INVESTMENT THESIS
Ligand Pharmaceuticals Inc. (NGS: LGND) is HOLD. Ligand is a biopharmaceutical outsourcing services (BPOS) company that focuses on drug discovery, early-stage drug development, and product reformulation. These tend to be risky, long-shot projects, but the company does have a winner in its Captisol program, which has been used by Gilead Sciences in the production of COVID-19 treatment remdesivir. Despite the positive news, the share price has not responded as investors continue to question the company’s long-term earnings outlook. We would consider returning the stock to our BUY list in the event of a nonfundamental pullback in the shares to technical support near $65.
RECENT DEVELOPMENTS
The beta on LGND is 1.53.
On October 30, LGND reported that 3Q20 adjusted EPS rose 112% to $1.04.
It now expects to generate 2020 adjusted EPS of $3.95, down from its earlier guidance of $4.10. It also looks for 2020 revenue of $170 million, up from a prior $165 million. For 2021, LGND expects total revenue of $285 million and adjusted EPS of $6.00.
The pandemic has generated significant new business for Ligand. The company operates four drug-development platforms (OmniAb, Captisol, Ion Channels and Protein Expression) most of which support numerous treatments for COVID-19.
On the OmniAb Platform in 3Q, more than 8,500 patients have been treated or are expected to be treated with OmniAb-derived antibodies.
It also entered into eight clinical/or commercial license agreements. Captisol has been used in the development of Veklury (remdesivir), which on October 22 received FDA approval for the treatment of COVID-19 patients requiring hospitalization.
Ligand completed the acquisition of Pfenex on October 1. The acquisition provides the company with Pfenex proprietary protein expression technology, along with ongoing collaborations with Jazz Pharmaceuticals, Merck, Alvogen, and the Serum Institute of India. LGND also entered into a new 10-year CRM197 supply agreement with a global pharmaceutical partner focused on vaccine development.
It also announced the sale of itsVernalis research operations to HitGen Inc. for $25 million in cash.
EARNINGS & GROWTH ANALYSIS
The company’s primary technology platforms are OmniAb technologies, Captisol technology, the Vernalis Design Platform (VDP), and the Liver Targeting Prodrug (LTP) platform. OmniAb is used to genetically engineer animals to create human therapeutic antibodies; the company has 80 OmniAB-related partnered programs. Captisol is a cyclodextrin technology that is designed to maximize safety, while improving the solubility, stability and bioavailability of active pharmaceutical ingredients.
The company generates revenue through Captisol material sales (56% of 3Q revenue); Royalty Payments (21%); and Contract Revenue (23%).
In 3Q, the Captisol segment had the strongest revenue growth, up 241% to 23.4 million from the prior year, and driven by both legacy customers and remdesivir-related sales. In the Royalty Payment segment, revenue fell 8% from the prior year to $9.0 million, but up from 2Q20 due to growth in Amgen’s multiple myeloma drug Kyprolis and Spectrum Pharmaceuticals’ stem cell transplant drug EVOMELA.
FINANCIAL STRENGTH & DIVIDEND
Free cash flow was $27 million.
It did not repurchase any shares in the second or third quarters. In the first quarter, it repurchased 879,000 shares of stock for $73 million.
MANAGEMENT & RISKS
John Higgins has served as Ligand’s CEO since joining the company in 2007. Prior to that, he was the CFO of Connetics Corp., a specialty pharmaceutical company (acquired by Stiefel Laboratories in December 2006). Matthew Foehr is president and COO, having served in the role since January 2015 after joining the company in 2011. He has over 20 years of experience managing global research and development programs.
Some of the drugs that LGND and its licensees and partners are developing may compete with existing therapies or other drugs under development. In addition, academic institutions, government agencies and other public and private organizations may seek patent protection for potential competing products and may collaborate with Ligand’s competitors. Ligand also faces competition from suppliers of technologies similar to its Captisol and OmniAb. Specifically, LGND competes with Regeneron’s VelociGene platform, Ablexis’ AlivaMab mouse platform, the Trianni mouse platform, and Kymab’s Kymouse platform.
LGND faces risks related to future sales of its primary partner products Kyprolis and Evomela, as well as other products under development. It also faces development and regulatory hurdles prior to partnering and/or marketing product candidates. In addition, LGND faces risks related to the availability and adequacy of coverage and reimbursement from third-party payers, and from other potential changes in the U.S. healthcare system.
While some of its technologies are currently being used to discover treatments for the virus, Ligand could still be hurt by delayed or disrupted clinical trials for other indications. The pandemic may also have other unforeseen ripple effects on the company’s results.
COMPANY DESCRIPTION
LGND has contributed its research and technologies for approved medicines that treat cancer, osteoporosis, fungal infections, and low blood platelets, among other conditions. Its partners have programs in clinical development targeting seizure, cancer, diabetes, cardiovascular disease, muscle wasting, liver disease, and kidney disease. Ligand’s business model focuses on drug discovery, early-stage drug development, and product reformulation. Its pharmaceutical partners focus on late-stage development, regulatory management, and commercialization. Most recently, the company has contributed its technologies to the development of treatments for COVID-19. The company has 115 employees.
VALUATION
On November 18 at midday, HOLD-rated LGND traded at $83.28, up $0.10.
Source: Argus
