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

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Aug 05, 2010
Ligand Pharmaceuticals Inc. (LGND, Financial) filed Quarterly Report for the period ended 2010-06-30.

Ligand Pharmaceuticals Inc. has a market cap of $198.8 million; its shares were traded at around $1.69 with and P/S ratio of 5.1. 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:

Total revenues for the three and six months ended June 30, 2010 were $5.8 million and $11.8 million, respectively, compared to $7.6 million and $17.1 million for the same periods in 2009. We reported losses from continuing operations of $0.3 million and $3.3 million, respectively, for the three and six months ended June 30, 2010, compared to losses from continuing operations of $4.5 million and $12.0 million, respectively, for the three and six months ended June 30, 2009.

On November 9, 2006, we sold real property located in San Diego, California for a sale price of $47.6 million. This property included our corporate headquarter building totaling approximately 82,500 square feet, the land on which the building was 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 and six months ended June 30, 2010 was $0.4 million and $0.9 million, respectively, compared to $0.5 million and $1.0 million for the same periods in 2009.

in book and tax bases of certain items as a result of our recent acquisitions. 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 liability for uncertain tax positions of $25.1 million related to the income tax effect of the NOPA and $3.5 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.

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 liability for uncertain tax positions of $25.1 million related to the income tax effect of the NOPA and $3.5 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.

cash used in operations. These reconciling items primarily reflect the change in estimated fair value of CVRs of $4.2 million, accretion of deferred gain on the sale leaseback of the building of $0.9 million and realized gain on investment of $0.6 million, partially offset by depreciation of assets of $1.4 million and the recognition of $1.5 million of stock-based compensation expense. The use of cash during the six months ended June 30, 2010 is further impacted by changes in operating assets and liabilities due primarily to decreases in accounts payable and accrued liabilities of $8.0 million, an increase in other long term assets of $0.4 million, a decrease in other liabilities of $1.1 million and a decrease in deferred revenue of $3.3 million, partially offset by a decrease in accounts receivable, net of $0.6 million. Net cash provided by operating activities of discontinued operations was $0.3 million for the six months ended June 30, 2010.

The use of cash for the six months ended June 30, 2009 reflects a net loss of $6.8 million, adjusted by $5.2 million of gain from discontinued operations and $2.7 million of non-cash items to reconcile the net loss to net cash used in operations. These reconciling items primarily reflect the recognition of $1.7 million of stock-based compensation expense, depreciation of assets of $1.6 million, realized loss on investment of $0.1 million, non-cash lease costs of $0.5 million, write-off of acquired IPR&D of $0.4 million and the amortization of acquired intangible assets of $0.3 million, partially offset by the accretion of deferred gain on the sale leaseback of the building of $1.0 million and non-cash development milestones of $0.9 million. The use of cash during the six months ended June 30, 2009 is further impacted by changes in operating assets and liabilities due primarily to decreases in accounts payable and accrued liabilities of $5.5 million, a decrease in accrued litigation settlement costs of $7.5 million, an increase in accounts receivable, net of $1.1 million and a decrease in deferred revenue of $4.1 million partially offset by the release of our $10.3 million restricted indemnity account as a result of the completion of the SEC investigation and a further decrease in other current and long term assets of $0.7 million. Net cash used in operating activities of discontinued operations was $3.1 million for the six months ended June 30, 2009.

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