VKTX - Ligand: Nothing Exciting Stands Out

2023-09-01 11:37:32 ET

Summary

• Ligand Pharmaceuticals Incorporated generates revenue through licensing technologies, contractual fees, and the sale of Captisol, a modified cyclodextrin used in drug development.
• Captisol has been a major source of revenue for Ligand, particularly through its supply deal with Gilead for remdesivir during the COVID-19 pandemic.
• Ligand has reduced analyst interest and is seeking to acquire and out-license assets from bankrupt companies, indicating a slow-moving and low-profile status.

I covered Ligand Pharmaceuticals Incorporated ( LGND ) 2 years ago. Ligand's business model is interesting - it generates revenue through licensing its technologies, contractual fees, and from the sale of a proprietary, modified cyclodextrin, a non-toxic molecule called Captisol that is used for drug development.

Cyclodextrin is a cyclic oligosaccharide composed of glucose units, and it is widely used in drug development and formulations. Its unique structure allows it to form inclusion complexes with hydrophobic molecules, which can improve the solubility, stability, and bioavailability of drugs that are not water-soluble drugs. It is used in a wide array of approved and generic drugs. Here's a somewhat long list to help understand the wide usage:

• Ketoconazole (Nizoral): An antifungal drug.

• Cyclosporine (Neoral, Sandimmune): An immunosuppressant used in organ transplantation.

• Methylprednisolone (Depo-Medrol): A corticosteroid used for various inflammatory conditions.

• Naproxen (Naprosyn): A non-steroidal anti-inflammatory drug (NSAID).

• Ibuprofen (Advil, Motrin): A widely used NSAID.

• Fenofibrate (Tricor): Used to lower cholesterol and triglyceride levels.

• Estradiol (Estrace): A hormone replacement therapy drug.

• Erythromycin: An antibiotic.

• Ritonavir (Norvir): An antiretroviral medication used to treat HIV.

• Nifedipine (Procardia): A calcium channel blocker used for hypertension.

• Simvastatin (Zocor): A statin medication used to lower cholesterol.

Captisol provides enhanced water solubility and improved inclusion complex formation compared to normal cyclodextrins. This is possible because unlike normal cyclodextrins which are primarily composed of glucose units, Captisol has sulfobutyl ether groups that add these unique properties to it. It has been widely studied, and is approved in many countries as an excipient for pharmaceutical products. Major products using Captisol include Bendamustine (Belrapzo, Bendeka), a chemo drug, Fospropofol (Lusedra), a sedative used in surgeries, another chemo drug Melphalan (Evomela) used to treat multiple myeloma, prostate cancer drug Enzalutamide (Xtandi), and Aprepitant (Cinvanti), an antiemetic drug used to prevent chemotherapy-induced nausea and vomiting.

I discussed Captisol at length because it is a major breadwinner for Ligand. During the covid years, and specifically in 2021, Captisol made a huge amount of money through its supply deal with Gilead (GILD) for the latter's covid medicine remdesivir. However, that revenue stream has now declined rapidly. For example, in 2021, the company made almost double what it made in 2022 from Captisol's covid sales. While royalties have increased significantly, contractual revenues remained more or less the same - thus, Ligand has not been able to get back to its 2021 revenues. This could be a reason the stock price has remained stagnant, relatively speaking.

As I wrote earlier, apart from Captisol, the other technologies at Ligand are:

OmniAb, Pelican Expression Technology Platform, Icagen, and LTP Technology. OmniAb is a therapeutic antibody platform that develops human antibodies in vivo. Pelican uses P. fluorescens bacteria to develop protein therapeutics. Icagen develops drugs that target ion channels and transporters.

OmniAb was divested in December 2022.

In my previous coverage, I cited a source which showed how largely shorted Ligand was during the GameStop (GME) period. By the time I wrote that article, it had already moved out of that list. As of today, it still isn't in that list. Current short interest is a measly 5%. That must be a good thing.

One way of judging interest in companies - albeit somewhat bootstrap-y - is to count the number of conference call participants, and whether their employers are major name firms, or mom and dad operations. Here's the latest conference call participation list :

Conference Call Participants

Joe Pantginis - H.C. Wainwright

Matt Hewitt - Craig- Hallum Capital Group

Larry Solow - CJS Securities

I can tell you that in 2021, there were many more participants at these earnings calls, and from many large firms as well. For example, in most of 2021, there were at least 5, sometimes 6 participants. In 2022, there was one season when there were just 2. This may sound silly, but it is not. Unlike the reduced short interest, the reduced analyst interest is not a good thing per se. Ligand avoids the risks of costly trials by settling for a royalty model; but it also forgoes the potential profits that are the hallmarks of successful biopharma.

In July, Ligand did something interesting and novel - it agreed to acquire the assets of Novan , a company going through bankruptcy, for $15mn. Novan has a product candidate called berdazimer gel, which is in development for molluscum contagiosum infection, and has a PDUFA date of Jan. 5, 2024. Interestingly, despite this achievement, Novan went under. Ligand does not plan to develop this asset further, or commercialize it - it just seeks to outlicense it, or sell it outright:

Ligand will acquire the Novan assets and consistent with Ligand's business model, will seek to outlicense or sell the existing development programs and commercial business assets of Novan.

While Ligand says this is consistent with its business model, I find this transaction highly unusual given its royalty model.

Another development is that Travere received FDA approval for Filspari in IgA neuropathy in February, which is something that got delayed in 2021 when I last covered Ligand. Ligand believes Filspari will be a major earner for the company.

This year, Ligand also reduced its stake in Viking Therapeutics ( VKTX ) by 2%. 3 months later, Viking announced positive results from its lead candidate VK2809 in biopsy-confirmed NASH. Had they held on for 3-4 months longer, they would have earned double what they did. I guess it is not much consolation saying that had they held on one more month after that, they would have earned almost the same as in February, because after a month-long spike, VKTX went down again, and has remained there.

Financials

LGND has a market cap of $1.15bn and a cash balance of $219mn. The following para on revenues is telling:

Total revenues for the second quarter of 2023 were $26.4 million. Revenues for the same period in 2022 excluding sales related to COVID-19 were $23.9 million. Total revenues for the second quarter of 2022 including COVID-19 related sales were $50.1 million.

R&D expenses in the second quarter of 2023 were at $6.9 million. G&A expenses in the second quarter of 2023 were $11.3 million. This gives them a nice 8-10 quarter runway. The company launched a $50mn share repurchase program. They also paid off "the remaining balance of the convertible notes and are now debt free."

Bottom Line

Ligand Pharmaceuticals Incorporated is a slow-moving, slow-burning, low profile company. There's a steady revenue stream, and there's an effort to make good the loss of the covid-related income. However, nothing exciting is happening here right now. I will pass.

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