LGND - Ligand Pharmaceuticals: A Complicated Tale

2023-11-15 13:22:59 ET

Summary

• Ligand Pharmaceuticals Incorporated is a biopharma company focused on developing technologies for pharmaceutical companies.
• The company has a wide assortment of assets it draws royalty income from and an expanding pipeline.
• Ligand Pharmaceuticals also has a solid balance sheet and enjoys strong analyst firm support at current trading levels.
• An analysis around Ligand Pharmaceuticals follows in the paragraphs below.

Even a wise man knows doubt from time to time, it is the fool who allows it to rule his judgement .”? Jennifer Hudock.

Today, we put Ligand Pharmaceuticals Incorporated ( LGND ) in the spotlight. The stock is far under most analyst firm price targets and the shares saw its first insider buying of the year in late September. The company has a vast collection of assets and moving parts. Ligand has also made a series of small acquisitions in recent months. An analysis follows below.

Company Overview:

Ligand Pharmaceuticals is a biopharma concern based in San Diego, CA. The company is focused on developing or acquiring technologies that help pharmaceutical companies to discover and develop medicines. The stock currently trades for just north of $55.00 a share and sports an approximate market capitalization of $970 million.

The company has somewhat of a unique niche in the developmental space. Ligand's business model is to acquire assets in a variety of ways (see above) and build a portfolio of royalty streams.

Ligand currently has numerous current assets providing royalty streams and myriad late programs that could do so in the future.

The company also gets revenue from contract manufacturing and also has late stage partnered programs that have the potential to add new royalty streams over the medium term. For a more complete list of potential assets/royalty streams in the pipeline, click here .

Recent Developments:

Ligand has been quite busy within its product portfolio over the past two months. In late September, the company formed a new synthetic biology company called Primrose Bio, which management stated would " accelerate profitability and give the company multiple new 'shots on goal' for royalty streams while lowering its infrastructure costs ."

Since Primrose Bio was birthed, Ligand has also made three small acquisitions ( I , II , III ) totaling an outlay of some $65 million.

Third Quarter Results:

Ligand Pharmaceuticals posted its third quarter numbers on November 8th. The company delivered a non-GAAP profit of $1.02 a share, 40 cents a share above expectations. This as revenues fell nearly 45% on a year-over-year basis to just under $33 million. However, sales were some $5 million above the analyst consensus.

The key driver of the sales decline was due to the falloff of Covid related revenues. Q3 2022 revenues came in at $59.2 million, but excluded these streams, sales were only $26.9 million. Taking that into consideration, Ligand's revenues increased $6 million in the third quarter from the same period a year ago.

Management now sees FY2023 revenue of $126 million to $129 million, which is up slightly from previous guidance of $124 million to $126 million. Royalties will make up $82 million to $84 of overall revenues while contract manufacturing will contribute $17 million to overall sales in FY2023. Leadership also boosted FY2023 EPS guidance 15 cents a share to a range of $5.25 to $5.40.

Analyst Commentary & Balance Sheet:

Since third quarter results hit the wires, both Craig-Hallum ($135 price target) and H.C. Wainwright ($144 price target) have reiterated Buy ratings on the stock. After second quarter results posted, four other analyst firms including Barclays and JP Morgan reissued Buy/Outperform ratings with price targets ranging from $67 to $105 a share.

Approximately five percent of the outstanding float in the shares is currently held short. The company's CEO purchased just over $237,000 of new stock on September 22nd. Prior to that, several insiders sold just over $1.3 million worth of equity in March and May. That is the only insider activity in the shares so far in 2023.

The company ended the third quarter with just over $190 million in cash and marketable securities on its balance sheet . In mid-October, Ligand established a credit facility with Citibank that could provide an additional $75 million worth of liquidity, if needed. The firm listed no long-term debt on its third quarter 10-Q .

Verdict:

The company made $4.79 a share in profits on just under $180 million of revenues in FY2022. The current analyst firm consensus has Ligand making just over five bucks a share in earnings in FY2023 even as sales fall to $128 million. They see earnings of $4.18 a share in FY2024 on 10% sales growth in FY2024.

Ligand Pharmaceuticals Incorporated stock seems cheap at 11 times forward earnings, and the shares enjoy strong analyst support as well. Ligand's balance sheet is in good shape. The hard part as an investor is modeling any sort of reliable valuation on LGND given its vast number of moving parts and collection of assets. The stock is down some 15% in 2023 and could benefit as tax loss selling abates, which Morgan Stanley noted six weeks ago.

Therefore, LGND seems a decent and small covered call trade for me, and nothing more. This is how I also chose to play it.

Make your lives a masterpiece, you only get one canvas .”? E.A. Bucchianeri.

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