Ligand Pharmaceuticals, Inc. (NASDAQ:LGND) held its annual analyst day on December 10th, 2024 in Boston. The company provided its 2025 expectations calling for topline revenues of $180 to $200 million and core adjusted earnings per share (EPS) of $6.00 to $6.25. This represents an approximate 17% increase at the midpoint for revenues and a 9.4% increase in EPS. A slide deck that guides the investor through the presentation is available.
Several senior executives at Ligand including CEO Todd Davis, CFO Tavo Espinosa, SVPs Paul Hadden, Karen Reeves and Rich Baxter as well as VP Lauren Hay spoke to attendees. The group provided an overview of Ligand’s strategy, portfolio, favorable features of the royalty aggregator model and of the investing environment, leading assets and an updated five-year outlook among other details.
Revenue Guidance
Ligand’s 2024 guidance provided one year ago called for revenues of ~$136 million which rose over the year to approximately $163 million. While there is no guarantee that a similar increase will happen, management’s strategy with guidance is to provide to analysts and investors a goal which they feel is achievable with a high degree of confidence which also allows for upside if outliers occur or unexpected milestones are achieved.
2025 guidance calls for total revenues of $180 to $200 million. Royalty revenues are expected to total $135 to $140 million, representing just over a 30% annual increase. Some of the primary drivers for the boost will come from growth in Travere’s Filspari, a full year of contribution from Qarziba, expected growth as well as a full year of contribution from both Verona’s Ohtuvayre and Merck’s Capvaxive. Captisol sales are expected to rise over 30% to $35 to $40 million, propelled by an inventory build for Gilead’s Veklury. Contract revenue is forecast to be down year over year to $10 to $20 million as milestone value in 2024 is expected to decline.
Ligand’s helpful five-year outlook chart is updated with some differences compared to the prior year. Contributions from existing assets breaks out Pharm Team[1] from the rest, attributing 5 percentage points from this segment rather than including it with the twelve primary revenue-generating royalty assets. Primary royalty assets are expected to contribute 13 percentage points of growth.
Financial Capacity
Ligand provided a lens into its cash, cash equivalents and revolver credit facility which provides an estimated $345 million in financial capacity to make investments as of September 30, 2024. We anticipate that Ligand can generate another $15 to $20 million in the fourth quarter to increase the amount of firepower to over $360 million. This excludes other sources of capital such as an expansion of the credit facility and equity capital raises that are available through the company’s at-the-market (ATM) facility with Stifel, Nicolaus.
Investments
Ligand implements its investment strategy using several principles. Investments are sought which are expected to generate cash flows within a few years of the investment, the product must have compelling data that supports its clinical differentiation and that it can address a high unmet need and it must have strong patent protection or exclusivity that protects it from interlopers. Other important features of Ligand’s investment criteria include a superior risk to reward ratio and structural alignment with the partner.
Investment Activity
In 2024, Ligand reviewed over 200 investments in a broad range of therapeutic categories which led to the signing of 50 confidential disclosure agreements (CDA) to conduct further due diligence. During the review, the investment team initiated in-depth research and engaged external consultants to identify key risks and upsides along with an evaluation of revenue and valuation dynamics. It reviewed each investment along clinical, regulatory, commercial, intellectual property and legal axes to ensure that the prospective investment met Ligand’s standards. Following the investment evaluation process, eight investments were closed. Looking forward, management has identified over 30 actionable opportunities which represent over $1 billion in potential investments.
Investment Review
Several members of the executive team provided reviews of Ligand’s most important assets. Lauren Hay began with a discussion of Qarziba which was acquired in July 2024 for $100 million. The product offers a tiered mid-teen royalty and has several growth drivers including the recent approval in South Korea, an anticipated biologic license application (BLA) in the United States with additional opportunities in other geographies outside of Europe. Ligand acquired rights to Ohtuvayre originally in 2018 and has added to its royalty percentage to achieve a royalty rate of about 3% of net sales. The product was approved in June 2024 for maintenance treatment of chronic obstructive pulmonary disease (COPD) and has produced a strong launch with $5.6 million in 3Q:24. In October, it surpassed the total amount of revenues generated in 3Q:24. Future growth may benefit from an ex-US partnership. Filspari is already one of the top revenue generators for Ligand due to its 9% royalty rate with Travere Therapeutics. Its first indication in primary immunoglobulin A nephropathy (IgAN) may be augmented by another approved indication in focal segmental glomerulosclerosis (FSGS) which is a type of kidney disease that affects the glomeruli. A Type C meeting is scheduled with the FDA. If approved, Filspari sales for FSGS could add another $80 million in revenues at peak. Capvaxive is a pneumococcal prophylactic vaccine that was also approved in June 2024 providing a low single-digit royalty rate. It was developed using Pelican’s PeliCRM197 carrier protein. Originally intended for adults 65 and older, in October the CDC’s Advisory Committee on Immunization Practices (ACIP) recommended the age threshold be reduced to all adults 50 and older. See our initiation for a deeper discussion of each of these programs.
Ligand’s largest revenue contributor, Captisol, has generated about $27 million in revenues over the prior four quarters and is a critical excipient in 16 approved products. It is a modified cyclodextrin that improves formulation solubility and stability and is being investigated in numerous development stage products. The Captisol team was recently expanded to help optimize the use of the product and identify life cycle management strategies that may provide additional intellectual property protection for the asset. In 2025, Ligand expects to sell more Captisol to Gilead which is rebuilding its Veklury inventories which is a demand source that is expected to continue into future years.
One of Ligand’s most exciting assets and platforms is Pelthos and its Nitricil platform. As we have discussed in previous reports, Pelthos has one approved product, Zelsuvmi, which is indicated for molluscum contagiosum. It has also successfully conducted clinical trials for its lead molecule in other indications using the nitric oxide-based platform. This includes acne, genital warts, psoriasis and atopic dermatitis. During the presentations, management likened the opportunity from Pelthos as akin to Viking Therapeutics which has provided attractive returns for Ligand over an extended period. As a brief review, Ligand acquired Pelthos’ assets in the fall of 2023 and Zelsuvmi was approved by the FDA in January 2024. Pelthos Therapeutics was established in 2Q:24 to prepare for commercialization activities and in 4Q:24 the first commercial batches of the product were validated. Partnering and launch is expected in 1H:24 through some type of as yet to be determined spin-out and product launch. We expect Ligand will receive double-digit royalties on product sales.
Zelsuvmi is approved for molluscum contagiosum and is intended for home use. Molluscum has an incidence of about six million in the United States, primarily in children. While there is another approved product, the competitor requires an in-office visit with a dermatologist and may require time-consuming follow-ups if the lesions re-appear. Ligand highlights a $200 million peak sales opportunity; however, our estimates call for 9% market penetration which produce revenues that are materially greater than this estimate.
Updated Valuation
Ligand provided detailed 2025 guidance in its December 10th analyst day. It calls for 17% topline growth driven by royalty revenues from several of the approvals and transactions that took place in 2024. Increases in Captisol sales, in part due to an inventory rebuild for Gilead’s Veklury are also important topline drivers. Costs are expected to fall in 2025 due to the anticipated spin out of Pelthos and lower expenses in several other categories. Below we summarize Ligand’s guidance details:
Topline revenues - $180 to $200 million
Cost of goods sold - $11 to $15 million
Core cash operating expenditures - $37 to $39 million
Cash operating profit - $132 to $146 million
Other income - $9 to $10 million
Adjusted net income - $114 to $125 million
Shares outstanding - 19 to 20 million
Earnings per share - $6.00 to $6.25
We assume a 22% tax rate, which is in the range previously provided by management and in line with the average rate over the last several years. We integrate the guidance into our 2025 model which appears below.[2]
We apply the same methodology as we did in our initiation to generate our updated valuation. The EBITDA model produces a range of valuations using 2025 estimated EBITDA and a range of multiples from 14.0x to 18.0x. The approximate $150 million in 2025 EBITDA produces a core valuation of $2.1 to $2.7 billion in enterprise value. To this we add the value of investments of $13.2 million, Pelthos at $134 million, cash and equivalents of $234 million for a total company value of $2.5 to $3.1 billion. Dividing by shares outstanding of 19.8 million generates a range of values from $125 to $155 per share.
We also calculate valuations using a range of multiples applied to 2025 estimated earnings per share from 18.0x to 22.0x. We generate a core value per share of $111 to $135. To this we add the value of investments at $0.72 per share, the value of Pelthos at $6.75 per share and the value of cash and equivalents at $11.80 per share to synthesize a range of target prices from $130 to $154 per share.
Our valuation model applies the midpoint of our selected EBITDA and EPS multiple ranges and blends the result to generate our valuation. Our updated target price is $141 per share.
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[1] Pharm Team includes risk-adjusted development stage programs including indication expansion for Filspari and Verona, Agenus’ BOT/BAL, Viking’s VK-2809, Palvella’s PTX-022 and other mid- to late-stage programs.
[2] Note that Ligand began breaking out Financial Royalties mid-year 2024 and that growth numbers are distorted for the separated royalty revenue categories.
