Player Avatar zzlangerhans (99.76) Submitted: 3/20/2012 8:17:57 PM : Underperform Start Price: $16.71 LGND Score: +11.83

I used to think that Ligand was a well-run and productive operation, successfully progressing drugs through early stages of development and then licensing or partnering them with large pharmaceutical companies. I looked past their weak quarterly revenues and the opacity of their partnership agreements, figuring that it would be only a matter of time before everything came together and they became cash flow positive.

In 2012, I've come to the conclusion that Ligand is more like a schizoaffective chimpanzee with a box of Godiva chocolates. They take a bite of one, and throw it on the floor. Take a bite of another, throw it at another chimpanzee. Take another one and mash it into their fur. The company seems to have an unending appetite for new pipeline projects, mostly picked up from other failed small pharmas, yet none ever translate into significant revenues. During the time I've been following the company, Ligand has taken over Metabasis, Neurogen, and Pharmacopeia with very little to show for it.

The latetst acquisition was of privately-held Cydex and their Captisol drug formulation technology for 36M and contingent payments. Despite the cheap price, captisol compounds have now almost completely taken over Ligand's PR to the virtual exclusion of older projects such as Promacta and bazidoxifene. The final straw for me with Ligand came when the company proudly announced a partnership with Retrophin for DARA for 1M up front plus undisclosed milestones and royalties. There are so many things wrong with this deal, it's hard to list them with a straight face.

First of all, there's no objective evidence that Retrophin has any real operations. The CEO is Martin Shkreli, better known for running hedge fund MSMB Capital Management and penning tongue-in-cheek (and often painfully accurate) dissections of small biotech companies to support his fund's short positions. Shkreli's fund made a buyout bid for Amag Pharmaceuticals last year which was essentially disregarded. I've got nothing against Shkreli, but I suspect Retrophin is some form of sockpuppet he's created to hold biotech assets and possibly sell them a later date, without making any genuine effort to further their development himself. DARA was the main asset of the Ligand's Pharmacopeia acquisition in 2008. So Ligand paid 70M for DARA, and is now selling it for 1M. Good deal. Meanwhile, it seems unlikely any milestone and royalty payments will be coming from Retrophin.

I think I might buy Captisol for 1M up front and a trillion dollars in milestones and royalties, and then sit on it until I can sucker someone else into buying it for 5M. Anyone out there want to chip in?

Meanwhile, Ligand stock is rising rapidly with a market cap of 321M as of this writing. The company had 18M in cash, 30M in debt, and 2.6M in royalty revenue last quarter. Ligand makes more money selling Captisol to their partners for use in clinical trials than it does on royalties from their entire history of R&D. Hate to think what's going to happen if those trials don't end up in FDA approval of any Captisol products.

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