Ligand (LGND) started us off on Monday with a huge “beat and raise” quarter — which was already at least partly in the works, since they had raised expectations earlier and made a big deal with WuXi Biologics to amend a license agreement in exchange for a $47 million up-front payment… but they did exceed my higher expectations, again, and they said plenty of optimistic things about their two lead royalties, anticipating that both Kyprolis and Promacta will become “blockbuster” drugs this year (that means a billion in sales, so that’s just essentially forecasting that both of those drugs will see sales growth in at least the 20% neighborhood for 2018). That optimism and the “beat and raise” drove the shares up close to 10% more, though they’ve stabilized a bit in the past couple days.
And after the earnings announcement, news came out that Ligand is planning to acquire small drug developer Vernalis (public in the UK) for about $43 million in cash. Vernalis is a “structure-based drug discovery biotechnology company,” and was in the process of putting itself up for sale, so this is not a huge surprise or that big of a deal.
So what does Ligand get? A portfolio of 8 “fully funded partnered programs” with pharmaceutical and biotech companies, and a R&D operation that is much larger than Ligand’s existing employee base but is also essentially “break even” — they have collaboration agreements that generate $8 million a year, and they spend about that much doing the work… but they also get the potential to add to their portfolio of “shots on goal” from this R&D work that could lead to royalties or milestone payments, along with a bunch of early stage preclinical programs that could be partnered or sold along the way. Vernalis also has about $36 million in cash on hand, so this deal ends up being awfully close to break-even for Ligand as well — which probably means that the assets are not obviously appealing to other acquirers.
So this looks like essentially a nothing deal at this point — which is good. It costs Ligand very little, it might end up generating some incremental revenue in the coming years if compounds are found, and the company can essentially pay for itself just by chugging along as it has been. Might be just the kind of operation that can benefit ...