LIGAND PHARMACEUTICALS INC. Management’s Discussion and Analysis of Financial Position and Operating Results (Form 10-Q)
Caution: This discussion and analysis may contain predictions, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed in Part II, Item 1A. Risk Factors. This outlook represents our current judgment on the future direction of our business. These statements include those related to our Captisol-related revenues and manufacturing capacity, our Kyprolis and other product royalty revenues, the impact of COVID-19, product returns, product development, and the potential separation of the OmniAb business. Actual events or results may differ materially from our expectations. For example, there can be no assurance that our revenues or expenses will meet any expectations or follow any trend(s), that we will be able to retain our key employees or that we will be able to enter into any strategic partnerships or other transactions. We cannot assure you that we will receive expected Kyprolis, Captisol and other product revenues to support our ongoing business or that our internal or partnered pipeline products will progress in their development, gain marketing approval or achieve success in the market. In addition, ongoing or future arbitration, litigation or disputes with third parties may have a material adverse effect on us. Such risks and uncertainties, and others, could cause actual results to differ materially from any future performance suggested. We undertake no obligation to make any revisions to these forward-looking statements to reflect events or circumstances arising after the date of this quarterly report. This caution is made under the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We use our trademarks, trade names and services marks in this report as well as trademarks, trade names and service marks that are the property of other organizations. Solely for convenience, trademarks and trade names referred to in this report appear without the Â® and â¢ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or that the applicable owner will not assert its rights, to these trade marks and trade names. References to "
Ligand Pharmaceuticals Incorporated," "Ligand," the "Company," "we" or "our" include Ligand Pharmaceuticals Incorporatedand our wholly-owned subsidiaries. Overview We are a biopharmaceutical company focused on developing or acquiring technologies that help pharmaceutical companies discover and develop medicines. We employ research technologies such as antibody discovery technologies, ion channel discovery technology, Pseudomonas fluorescens protein expression technology, formulation science and liver targeted pro-drug technologies to assist companies in their work toward securing prescription drug and biologic approvals. We currently have partnerships and license agreements with over 130 pharmaceutical and biotechnology companies. Over 300 programs are in various stages of commercialization, development or research and are fully funded by our collaboration partners and licensees. We have contributed novel research and technologies for approved medicines that treat cancer, osteoporosis, fungal infections and postpartum depression, among others. Our collaboration partners and licensees have programs currently in clinical development targeting cancer, seizure, diabetes, cardiovascular disease, muscle wasting, liver disease, and kidney disease, among others. We have over 1,400 issued patents worldwide. We have assembled our large portfolio of fully-funded programs either by licensing our own proprietary drug development programs, licensing our platform technologies such as Captisol or OmniAb to partners for use with their proprietary programs, or acquiring existing partnered programs from other companies. Fully-funded programs, which we refer to as "shots on goal," are those for which our partners pay all of the development and commercialization costs. For our internal programs, we generally plan to advance drug candidates through early-stage drug development or clinical proof-of-concept and then seek partners to continue development and potential commercialization. Our business model creates value for stockholders by providing a diversified portfolio of biotech and pharmaceutical product revenue streams that are supported by an efficient and low corporate cost structure. Our goal is to offer investors an opportunity to participate in the promise of the biotech industry in a profitable, diversified and lower-risk business than a typical biotech company. Our business model is based on doing what we do best: drug discovery, early-stage drug development, product reformulation and partnering. We partner with other pharmaceutical companies to leverage what they do best (late-stage development, regulatory management and commercialization) to ultimately generate our revenue. We believe that focusing on discovery and early-stage drug development while benefiting from our partners' development and commercialization expertise will reduce our internal expenses and allow us to have a larger number of drug candidates progress to later stages of drug development. 26 -------------------------------------------------------------------------------- Our revenue consists of three primary elements: royalties from commercialized products, sale of Captisol material, and contract revenue from license, milestone and other service payments. In addition to discovering and developing our own proprietary drugs, we selectively pursue acquisitions to bring in new assets, pipelines, and technologies to aid in generating additional potential new revenue streams. Impact of COVID-19 Pandemic
For more information on the various risks to our business posed by the COVID-19 pandemic, please read Section 1A. âRisk factorsâ included in this report and in our 2020 annual report.
Portfolio Program Updates OmniAbÂ® Platform Updates OmniAb is our industry-leading, BI- (Biological Intelligenceâ¢) powered multi-species antibody platform for the discovery of monospecific and bispecific therapeutic human antibodies. 2020 was a year of major investment in OmniAb with the acquisition and development of multiple technologies that enhance the offering for partners, including the addition of antigen-generation services as well as deep-sequence analysis of functional antibody repertoires. As of
September 30, 2021, 19 different OmniAb-derived antibodies have been studied in approximately 84 active or completed clinical trials. Gloria Biosciences received approval from China's National Medical Products Administration(NMPA) for zimberelimab (GLS-010), an OmniAb-derived anti-PD-1 monoclonal antibody for the treatment of recurrent or refractory classical Hodgkin's lymphoma. Gloria Biosciences holds development and commercialization rights in Chinawith respect to zimberelimab through a sublicense agreement with Ligand's licensee Wuxi Biologics Ireland Limited. Zimberelimab is the first OmniAb-derived antibody to receive regulatory approval. CStone Pharmaceuticalspresented the clinical data in a late-breaking abstract at ESMO Congress2021 from the GEMSTONE-301 trial, a registrational study of OmniAb-derived sugemalimab in the treatment of patients with stage III non-small cell lung cancer (NSCLC). The data for sugemalimab as a consolidation therapy demonstrated a statistically significant and clinically meaningful improvement in progression-free survival (PFS). Sugemalimab was well-tolerated with no new safety signals. CStone also presented updated data from the registrational study of sugemalimab in patients with stage IV NSCLC in a late-breaking oral presentation at the IASLC 2021 World Conference on Lung Cancer. The final analysis confirmed the efficacy and safety demonstrated in the interim analysis, showing that sugemalimab plus chemotherapy was associated with a significant improvement of PFS as first-line treatment in patients with both squamous and non-squamous metastatic NSCLC. Additionally, the estimated 2-year overall survival rate was nearly 50%. NDAs for sugemalimab in patients with metastatic stage IV NSCLC and in patients with locally advanced/unresectable stage III NSCLC have been accepted by China'sNMPA and are currently under review. Aptevo Therapeutics announced positive Phase 1 data showing some patients with relapsed acute myeloid leukemia (AML) or myelodysplastic syndrome (MDS) achieved a remission with APVO436 after failing 1-8 lines of prior therapies. Aptevo Therapeutics presented a poster at the Congresson Controversies in Leukemias on the Phase 1B data obtained so far. Additional data was published in the peer-reviewed journal, Cancers, showing the risk of cytokine release syndrome is low for blood cancer patients treated with APVO436. APVO436 is an OmniAb-derived bispecific antibody targeting CD123 and CD3 for the treatment of hematological malignancies. Harbour BioMedannounced dosing of the first patient in the registrational Phase 3 trial with batoclimab (HBM9161), its OmniAb-derived anti-FcRn monoclonal antibody, for the treatment of generalized myasthenia gravis (gMG). This study aims to assess the efficacy and safety of batoclimab in patients with gMG in China. Harbour BioMedalso announced dosing of the first patient in the Phase 2 clinical trial in Chinaof batoclimab for the treatment of thyroid eye disease. Harbour BioMedlicensed batoclimab from HanAll Biopharma and has the right to develop, manufacture and commercialize in Greater China(including Hong Kong, Macauand Taiwan). OmniAb partnered with LandingAI to incorporate an industry leading LandingLensâ¢ visual inspection software platform to strengthen the xPlorationâ¢ deep screening platform using AI and computer vision.
During the third quarter of 2021, we entered into an OmniAb licensing agreement with
Pelican Platform Updates
The Pelican Expression Technologyâ¢ is our proprietary Pseudomonas fluorescens protein expression technology that has major collaborations with Jazz Pharmaceuticals, Merck,
Serum Institute of Indiaand Alvogen, each of which has potential to contribute meaningfully to our royalty revenue. Merck announced VAXNEUVANCEâ¢ met key immunogenicity and safety endpoints in a Phase 3 pivotal trial evaluating use in infants. The FDA approved VAXNEUVANCE for adults 18 years of age and older in July and Merck has submitted a supplemental regulatory licensure application to the FDA for use in children. On October 20, 2021, the Center for Disease Control'scommittee on immunization practices provisionally recommended vaccination either with a sequential regimen of VAXNEUVANCE followed by PNEUMOVAX23, or with a single dose of 20-valent pneumococcal conjugate vaccine for adults 65 years and older, and for adults ages 19 to 64 with certain underlying medical conditions or other disease risk factors. Jazz Pharmaceuticals announced the National Comprehensive Cancer Network added Rylazeâ¢ to its Clinical Practice Guidelines in Oncology as a treatment option for both pediatric and adult acute lymphoblastic leukemia patients with hypersensitivity to E. coli asparaginase products as a component of the multi-agent chemotherapeutic regimen.
CaptisolÂ® Commercial Updates
Marinus announced a collaboration with
marketing of ganaxolone activated by Captisol. Ganaxolone IV is being investigated in a phase 3, randomized, placebo-controlled trial for refractory status epilepticus, with data expected to be read in the second half of 2022.
Takeda announced the Phase 3 PANTHER trial studying pevonedistat plus azacytidine as first-line treatment for patients with higher-risk MDS, chronic myelomonocytic leukemia and low-blast AML did not achieve pre-defined statistical significance for the primary endpoint of event-free survival. Takeda plans to submit full data results for presentation at an upcoming medical conference.
Other business updates
Travere Therapeutics announced positive topline interim results from the ongoing Phase 3 PROTECT study of sparsentan in IgA nephropathy. Sparsentan treatment demonstrated a statistically significant mean reduction of proteinuria from baseline after 36 weeks, more than threefold the reduction of active comparator irbesartan (p<0.0001). Travere held a Type A meeting with the
U.S.FDA for sparsentan in focal segmental glomerulosclerosis (FSGS) confirming plans to submit additional data in the first half of 2022 as part of an accelerated approval submission. Travere also announced the FDA concurred that the interim analyses from the PROTECT Study support submission of an application for accelerated approval, and that they expect to submit the NDA of sparsentan for IgAN in the first quarter of 2022. Additionally, Travere and Vifor Pharma entered into a licensing agreement for the commercialization of sparsentan in Europe, Australia and New Zealand. Travere plans to submit a combined IgAN and FSGS MAA application for conditional marketing authorization of sparsentan in Europein mid-2022. We entered into a collaboration agreement with China Resources Double-Crane for exclusive Asiarights to develop a novel investigational oral COVID-19 antiviral therapeutic compound using our BEProtechnology. BEProis a proprietary prodrug technology for the development of compounds with improved product profiles. We had generated preclinical pharmacokinetics data showing its oral BEPro-enabled COVID-19 antivirals have favorable blood concentration profiles and generated lower levels of active nucleotide in the kidney, a potential site for toxicity, compared with other oral and intravenous compounds. Sermonix Pharmaceuticalsannounced completion of enrollment in the Phase 2 ELAINE 1 randomized trial assessing oral lasofoxifene versus intramuscular fulvestrant for the treatment of ER+/HER2- breast cancer in patients with an ESR1 mutation. Sermonix expects data from the trial to be reported in the first half of 2022. Lasofoxifene is also being studied in a separate fully-enrolled trial, ELAINE 2, in combination with Eli Lilly and Company's CDK4 and 6 inhibitor VerzenioÂ® (abemaciclib). Topline data are also expected in the first half of 2022. Results of Operations 28
(Dollars in thousands) Q3 2021 Q3 2020 Change % Change YTD 2021 YTD 2020 Change % Change Royalties
$ 15,648 $ 9,005 $ 6,64374 % $ 31,376 $ 22,751 $ 8,62538 % Captisol 35,093 23,389 11,704 50 % 128,875 68,966 59,909 87 % Contract revenue 14,094 9,454 4,640 49 % 44,409 24,712 19,697 80 % Total revenue $ 64,835 $ 41,848 $ 22,98755 % $ 204,660 $ 116,429 $ 88,23176 % Royalty revenue is a function of our partners' product sales and the applicable royalty rate. Kyprolis royalty rates are under a tiered royalty rate structure with the highest tier being 3.0%. Evomela has a fixed royalty rate of 20%. Contract revenue includes service revenue, license fees and development, regulatory and sales based milestone payments.
The following table represents royalty revenues by program:
Q3 2021 Estimated Q3 2020 Estimated Partner Product Effective Royalty Q3 2021 Royalty Partner Product Effective Royalty Q3 2020 Royalty (in millions) Sales Rate Revenue Sales Rate Revenue Kyprolis $ 312.3 2.8 % $ 8.8 $ 277.2 2.5 % $ 6.9 Evomela 13.3 20.0 % 2.7 9.0 20.0 % 1.8 Other 59.7 7.0 % 4.2 45.6 0.6 % 0.3 Total $ 385.3
$ 15.6$ 331.8 $ 9.0 YTD 2021 Estimated Partner Effective Royalty YTD 2021 Royalty YTD 2020 Partner Effective Royalty YTD 2020 Royalty (in millions) Product Sales Rate Revenue Product Sales Rate Revenue Kyprolis $ 842.52.2 % $ 18.5 $ 832.32.0 % $ 16.8Evomela 36.0 20.0 % 7.2 22.9 20.0 % 4.6 Other 131.5 4.3 % 5.6 132.2 1.0 % 1.4 Total $ 1,010.0 $ 31.3 $ 987.4 $ 22.8Q3 2021 vs. Q3 2020 Total revenue increased by $23.0 million, or 55%, to $64.8 millionin Q3 2021 compared to $41.8 millionin Q3 2020 primarily reflecting higher sales of Captisol for use in the manufacturing of remdesivir. Royalties and contract revenue increased in Q3 2021 compared to Q3 2020, with the increase primarily attributable to the additional revenue from our Pfenexacquisition in October 2020as well as an increase in partner product sales of Kyprolis and Evomela.
YTD 2021 vs YTD 2020
Total revenue increased by
$88.2 million, or 76%, to $204.7 millionin YTD 2021 compared to $116.4 millionin the same period last year primarily reflecting higher sales of Captisol for use in the manufacturing of remdesivir. Contract revenue increased in YTD 2021 compared to the same period last year, with the increase primarily attributable to the additional contract revenue of $8.0 millionand $8.5 millionfrom the acquisitions of Icagenin April 2020and Pfenexin October 2020, respectively. An increase in partner product sales of Kyprolis and Evomela as well as the acquisition of Pfenexcontributed to the increase in royalty revenue from the same period in 2020. Operating Costs and Expenses (Dollars in thousands) Q3 2021 % of Revenue Q3 2020 % of Revenue YTD 2021 % of Revenue YTD 2020 % of Revenue Cost of Captisol $ 11,446 $ 6,353 $ 50,192 $ 18,680Amortization of intangibles 11,827 3,875 35,391 11,285 Research and development 16,938 12,853 50,769 37,476 General and administrative 12,718 15,020 39,747 34,353 Other operating income (3,800) - (37,600) - Total operating costs and expenses $ 49,12976% $ 38,10191% $ 138,49968% $ 101,79487% Q3 2021 vs. Q3 2020 29
-------------------------------------------------------------------------------- Total operating costs and expenses during Q3 2021 increased by
$11.0 million, or 29%, compared to Q3 2020 primarily due to additional operating costs attributable to Pfenex, which we acquired on October 1, 2020, as well as an increase in Captisol sales for the current period. The increase was partially offset by a $3.8 millionnon-cash valuation adjustment recorded in the third quarter of 2021 to eliminate the remaining Pfenex CVR liability. See additional information on the Pfenex CVR liability in Note 2, Fair Value Measurements. Cost of Captisol increased primarily due to higher Captisol sales during Q3 2021 compared to Q3 2020. Cost of Captisol as a percentage of Captisol revenue was 33% in Q3 2021 compared to 27% in Q3 2020, with the increase primarily due to amortization of capacity expansion payments to our supplier of Captisol during Q3 2021.
Amortization of intangible assets increased in Q3 2021 compared to the same period in 2020 mainly due to the amortization of contractual relationships and technologies acquired from
At any one time, we are working on multiple programs. As such, we generally do not track our R&D expenses on a specific program basis. Our R&D expenses increased year over year in Q3 2021 due to the
$3.8 millioncosts associated with our Pfenexacquisition, which primarily consisted of salaries and lab costs. General and administrative expenses decreased in Q3 2021 compared to the same period in 2020 primarily due to the acquisition and integration costs incurred in Q3 2020, partially offset by the additional expenses from the Pfenexacquisition as well as increased share-based compensation expense. Other operating income in Q3 2021 included a $3.8 millionnon-cash valuation adjustment to reduce the Pfenex CVR liability. The decrease in Pfenex CVR liability is due to an expected lower probability of achieving the required milestone under the Pfenex CVR Agreement, which provides for payment to PfenexCVR holders upon notice from the FDA that teriparatide injection receives an "A" therapeutic equivalence designation relative to the listed drug FORTEO by December 31, 2021. Based on feedback from the FDA, our commercial partner, Alvogen, will perform and submit to the FDA the results from an assessment to address concerns relating to potential innate immunogenicity, reducing the probability of achieving the milestone by December 31, 2021. There were no items recorded in other operating income in Q3 2020.
YTD 2021 vs YTD 2020
Total operating costs and expenses during YTD 2021 increased by
$36.7 million, or 36%, compared to YTD 2020 primarily due to additional operating costs attributable to Icagenand Pfenex, as well as higher Captisol sales during YTD 2021. The increases were partially offset by a $37.6 millionnon-cash valuation adjustment to reduce the Pfenex CVR liability. See additional disclosure on the Pfenex CVR liability in Note 2, Fair Value Measurements. Cost of Captisol increased primarily due to higher Captisol sales during YTD 2021 compared to YTD 2020. Cost of Captisol as a percentage of Captisol revenue was 39% in YTD 2021 compared to 27% in YTD 2020, with the increase primarily due to the significant sales to the Gilead consortium partners in Indiawho had sales prices lower than other customers during the second quarter of 2021.
Amortization of intangible assets increased in fiscal 2021 compared to the same period in 2020, mainly due to the amortization of contractual relationships and technologies acquired from
At any one time, we are working on multiple programs. As such, we generally do not track our R&D expenses on a specific program basis. Our R&D expenses increased year over year in YTD 2021 due to the
$13.0 millioncosts associated with our Pfenexacquisition, which primarily consisted of salaries and lab costs.
General and administrative expenses increased in fiscal year 2021 compared to the same period in 2020, mainly due to additional expenses related to the
Other operating income in YTD 2021 primarily included a
$37.6 millionnon-cash valuation adjustment to eliminate the Pfenex CVR liability during YTD 2021 as mentioned above. There were no items recorded in other operating income in YTD 2020. 30 --------------------------------------------------------------------------------
Other Income (Expense) (Dollars in thousands) Q3 2021 Q3 2020 Change YTD 2021 YTD 2020 Change Gain (loss) from short-term investments
$ 1,937 $ (9,862) $ 11,799 $ 8,135 $ (17,143) $ 25,278Interest income 169 991 (822) 698 7,690 (6,992) Interest expense (4,439) (6,269) 1,830 (15,154) (21,030) 5,876 Other income (expense), net 1,886 (219) 2,105 (5,516) 1,940 (7,456) Total other income (expense), net $ (447) $ (15,359) $ 14,912 $ (11,837) $ (28,543) $ 16,706Q3 2021 vs. Q3 2020 The fluctuation in the gain (loss) from short-term investments is primarily driven by the changes in the fair value of our ownership in Viking common stock and warrants (an unrealized gain of $1.6 millionin Q3 2021 as compared to an unrealized loss of $11.7 millionin Q3 2020).
Interest income consists primarily of interest earned on our short-term investments. The decrease compared to the previous period is explained by the decrease in our short-term investment balance.
Interest expense includes the 0.75% coupon cash interest expense in addition to the non-cash accretion of discount (including the amortization of debt issuance cost) on our 2023 Notes for the three months ended
September 30, 2021. The decrease was primarily due to a lower average debt outstanding balance during Q3 2021 as compared to Q3 2020. During the nine months ended September 30, 2021, we repurchased $152.0 millionin principal of the 2023 Notes for $156.0 millionin cash, including accrued interest of $0.3 million. See Note 4, Convertible Senior Notes. Other income (expense), net, in Q3 2021 increased by $2.1 millionas compared to Q3 2020, due primarily to a $2.0 millionreduction in fair value adjustment of Metabasis and Icagen CVRs during Q3 2021. See Note 2, Fair Value Measurements.
YTD 2021 vs YTD 2020
The fluctuation in the gain (loss) from short-term investments is primarily driven by the changes in the fair value of our ownership in Viking common stock and warrants (an unrealized gain of
$2.4 millionin YTD 2021 as compared to an unrealized loss of $17.9 millionin YTD 2020).
Interest income consists primarily of interest earned on our short-term investments. The decrease compared to the previous period is explained by the decrease in our short-term investment balance.
Interest expense includes the 0.75% coupon cash interest expense in addition to the non-cash accretion of discount (including the amortization of debt issuance cost) on our 2023 Notes for the nine months ended
September 30, 2021. The decrease was primarily due to a lower average debt outstanding balance during YTD 2021 as compared to YTD 2020. During the nine months ended September 30, 2021, we repurchased $152.0 millionin principal of the 2023 Notes for $156.0 millionin cash, including accrued interest of $0.3 million. See Note 4, Convertible Senior Notes. Other income (expense), net, in YTD 2021 included a $7.3 millionloss on debt extinguishment in connection with the 2023 Notes repurchase during the nine months ended September 30, 2021. Income Tax Benefit (Expense) (Dollars in thousands) Q3 2021 Q3 2020 Change YTD 2021 YTD 2020 Change Income (loss) before income taxes $ 15,259 $ (11,612) $ 26,871 $ 54,324 $ (13,908) $ 68,232Income tax benefit (expense) (1,536) 4,911 (6,447) 8,230 5,162 3,068 Income (loss) from operations $ 13,723 $ (6,701) $ 20,424 $ 62,554 $ (8,746) $ 71,300Effective tax rate 10.1 % 42.3 % (15.1) % 37.1 % We compute our income tax provision by applying the estimated annual effective tax rate to income from operations and adding the effects of any discrete income tax items specific to the period. The effective tax rate for the three and nine months ended September 30, 2021was 10.1% and (15.1)%, respectively. The variance from the U.S.federal statutory tax rate of 21% 31 -------------------------------------------------------------------------------- for the three and nine months ended September 30, 2021was significantly impacted by tax benefits related to (1) a $3.8 millionand $37.6 millionassociated with the Pfenex CVR adjustment recorded during the third and second quarters of 2021, respectively, due to the lower probability of achieving the specific development and regulatory milestone by December 31, 2021as defined by the Pfenex CVR, and (2) net excess tax windfalls from share-based compensation resulting from increased stock option exercise activity. The effective tax rate for the three and nine months ended September 30, 2020was 42.3% and 37.1%, respectively. The variances from the U.S.federal statutory tax rate of 21% for the three and nine months ended September 30, 2020were primarily attributable to the mix of earnings in the jurisdictions with lower statutory rates than the U.S.offset by tax deductions related to stock award activities and tax deductions related to foreign derived intangible income tax credits.
Liquidity and capital resources
September 30, 2021, our cash, cash equivalents, and short-term investments totaled $323.2 million, which decreased by $88.0 millionfrom the end of last year due to factors described in the Cash Flow Summary below. Our primary source of liquidity, other than our holdings of cash, cash equivalents, and short-term investments, has been cash flows from operations. Our ability to generate cash from operations provides us with the financial flexibility we need to meet operating, investing, and financing needs. Historically, we have liquidated our short-term investments and/or issued debt and equity securities to finance our business needs as a supplement to cash provided by operating activities. Our short-term investments include U.S.government debt securities, investment-grade corporate debt securities, mutual funds and certificates of deposit. We have established guidelines relative to diversification and maturities of our investments in order to provide both safety and liquidity. These guidelines are periodically reviewed and modified to take advantage of trends in yields and interest rates. Additionally, we own certain securities which are classified as short-term investments that we received as a result of a milestone and an upfront license payment as well as 6.7 million shares of common stock in Viking. In May 2018, we issued an aggregate principal amount of $750.0 millionof the 2023 Notes. In conjunction of the 2023 Notes offering, we used a portion of the proceeds from such issuance totaling $49.7 millionto repurchase 260,000 shares of our common stock. During the nine months ended September 30, 2021, we repurchased $152.0 millionin principal of the 2023 Notes for $156.0 millionin cash, including accrued interest of $0.3 million. After the repurchases, $343.3 millionin principal amount of the 2023 Notes remain outstanding. We may continue to use cash on hand to repurchase additional 2023 Notes through open-market transactions, including through Rule 10b5-1 trading plans to facilitate open-market repurchases, or otherwise, from time to time. The timing and amount of repurchase transactions will be determined by management based on the evaluation of market conditions, trading price of the 2023 Notes, legal requirements and other factors. The 2023 Notes were not convertible as of September 30, 2021. 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. See Note 4, Convertible Senior Notes. We believe that our existing funds, cash generated from operations and existing sources of and access to financing are adequate to fund our need for working capital, capital expenditures, debt service requirements, continued advancement of research and development efforts, potential stock repurchases and other business initiatives we plan to strategically pursue, including acquisitions and strategic investments.
Leases and off-balance sheet arrangements
We lease our office facilities under operating lease arrangements with varying terms through
March 2032. In addition, we signed our new Emeryville headquarter expansion leases and Icagenleases during the nine months ended September 30, 2021as discussed below under the "Contractual Obligations" section. The lease agreements provide for increases in annual rents based on changes in the Consumer Price Index or fixed percentage increases between 3.0% to 4.0%. See Note 8, Leases. We had no off-balance sheet arrangements at September 30, 2021and December 31, 2020. 32 -------------------------------------------------------------------------------- Cash Flow Summary (Dollars in thousands) YTD 2021 YTD 2020
Net cash provided by (used in):
$ 51,156 $ 54,049Investing activities $ 66,236 $ 613,850Financing activities $ (141,925) $ (283,016)During the nine months ended September 30, 2021, we repurchased $152.0 millionin principal of the 2023 Notes for $156.0 millionin cash, including accrued interest of $0.3 million. During the nine months ended September 30, 2020, we repurchased $234.4 millionin principal of the 2023 Notes for $203.8 millionin cash, including accrued interest of $0.6 million, used $73.3 millionto repurchase our common stock, paid $15.1 millionin cash for the Icagenacquisition, and a total of $11.6 millionin cash for xCella and Taurus acquisitions.
There have been no material changes outside the ordinary course of business to the Contractual Obligations table set forth in our 2020 Annual Report, other than the addition to our operating lease liabilities (adjusted for the lease incentives) for the portion of the new leases with a starting accounting commencement date during the nine months ended
September 30, 2021. See Note 8, Leases. Critical Accounting Policies Certain of our policies require the application of management judgment in making estimates and assumptions that affect the amounts reported in our consolidated financial statements and the disclosures made in the accompanying notes. Those estimates and assumptions are based on historical experience and various other factors deemed applicable and reasonable under the circumstances. The use of judgment in determining such estimates and assumptions is by nature, subject to a degree of uncertainty. Accordingly, actual results could differ materially from the estimates made. There have been no material changes in our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our 2020 Annual Report, other than the adoption of the Accounting Standards Updates described in Item 1. Condensed consolidated Financial Statements - Note 1, Basis of Presentation and Summary of Significant Accounting Policies, related to allowance for credit losses.
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