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Form 8-K LIGAND PHARMACEUTICALS For: Nov 14

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November 14, 2016 5:50 PM EST


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 14, 2016

LIGAND PHARMACEUTICALS INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)

Delaware
001-33093
77-0160744
(State or other jurisdiction of
(Commission File Number)
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
3911 Sorrento Valley Boulevard, Suite 110
 
92121
San Diego, CA
 
(Zip Code)
(Address of principal executive offices)
 
 
(858) 550-7500
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))





Item 2.02
Item 2.02 Results of Operations and Financial Condition.

On November 3, 2016, Ligand Pharmaceuticals Incorporated (the “Company”) issued a press release announcing its financial results for the three and nine months ended September 30, 2016 (the “Earnings Release”). A copy of the Earnings Release was furnished as Exhibit 99.1 to the Company’s Form 8-K filed on November 3, 2016. The Earnings Release included a reconciliation of U.S. generally accepted accounting principles (“GAAP”) net income and earnings per share to adjusted net income and adjusted earnings per share. Due to the corrections to GAAP net income described below, the Company is furnishing a revised reconciliation as Exhibit 99.1 to this report.

In accordance with General Instruction B.2. of Form 8-K, the information in and exhibits furnished pursuant to Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such a filing.

Item 4.02(a)
Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.

As previously disclosed on November 3, 2016, in the Earnings Release, as identified above in Item 2.02, the Company conducted a review of the amount of net operating loss carryforwards recorded as a result of certain acquisitions accounted for prior to February of 2010. These net operating loss carryforwards resulted in a portion of our deferred tax assets (“DTA”) of approximately $209 million and a tax benefit of $220 million as of and for the third quarter of 2015. As a result of this review, management has determined that the Company overstated the value of the DTA by approximately $27.5 million, or 13% of the DTA initially recorded in the third quarter of 2015. The adjustment reduces the discrete DTA gain and reduces GAAP net income for that period by the same amount. As restated, the Company’s balance sheet for the third quarter of 2015 and every subsequent period should reflect the reduction in DTA.

Further, management determined that the Company’s outstanding convertible senior unsecured notes due 2019 (the “Convertible Notes”) should have been classified as short-term debt rather than long-term debt as of December 31, 2015 because the Convertible Notes were convertible according to their terms as of such date. In addition, the related unamortized discount of $39.6 million previously included within stockholders' equity was reclassified as temporary equity component of currently redeemable convertible notes on our Consolidated Balance Sheet. The change to the classification of the Convertible Notes has no effect on GAAP net income.

Section 404 of Sarbanes Oxley Act

Management has evaluated the effect of the restatement on the Company’s prior conclusions on the effectiveness of its internal control over financial reporting and disclosure controls and procedures as of December 31, 2015. In connection with management’s re-evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2015, management determined that the Company did not maintain effective controls over the accuracy and presentation of the accounting for income taxes relate to complex transactions, including the income tax provision and related tax assets and liabilities and controls over the financial reporting classification of convertible debt and temporary equity. The Company will amend its disclosures pertaining to its evaluation of such controls and procedures in the Form 10-K/A to report a material weakness in those controls and procedures and will report that its internal control over financial reporting and its disclosure controls and procedures were not effective as of December 31, 2015.

Consequently, on November 14, 2016, the Audit Committee of the Company’s board of directors, in consultation with management, determined that the consolidated financial statements as of and for each of the following financial periods contain a material error, should not be relied upon and need to be restated: September 30, 2015, December 31, 2015, March 31, 2016 and June 30, 2016 (collectively, the “Previously Issued Financial Statements”).

The Audit Committee and management have discussed the matters disclosed in this filing pursuant to Item 4.02(a) with the Company's former and current independent registered public accounting firms.

The summary of the effects of the adjustments to the financial statement line items are set forth below (in thousands):





 
Year ended December 31, 2015
 
As Reported
 
Adjustments
 
As Restated
Income tax benefit
$
219,596

 
$
(27,481
)
 
$
192,115

Net income
257,305

 
(27,481
)
 
229,824

Comprehensive income
257,273

 
(27,481
)
 
229,792

Basic earnings per share
13.00

 
(1.39
)
 
11.61

Diluted earnings per share data
12.12

 
(1.30
)
 
10.82

 
Nine months ended September 30, 2015
 
As Reported
 
Adjustments
 
As Restated
Income tax benefit
$
219,083

 
$
(27,481
)
 
$
191,602

Net income
250,964

 
(27,481
)
 
223,483

Comprehensive income
251,351

 
(27,481
)
 
223,870

Basic earnings per share
12.71

 
(1.39
)
 
11.32

Diluted earnings per share data
11.88

 
(1.30
)
 
10.58


 
Three months ended September 30, 2015
 
As Reported
 
Adjustments
 
As Restated
Income tax benefit (expense)
$
219,362

 
$
(27,481
)
 
$
191,881

Net income
226,646

 
(27,481
)
 
199,165

Comprehensive income
222,981

 
(27,481
)
 
195,500

Basic earnings per share
11.40

 
(1.39
)
 
10.01

Diluted earnings per share data
10.56

 
(1.28
)
 
9.28


The effects of these prior period corrections on the consolidated balance sheet as of December 31, 2015 is as follows:

 
As of December 31, 2015
 
As Reported
 
Adjustments
 
As Restated
Deferred income taxes
$
216,564

 
$
(27,481
)
 
$
189,083

Total assets
530,542

 
(27,481
)
 
503,061

2019 convertible senior notes, net - current
—

 
201,985

 
201,985

Total current liabilities
20,836

 
201,985

 
222,821

2019 convertible senior notes, net - long term
201,985

 
(201,985
)
 
—

Equity component of currently redeemable convertible notes (Note 5)

—

 
39,628

 
39,628

Additional paid-in capital
701,478

 
(39,628
)
 
661,850

Accumulated deficit
(402,010
)
 
(27,481
)
 
(429,491
)
Total stockholders' equity
304,391

 
(67,109
)
 
237,282

Total liabilities and stockholders' equity
530,542

 
(27,481
)
 
503,061


The effects of these prior period corrections on the condensed consolidated balance sheets as of March 31, 2016 and June 30, 2016 is as follows:

 
As of March 31, 2016
 
As Reported
 
Adjustments
 
As Restated
Deferred income taxes
$
157,258

 
(27,481
)
 
$
129,777

Total assets
613,438

 
(27,481
)
 
585,957

Accumulated deficit
(395,402
)
 
(27,481
)
 
(422,883
)
Total stockholders' equity
392,077

 
(27,481
)
 
364,596

Total liabilities and stockholders' equity
613,438

 
(27,481
)
 
585,957






 
As of June 30, 2016
 
As Reported
 
Adjustments
 
As Restated
Deferred income taxes
$
161,076

 
(27,481
)
 
$
133,595

Total assets
616,799

 
(27,481
)
 
589,318

Accumulated deficit
(401,165
)
 
(27,888
)
 
(429,053
)
Equity component of currently reedemable convertible notes
—

 
34,673

 
34,673

Additional paid in capital
789,315

 
(34,266
)
 
755,049

Total stockholders' equity
391,916

 
(62,154
)
 
329,762

Total liabilities and stockholders' equity
616,799

 
(27,481
)
 
589,318


Item 9.01 Financial Statements and Exhibits.
(d)    Exhibits.
Exhibit No.
Description
99.1
Reconcilation of certain non-GAAP financial measures.




LIGAND PHARMACEUTICALS INCORPORATED
ADJUSTED FINANCIAL MEASURES
(Unaudited, in thousands)
 
Three months ended September 30,
 
Nine months ended September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
1,051

 
$
199,165

 
$
1,490

 
$
223,483

Non-cash stock-based compensation expense
4,924

 
2,836

 
13,690

 
9,511

Non-cash debt related costs
2,752

 
2,588

 
8,130

 
7,646

Amortization related to acquisitions
2,270

 
—

 
6,385

 
—

Increase in contingent liabilities
958

 
(2,301
)
 
2,595

 
4,976

Loss from Viking (a)
1,396

 
2,169

 
14,139

 
3,040

Mark-to-market adjustment for investments owed to licensors
109

 
(593
)
 
31

 
571

Fair market value adjustment on Viking note and warrants
(152
)
 
—

 
(462
)
 
—

Non-cash tax benefit
160

 
(191,881
)
 
(28
)
 
(191,881
)
Discontinued operations, net of non-cash tax expense
—

 
—

 
(731
)
 
—

Adjusted net income
$
13,468

 
$
11,983

 
$
45,239

 
$
57,346

Diluted per-share amounts attributable to common shareholders:
 
 
 
 
 
 
 
Net income(UR)
$
0.05

 
$
9.28

 
$
0.07

 
$
10.58

Non-cash stock-based compensation expense
0.21

 
0.13

 
0.60

 
0.45

Non-cash debt related costs
0.12

 
0.12

 
0.36

 
0.36

Amortization related to acquisitions
0.10

 
—

 
0.28

 
—

Increase in contingent liabilities
0.04

 
(0.11
)
 
0.11

 
0.24

Loss from Viking (a)
0.06

 
0.10

 
0.62

 
0.14

Mark-to-market adjustment for investments owed to licensors
—

 
(0.03
)
 
—

 
0.03

Fair market value adjustment on Viking note and warrants
(0.01
)
 
—

 
(0.02
)
 
—

Non-cash tax expense(UR)
0.01

 
(8.94
)
 
—

 
(9.08
)
2019 Senior Convertible Notes share count adjustment
0.03

 
0.01

 
0.10

 
0.03

Discontinued operations, net of non-cash tax expense
—

 
—

 
(0.03
)
 
—

Adjusted net income
$
0.62

 
$
0.57

 
$
2.09

 
$
2.75

 
 
 
 
 
 
 
 
GAAP-Weighted average number of common shares-diluted
22,997

 
21,460

 
22,742

 
21,122

Less: 2019 Senior Convertible Notes share count adjustment
1,184

 
463

 
1,046

 
232

Adjusted weighted average number of common shares-diluted
21,813

 
20,997

 
21,696

 
20,890

(a) Loss from Viking reflects the Company’s share of Viking's net loss of $1,068 and $3,835 for the three and nine months ended September 30, 2016, respectively, and the decrease in the book value of the Company's equity method investment in Viking of $328 and $10,304 for the three and nine months ended September 30, 2016, respectively, as a result of the Company's decreased ownership percentage in Viking after Viking's financing.

Caution Regarding Forward-Looking Statements

Certain statements in this report on Form 8-K constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are predictions based on expectations and projections about future events, and are not statements of historical fact. You can identify forward-looking statements by the use of forward-looking terminology such as “plan,” “continue,” “expect,” “anticipate,” “intend,” “predict,” “project,” “estimate,” “likely,” “believe,” “might”, “seek,” “may,” “remain,” “potential,” “can,” “should,” “could,” “future” and similar expressions, or the negative of those expressions. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results to be materially different from any future results expressed or implied by such




forward-looking statements. Such factors include the risk that subsequent events may occur that would require the Company to make additional adjustments to its consolidated financial statements and the Company's anticipated adjustments for 2015 and subsequent periods, the failure of the Company to file its periodic reports on a timely basis, the possibility that one or more material weaknesses in the Company’s internal control over financial reporting may be identified in connection with the ongoing review and the impact of potential litigation arising from the foregoing matters. Consideration should be given to the areas of risk described above, and additional information concerning these and other risk factors affecting the Company can be found in the Company’s public periodic filings with the Securities and Exchange Commission available at www.sec.gov. The Company undertakes no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless required to do so by law. Any forward-looking statements contained in this Current Report on Form 8-K represent the Company's views only as of the date of this Current Report.

The adjusted net income and adjusted earnings per share have not changed from the figures reported in the initial Earnings Release.







SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
LIGAND PHARMACEUTICALS INCORPORATED
 
 
 
 
Date: November 14, 2016
By:
 
/s/ Charles Berkman
 
Name:
 
Charles Berkman
 
Title:
 
Vice President, General Counsel and Secretary























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