Ligand Pharmaceuticals: The New Ligand Is Looking Good

This is my second recent Ligand (NASDAQ:LGND) article following 12/2022's "A New Ligand Is Taking Shape" ("Taking Shape"). Taking Shape described Ligand's new look following its recently completed OmniAb (OABI) spinoff and its new CEO Todd Davis.

In this article I evaluate Ligand's investment merits following its Q1, 2023 earnings call (the "Call"). Supplementing the Call, I cite the following Q1, 2023 resources:

1. 10-Q (the "10-Q");
2. Presentation (the "Presentation");

Ligand's captisol COVID bounty is tailing off to zero leaving core captisol franchise in place.

Long ago in 2015, Ligand made a seminal deal with Gilead (GILD) for its captisol solubilizing agent. At the time the deal was focused on using captisol in an Ebola drug that Gilead was developing. The parties revised the deal over the years.

It took on a disproportionate importance in 2020 when COVID struck and Gilead started needing large quantities of captisol for its FDA approved VEKLURY (remdesivir) infusions. During Ligand's Q4, 2022 earnings call it advised that its COVID related revenues during the three pandemic years (2020-23) exceeded $300 million.

All good things come to an end. For Ligand's COVID related captisol revenues that is certainly the case. The 10-Q's disaggregated revenue table on page 11 shows a total of ~$10.62 million captisol revenues for Q1, 2023. None of the $10.62 million "represents revenue on Captisol supplied for use in formulation with remdesivir, ... for COVID-19".

Presentation slide 16 describes the ongoing importance of Ligand's captisol technology:

Its presentation slide 17 sets out the cadence of Captisol partnerships that Ligand has inked over the last dozen years:

Page 3 of Ligand's 2022 10-K lists half a dozen other FDA therapies enabled by captisol. While captisol's pandemic era revenues played a major role in solidifying Ligand's finances, Ligand has other platforms that it identifies as key to its future.

Ligand has a nice group of additional revenue platforms and technologies beyond captisol.

PELICAN

Ligand addresses its pelican platform at Presentation slide 18:

Ligand acquired this productive PELICAN platform with its 10/2020 acquisition of Pfenex. In its release announcing completion of the deal it described the technology that it now includes in its PELICAN platform as:

1. a protein expression technology platform;
2. to develop next-generation and novel protein therapeutics;
3. to improve existing therapies and create new therapies for biological targets linked to critical, unmet diseases;
4. the proprietary PELICAN platform uses P. fluorescens bacterium, which are especially well-suited for complex, large-scale protein production that cannot be made by more traditional host systems;
5. contributing significant value to biopharmaceutical development programs by reducing development timelines and costs for manufacturing human therapeutics and vaccines.

PELICAN is the driver behind a variety of FDA approved therapies generating revenues for Ligand under a variety of collaborations including:

FILSPARI (sparsentan)

Ligand has a sweet license deal providing it with modest milestones but a solid 9% royalty with Travere Therapeutics (TVTX) on global net sales of FILSPARI. This is exciting for Ligand because on 02/17/2023 Travere announced accelerated approval of FILSPARI, for the Reduction of Proteinuria in IgA Nephropathy.

The Presentation envisions this as opening up a vast revenue stream for Ligand as reflected by Presentation slide 12 below:

Before rejoicing too much one needs to check out the release announcing accelerated approval. It advises that it has not:

...been established whether FILSPARI slows kidney function decline in patients with IgAN. The continued approval of FILSPARI may be contingent upon confirmation of a clinical benefit in the ongoing Phase 3 PROTECT Study, which is designed to demonstrate whether FILSPARI slows kidney function decline. Topline results from the two-year confirmatory endpoints in the PROTECT Study are expected in the fourth quarter of 2023 and are intended to support traditional approval of FILSPARI.

in other words FILSPARI's approval may get yanked sometime later in 2023 or early next year. In an article placing a "SELL" rating on Travere, Seeking Alpha analyst BiotechValley Insights posits weak evidence of proteinuria as a surrogate endpoint in IgAN.

ENSIFENTRINE

Presentation slides 13 and 14 describe its ensifentrine opportunity. Ligand's licensee Verona (VRNA) anticipate filing an NDA for ensifentrine in treatment of COPD shortly. If approved ensifentrine could rack up huge sales as envisioned by slide 14:

The royalty pegged at a low single digit tamps down Ligand's returns on this potential mega blockbuster, although if approved it would still be significant.

Ligand's 2023 guidance forecasts 20% growth in revenues and 50% growth in EPS.

Ligand's Presentation slide 20 sets out its 2023 guidance:

The Presentation also includes a mostly redundant outlook slide that supplements the guidance slide with the following:

1. calculating 20% growth in care revenues over 2022;
2. calculating 50% growth in adjusted diluted EPS over 2022;
3. $212 million in cash & short term investments balance sheet at year end 2022.

Ligand's cash at any particular point in time is unclear During the Call CEO reported the following:

We finished the quarter with $283 million of cash and cash equivalents. During the first quarter, we sold a portion of our shares held in Viking Therapeutics at a substantial gain, which added nicely to our cash balance. Tavo will give more details on this in his discussion.

As previously described, we have a $77 million convertible note that we will pay down in May, at which point we expect to be debt free with over 200 million of pro forma cash available to invest. Another key feature we are striving to improve as part of our business strategy is to have a very lean operating structure.

Conclusion

Ligand has an interesting business model which gives it the opportunity to pile up diverse revenue streams from selected pharmaceuticals. Ligand's favorable profitability metric as reflected by its quant profitability ratings screen validates its investment appeal.