Ligand Pharmaceuticals And The OmniAb Platform

About: Ligand Pharmaceuticals Incorporated (LGND)
by: First Genesis Consulting

Ligand is developing antibodies-based therapeutics for the treatment of diseases affecting several organ systems.

It has multiple partnership agreements with over 35 public and private biopharmas for the OmniAb technology.

It foresees the OmniAb discovery platform as an important clinical tool for maintaining its clinical longevity and an important revenue stream.

Market Assessment

In the last 12 months, the price of Ligand (LGND) stock has depreciated from a high of ~$252 on September 6th, 2018, to today’s price of ~$88. As a small market cap ($1.7B) creating and/or acquiring technologies to develop innovative therapeutics, LGND has a unique business model focused on licensing out/partnering with other biopharmas to clinically develop innovative drug candidates. Ligand describes its business model as creating "value for stockholders by providing a diversified portfolio of biotech and pharmaceutical product revenue streams that are supported by an efficient and low corporate cost structure. Our goal is to offer investors an opportunity to participate in the promise of the biotech industry in a profitable, diversified and lower-risk business than a typical biotech company."

Our business model is based on doing what we do best: drug discovery, early-stage drug development, product reformulation, and partnering. We partner with other pharmaceutical companies to leverage what they do best (late-stage development, regulatory management, and commercialization) to ultimately generate our revenue.

In line with its business model, LGND has a diversified portfolio and a significant number of license agreements and multiple royalty revenue streams. Notwithstanding the decline in total revenues and royalties in Q2/2019, its business model of a diversified portfolio should bode well for the company, financially, in the next decade and beyond. Specifically, LGND foresees its OmniAb discovery platform as an important clinical tool for maintaining its clinical longevity and being financially viable.

The OmniAb antibody discovery platform was initiated in 2015 through the acquisition of OMT (Open Monoclonal Technology), Crystal Bioscience, and Ab Initio. LGND perceives OmniAb to be a first-in-class discovery platform. OmniAb platform is a collective name for genetically-modified animals namely rats, mice, and chickens that "produce highly diversified, fully human antibody repertoires optimized in vivo for manufacturability, therapeutic efficacy, and reduced immunogenicity - Naturally optimized human antibodies®. The single-license OmniAb offering is the industry's only with three species and multiple genetic backgrounds to address even the most challenging targets - 3 species, 1 license™."

CEO John Higgins noted the assembly of a very large portfolio of 40 partnerships agreement with private and public companies, including bluebird (NASDAQ:BLUE), Amgen (NASDAQ:AMGN), Celgene (NASDAQ:CELG), Boehringer Ingelheim, Seattle Genetics (NASDAQ:SGEN), Pfizer (NYSE:PFE), and many more. The CEO reiterates that antibodies are an attractive research area that is associated with commercial success with biologic and antibody drugs receiving a higher rate of marketing approval from the FDA than small molecule or chemical-based medicine after a successful Phase 1 trial.

Commercially, antibody-based therapeutics have been successful and are expected to grow in the next decade. For example, Humira (Adalimumab) is the or one of the best selling antibody-based therapeutics with peak annual sales of about $20B. It is used in rheumatoid arthritis, psoriatic arthritis, Crohn’s disease, and many more clinical indications.

Institutional Investors, Insiders' Purchase, And Analyst Ratings

Due to its multiple partnership agreements, several catalytic events are expected in the upcoming months/years. LGND has several investigative drug candidates in Phase 3 clinical development with ZULRESSO™ (brexanolone) by SAGE Therapeutics (SAGE) commercially launched in Q3/2019.

At the end of Q2/2019, LGND reported that revenues were down by 72.2% at $25M. Likewise, royalties were down by 79% at $6.6M. Specifically, total revenues for the six months ended June 30, 2019, were lower at $68M, compared with $146.2M for the same period in 2018..

Cash, cash equivalents and short-term investments of $1.3B were reported at the end of Q2/2019, with $105M utilized for share repurchase and taxes, relating to the $827M sale of Promacta.

Based on the latest 13F filings, institutional ownership currently stands at 133.51%, with 362 institutional holders accounting for 25,381,279 total shares. The two top shareholders are BlackRock, Inc. and Vanguard Group. Analysts recommend a strong buy with a 12-month consensus price target of $190.

Market Outlook

CEO John Higgins on the future:

Our business is built around sharing in the success of our partners in the form of our royalties on their net sales. This is a lucrative and successful model that has driven a substantial value increase in Ligand's share price from the time of acquisition of Captisol several years ago. Given everything we know today about our technology, our IP, and partner's investments, we see OmniAb generating substantial annual royalties for Ligand.

We strike OmniAb deals with a mix of upfront and annual payments, success based milestones and royalties. We have today over $900 million of total OmniAb potential milestones under contract, and then of course there are the royalties. Most of our contracts have tiered royalties based on sales with a general range we describe as 2% to 6%. A handful of companies have a right to buy down or buy out the royalty for a large one-time payment but that is not typical. And most of that structure is a legacy of deals done prior to the Ligand acquisition of OMT.

Besides the addressable market, and other factors in the deal negotiations ultimately determine how we settle out on final royalties. As investors build our models around on OmniAb, we believe the fundamental long-term drivers should be royalty revenue performance.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in LGND over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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