Update: Ligand Earnings - Strong Q2-Growth Beats Expectations

| About: Ligand Pharmaceuticals (LGND)
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Ligand surpasses expectations for Q2 2014.

Based on this event, I reiterate my bull thesis on Ligand.

I anticipated strong performance as royalty payments to Ligand increase. The earnings report corroborates this position.

A week ago, I wrote a bullish article on Ligand (NASDAQ:LGND), with a thesis stating that the company's outlook should improve with increasing royalty payments and new collaborations using its Captisol technology platform. I also stated that Wall Street is overlooking the fact that Ligand's partners will spend more than $800 million in R&D in 2014, which, in my opinion, validates Captisol and should alleviate any concern about Ligand's legitimacy as an emerging pharmaceutical company. However, there are underlying risks to a Ligand investment, given that the company has reeled from a series of negative reports from a hedge fund called Lemelson Capital, which is short Ligand (see previous article for more details). This prompts concern that Lemelson's bearish assertions may hold merit, and that the firm will continue to publish additional articles to drive the share price down, in my opinion. However, after the latest earnings beat, I reiterate my bull thesis since Ligand appears on track to improve growth at a faster rate than expected by analysts, accompanied by significant catalysts that could drive shares higher.

As reported by Seeking Alpha some key highlights of Ligand's latest earnings report are as follows:

  • Earnings per share increases to $0.24, surpassing analyst expectations by a whopping $0.10.
  • Revenue rises to $10.6 million, up 10.4% YOY, surpassing analyst expectations by $0.87 million.
  • Management raises 2014 total revenues guidance for $64 million - $66 million, compared to prior guidance for $62 million - $64 million.
  • Management also raises 2014 non-GAAP EPS guidance for $1.50 - $1.55, compared to prior guidance for $1.40 - $1.45.

Why the earnings beat? According to CEO John Higgins, "[Ligand] is firing on all cylinders." The specific reasons are threefold: first, total revenue increased to $10.6 million, up $1 million compared to Q2 2013, stimulated by additional license and milestone revenue ($1.2 million) and higher royalties. Notably, Ligand's Kyprolis partner, Amgen, (NASDAQ:AMGN) announced positive data earlier today from the Phase 3 ASPIRE trial. Indicated for the multiple myeloma market, Captisol-enabled Kyprolis is also seeing impressive quarterly growth in the US, and with plans to file for regulatory approvals in other key markets, Ligand stands to benefit immensely. Second, Ligand continues to benefit from high growth margins and low operating expenses, as well as a sub-5% tax rate effective going forward. And third, the $500,000 decline in Captisol material sales was offset by total royalties from Captisol. CEO Higgins also mentioned a 40% YOY increase in interest in Captisol samples, which bodes well for Ligand in its efforts to acquire additional partnerships. Thus, I reiterate my bull thesis on Ligand in the wake of the latest earnings beat, as well as the company's outstanding prospects for future growth.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.