Points of Consideration for Ligand

By Travis Johnson, Stock Gumshoe, June 17, 2014

Those who are Irregulars know that I own shares of Ligand (LGND) and suggested it last summer in the mid-$30s, and have nibbled personally on the way up.

My reasons for liking Ligand are basically two: They have a royalty-driven business model that provides potential upside with low capital needs; and they have a focus on cash efficiency.

The streamlined business model, which they essentially switched to under pressure from investors, after being a weak, cash-hemorrhaging company for many years, is predicated on partnering the compounds that they own or that use their proprietary drug delivery platform Captisol (for solubility), and getting those compounds off of their books as soon as possible so they don’t spend much money on them.

Their goal is to build a portfolio that delivers milestone payments and royalties as those drugs are developed and commercialized… and that, unlike most younger biotech companies (Ligand has been around for a long time, but really completely rearranged itself a few years ago) it is financially savvy. The company is really run by financial folks, not by science folks. That doesn’t mean they’ll necessarily do better, of course, but it provides a different mindset.

The reasons for buying them last year, as growth was just heating up, were the breakout performance of the two drugs that provide most of their royalty revenue, Promacta (GlaxoSmithKline) and Kyprolis (Amgen), and the increasing cash flow from those royalties… added to the fact that they have multiple other potential programs that might make it through the development pipeline.

I don’t have any news from the company, other than that their latest results indicate more possible label expansion ahead for Promacta, continuing efforts by Amgen to move Kyprolis up to getting expanded indications in multiple myeloma, and the initial (extremely early) results from their unpartnered diabetes drug were promising, and… well, that’s about it. They have a half-dozen partnered drugs that generate small royalties, but their only newish drug that has fairly high potential (but also extreme uncertainty) is Duavee from Pfizer, the estrogen drug for hot flashes that is supposed to reduce cancer risks versus straight premarin… but I’ve seen no indication of what the sales of that might be (that one’s controversial too, and came to market about a decade behind schedule after being written off by most people).

The big news, though, is a strongly-worded analysis ...

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