Bearish outlook for Ligand from Lemelson Capital

|About: Ligand Pharmaceuticals... (LGND)|By:, SA News Editor

Shares of Ligand Pharmaceuticals (LGND -2.8%) had an up-and-down session today. Shares were up 4.6% to $69.84 late morning but reversed in the afternoon after SA published a bearish article by Lemelson Capital that predicts a price of $0/share. Shares bottomed at $63.27 (-5.2%) before recovering a bit to close at $64.89 (-2.8%). Volume was 2x higher than average but the issue is thinly traded. Total turnover was only 583K shares.

Lemelson says the company is due for a significant down move because of the threat to Promacta, its principal source of royalties, from Gilead's Sovaldi (and eventually others). The logic is that if HCV infection can be cured then there will be much less demand for a drug that treats low platelet counts in people with HCV (Promacta is also indicated for patients with low platelet counts with chronic ideopathic thrombocytopenia).

Lemelson also says LGND's P/E ratio of 115 is excessive when compared to members of Big Pharma. This may be, but the comparison should really be made against the biotech industry as a whole. Per MSN Money, the industry's P/E is 108 so Ligand's value is not excessive on this criterion. Other metrics that would be more informative than P/E would be P/S (LGND: 26.3 vs 9) and P/B (21.3 vs 8.1).

Consensus estimates for earnings and revenues for Q2 and Q3 are $0.14/share on revenues of $9.8M and $0.42/share on revenues of $16.7M, respectively.

Consensus views for 2014 and 2015 are earnings of $1.44/share on revenues of $62.9M and $2.54/share on revenues of $88M, respectively.

288 mutual funds have positions, up from 175 a year earlier.