Ligand Pharmaceuticals Inc (LGND) - An Evaluation
Who is Ligand Pharmaceuticals?
Ligand Pharmaceuticals Incorporated (Ligand), located in La Jolla, CA, is a biotechnology company that operates with a business model focused on developing or acquiring revenue generating assets and coupling them with a lean corporate cost structure. The Company’s technology CAPTISOL is a formulation technology that has enabled seven United States Food and Drug Administration (FDA) approved products including Kyprolis and Noxafil-IV and is being developed in several clinical-stage partner programs. The Company is engaged in the development of product candidates indicated for the treatment of diseases, such as hepatitis, multiple myeloma, muscle wasting, Alzheimer’s disease, dyslipidemia, diabetes, anemia, epilepsy, focal segmental glomerulosclerosis (FSGS) and osteoporosis.
How did you learn about them?
A stock screen search for stocks with high earnings growth and high profit margin.
Let’s look at criteria? Are they growing Revenue?
For a look at Revenue:
2015: 75M to 76M estimated in November
Sequential YoY increases are 28%, 4%, 56%, 32%, ~17%
How about earnings?
2012: 0.15 per diluted share
2013: 0.92 per diluted share
2014: 1.52 per diluted share
2015: 3.34 to 3.37 estimated in November by Company
Sequential YoY increases are 513%, 65%, ~121%. With a PE of 9.07 this gives a 1YPEG of 0.07!
Is there a reasonable PE?
It’s about 9.07 as of this writing.
Tell me more what they actually do?
They are a biotechnology company with a business model based on developing or acquiring assets which generate royalty, milestone or other passive revenue for Ligand and using a lean corporate cost structure. By diversifying our portfolio of assets across numerous technology types, therapeutic areas, drug targets, and industry partners, we offer investors an opportunity for broad exposure to multiple pharmaceutical and biotechnology assets without the risk associated with developing only one or a limited number of drugs. These therapies address the unmet medical needs of patients for a broad spectrum of diseases including thrombocytopenia, multiple myeloma, hepatitis, ventricular fibrilation, muscle wasting, Alzheimer’s disease, dyslipidemia, diabetes, anemia, asthma, focal segmental glomerulosclerosis (“FSGS”), menopausal symptoms and osteoporosis. Our partners include several of the world’s leading pharmaceutical companies such as Novartis, Amgen, Merck, Pfizer, Baxter International, and Eli Lilly.
Do they have a moat?
They already have 125 programs (25 of them being very recently added) with 72 different companies. Quotes from John Higgins, Chief Executive Officer of Ligand on Nov 18th: “$1.8B in partner R&D to be spent on these programs during 2016, up from $1.1B in 2015; and projections for 24 commercial products in 2020. …This momentum supports our expectations for a revenue compound annual growth rate of 36% for the years 2012 to 2017, all against a relatively flat expense structure.”
What is your overall impression?
They have an impressive track record over the last few years and the 5 year price chart shows over a 1000% increase in that short time. But you look over the past 10 years and it is only up 50%. To me this warrants more investigation into what happened to them to lose 75% in 2007.
I believe they are only a 19 person company, but they seem to think they can take on the new products with virtually no increase in costs to operate. It is currently a very profitable business model with a strong partnership of companies that is executing well. They just signed a new 7 year lease for the business with an option for 5 additional years. It’s a still a buy to me given the low PE and high earnings growth. They also were ranked 19th in the Fortune Inc 2015 Fasting Growing Companies list (beating SKX by only 2 ranks).
I welcome other thoughts and knowledge on them… Have a Profitable New Year!