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

Collaborative research and development and other revenues were $4.0 million for the three months ended March 31, 2010 compared to $6.7 million for the same period in 2009. The decrease of $2.7 million is primarily due to a decrease in milestone revenues of $1.7 million as a result of $1.0 million of milestones received from Schering-Plough in 2010, compared with $2.7 million of milestones received from Pfizer, Schering-Plough and GlaxoSmithKline in 2009, and a decrease in collaboration revenues of $1.0 million as a result of the termination of our collaboration agreements with Schering-Plough and Bristol-Myers Squibb.

General and administrative expenses were $3.0 million for the three months ended March 31, 2010 compared to $6.8 million for the same period in 2009. The decrease of $3.8 million is primarily due to $1.4 million of reduced legal expenses as ongoing litigation was settled in the first quarter of 2009, $1.0 million of facilities costs as a result of our lease buyout, $0.7 million of lower headcount costs as a result of staff reductions, and $0.3 million of lower consulting and outside service costs.

On November 9, 2006, we sold real property located in San Diego, California for a sale price of $47.6 million. This property includes our corporate headquarter building totaling approximately 82,500 square feet, the land on which the building is situated, and two adjacent vacant lots. As part of the sale transaction, we agreed to leaseback the building for a period of 15 years. We recognized an immediate pre-tax gain on the sale transaction of $3.1 million and deferred a gain of $29.5 million on the sale of the building. The deferred gain was being recognized on a straight-line basis over the 15 year term of the lease at a rate of approximately $2.0 million per year. In August 2009, we entered into a lease termination agreement for this building. As a result, we recognized $20.4 million of accretion of deferred gain during the quarter ended September 30, 2009, and will recognize the remaining balance of the deferred gain through the term of our new building lease, which expires in December 2011. The amount of the deferred gain recognized for the three months ended March 31, 2010 was $0.4 million, compared to $0.5 million for the same period in 2009.

We recorded income tax expense of $0.3 million for the three months ended March 31, 2010 related to estimated interest on a proposed underpayment of tax. In December 2009, the Internal Revenue Service, or IRS, issued to us a Notice of Proposed Adjustment, or NOPA, seeking an increase to our taxable income for the 2007 fiscal year of $71.5 million and a $4.1 million penalty for substantial underpayment of tax in fiscal 2007. We responded to the NOPA in February 2010, disagreeing with the conclusions reached by the IRS in the NOPA. We have recorded a FIN 48 liability of $25.1 million related to the income tax effect of the NOPA and $3.3 million related to estimated interest due on the proposed underpayment of tax. We also recorded deferred income tax assets of $25.1 million associated with the ability to carry back losses from 2008 and 2009 to offset the NOPA. In addition, we recorded an income tax receivable of $4.5 million associated with changes in income tax law in relation to prior AMT taxes paid on carry back periods. We have not recorded the penalties proposed by the IRS in our financial statements as we believe that we met the appropriate standard for the tax position on our 2007 tax return. If we are unsuccessful in our negotiations with the IRS, we may be required to pay the $4.1 million penalty and utilize a significant amount of our net operating loss carryforwards.

The use of cash for the three months ended March 31, 2010 reflects a net loss of $2.8 million, adjusted by $0.2 million of gain from discontinued operations and $0.3 million of non-cash items to reconcile the net income to net cash used in operations. These reconciling items primarily reflect the change in estimated fair value of contingent value rights of $0.6 million, accretion of deferred gain on the sale leaseback of the building of $0.4 million and realized gain on investment of $0.7 million, partially offset by depreciation of assets of $0.7 million and the recognition of $0.6 million of stock-based compensation expense. The use of cash during the three months ended March 31, 2010 is further impacted by changes in operating assets and liabilities due primarily to decreases in accounts payable and accrued liabilities of $9.8 million, an increase in other long term assets of $0.5 million, a decrease in other liabilities of $1.3 million and a decrease in deferred revenue of $1.6 million, partially offset by a decrease in accounts receivable, net of $0.3 million. Net cash provided by operating activities of discontinued operations was $0.3 million for the three months ended March 31, 2010.

The use of cash for the three months ended March 31, 2009 reflects a net loss of $5.1 million, adjusted by $2.4 million of gain from discontinued operations and $1.7 million of non-cash items to reconcile the net loss to net cash used in operations. These reconciling items primarily reflect the recognition of $0.8 million of stock-based compensation expense, depreciation of assets of $0.8 million, realized loss on investment of $0.1 million, non-cash lease costs of $0.3 million and the amortization of acquired intangible assets of $0.2 million, partially offset by the accretion of deferred gain on the sale leaseback of the building of $0.5 million. The use of cash during the three months ended March 31, 2009 is further impacted by changes in operating assets and liabilities due primarily to decreases in accounts payable and accrued liabilities of $3.9 million, a decrease in accrued litigation settlement costs of $8.5 million, an increase in accounts receivable, net of $2.7 million and a decrease in deferred revenue of $2.2 million partially offset by a decrease in other current assets of $0.8 million. Net cash used in operating activities of discontinued operations was $1.3 million for the three months ended March 31, 2009.

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