LGND: 3Q Sales Surprise to the Upside

By John Vandermosten, CFA

NASDAQ:LGND

READ THE FULL LGND RESEARCH REPORT

Ligand Pharmaceuticals, Inc. (NASDAQ:LGND) reported third quarter results on November 7th, 2024. Revenues of $51.8 million were well ahead of our estimates due to contributions from Verona’s Ohtuvayre, Qarziba and growth in Filspari. Core adjusted earnings of $1.84 were also ahead of our estimates. Top and bottom-line beats prompted Ligand to raise guidance on revenues on the top end by about $8 million to a range of $160 to $165 million. Earnings guidance rises by 20¢ on the top end to a range of $5.50 to $5.70. The earnings call focused on the opportunity for the recently approved Filspari that not only received full approval in the US and in Europe but is also a candidate in focal segmental glomerulosclerosis (FSGS). Other material news was the expansion of the CDC’s guidelines for Capvaxive to include adults 50 years of age and older and expansion of Ohtuvayre studies into China. While no guidance was given for 2025, Ligand will have an investor day on December 10th that will review the company’s strategy and provide a long-term financial outlook.

Third Quarter Financial and Operational Results

Ligand reported third quarter 2024 results in a press release and Form 10-Q filing with the SEC on November 7th. A conference call was held to discuss results with investors following the release. For the quarter ending September 30, 2024 revenues of $51.8 million were recognized. GAAP net earnings per share loss for 3Q:24 totaled ($0.39) and core adjusted EPS was $1.84. For the third quarter of 2024 versus the same prior year period:

• Revenues of $51.8 million rose 58% from $32.9 million due to strong growth in intangible royalties, financial royalties and contract revenue partially offset by a decline in Captisol sales. Primary revenue drivers include milestone and royalty payments from the commercial launch of Verona Pharma’s Ohtuvayre. The newly acquired Qarziba and Travere Therapeutics’ Filspari also contributed to growth. Contract revenue increased to $13.8 million as the $13.5 million milestone payment for the launch of Ohtuvayre was recognized;
• Cost of revenue, which is related to Captisol, totaled $2.4 million, fell 30% from $3.5 million. Gross margin improved to 60.8% from 59.5%;
• Amortization of intangibles was $8.3 million vs. $8.2 million;
• Research and development expense totaled $5.7 million vs. $5.5 million rising 3%;
• General & Administrative expenses were $24.5 million, up 67% from $14.7 million on due to a one-time stock compensation expense associated with the departure of the former Chief Operating Officer and an increase in expenses related to the acquisition of Novan (Pelthos);
• Non-operating income and expenses were ($9.5) million vs. ($15.2) million as Ligand recognized a gain vs. a loss from short term investments and other non-operating expense increased materially due to mark to market adjustments on derivatives;
• Income tax expense ($833,000) vs. $1.9 million representing an effective tax rate of (13.1%) and 15.4% respectively;
• Net loss was ($7.2) million vs. ($10.3) million or ($0.39) and ($0.59) per share, respectively. Adjustments to GAAP earnings added back $42.5 million or $2.23 per share to generate core earnings of $1.84 per share.¹

As of September 30, 2024, cash, equivalents and short-term investments totaled $220 million. This amount compares to the $170 million balance held at the end of 2023. Free cash flow generation for the first nine months of 2024 totaled $67.5 million while cash from financing added $76.8 million to the company’s coffers. Less investments made during the first nine months, cash, equivalents and investments rose $49.3 million, providing a healthy balance to support ongoing capital allocation to new assets. Based on the strong performance in the third quarter and the trends so far in 2024, Ligand raised its guidance for revenues from $140 – $157 million to $160 to $165 million. 2024 core EPS is up from an estimated range of $5.00 – $5.50 to $5.50 – $5.70.

Program Updates

Travere Therapeutics’ Filspari

Travere Therapeutics’ Filspari for the treatment of IgA nephropathy (IgAN) was granted full approval by the FDA in early September 2024. In mid-October the drug was granted marketing authorization by Swissmedic and the product was launched by CSL Vifor in Germany and Austria. Filspari has shown clinical benefit in focal segmental glomerulosclerosis (FSGS)² at the American Society of Nephrology Kidney Week 2024. It delivered rapid and sustained proteinuria reduction and long-term kidney health benefits in a subset of patients with genetic, often treatment resistant, FSGS. To pursue the indication in FSGS, Travere has scheduled a Type C meeting with the FDA to discuss a regulatory pathway forward and is preparing a supplemental NDA to obtain marketing approval for this indication. There are an estimated 40,000 patients with FSGS in the United States and a similar number in Europe. Data presented at the Nephrology conference also demonstrated evidence highlighting the initial safety and efficacy data of Filspari in IgAN in combination treatment with a SGLT2 inhibitor.³

Source: Ligand Pharmaceuticals 3Q:24 Earnings Presentation

Merck’s Capvaxive

Capvaxive was approved in June 2024, initially recommended for adults 65 and older and for other adults with underlying conditions. In October, the Advisory Committee on Immunization Practices (ACIP) recommended that Capvaxive be administered to all adults 50 and over and for other adults with underlying conditions. This change is expected to materially increase the vaccine’s addressable population for invasive pneumococcal disease and pneumonia.

Verona Pharma’s Ohtuvayre

Ohtuvayre was approved by the FDA in June 2024 and launched by its sponsor Verona in the third quarter. It addresses chronic obstructive pulmonary disease (COPD) and was prescribed by about 30% of the 2,500 tier 1 health care prescribers. Ligand commentary suggests that growth has been strong out of the gate with net sales of $5.6 million in 3Q:24 and October sales that exceeded 3Q:24 levels. Verona’s partner Nuance Pharma has launched a Phase III study in China and expects trial results in 2025. Forecasting analysts have predicted that Ohtuvayre will surpass $1 billion in sales. Ligand is eligible for a 3% royalty on global sales.

Viking Therapeutics VK0214

Viking Therapeutics announced positive data from the company’s Phase Ib clinical trial of VK0214 on October 9th. VK0214 IS a novel small molecule agonist of the thyroid hormone receptor beta (TRβ), in patients with X-linked adrenoleukodystrophy. Results from this study showed VK0214 to be safe and well-tolerated following once-daily dosing over the 28-day study period. Additionally, significant reductions were observed in plasma levels of very long-chain fatty acids and other lipids, as compared to placebo. Should it be approved, Ligand will receive a 3.5-7.5% royalty on future net sales of VK0214, as well as clinical, regulatory, and commercial milestones.

Source: Ligand Pharmaceuticals 3Q:24 Earnings Presentation

Milestones

• FDA approves Zelsuvmi — January 2024
• Creation of Pelthos Therapeutics to commercialize Zelsuvmi — April 2024
• Purchase of royalty rights to six Agenus oncology programs — May 2024
• FDA approval of Capvaxive — June 2024
• Ohtuvayre approval and milestone ($5.8 mm) — June 2024
• Palvella Therapeutics initiates Phase III SELVA trial for Qtorin rapamycin — July 2024
• Acquisition of Apieron Biologics for $100 mm — July 2024
• FDA full approval of Filspari — September 2024
• Ohtuvayre commercialization milestone of $13.8 mm — 3Q:24
• New data supporting Filspari use in FSGS — October 2024
• Zacks initiation of coverage of Ligand — October 2024
• Ligand analyst day (Boston) — December 10, 2024

Summary

Ligand produced impressive results for the third quarter handily beating our revenue and core earnings expectations. Growth in Filspari, a milestone payment from Verona for Ohtuvayre’s commercial launch and contributions from the recently acquired Qarziba were the primary contributors to the 58% year over year increase. Despite the $100 million acquisition of Qarziba in July, cash and equivalents fell by only ~$7 million due to strong cash generation and the issuance of shares. The $220 million cash and equivalents balance is augmented by a revolving credit facility that can provide another $125 million. This provides substantial dry powder for what we see is an environment full of opportunities in Ligand’s sweet spot of late-stage development assets. We have a high degree of confidence in Ligand’s portfolio and in particular see substantial value in Pelthos. Its lead asset, Zelsuvmi, is approved and Ligand is looking for a financial partner to launch the treatment for molluscum contagiosum, which affects six million people in the United States. A deal for Pelthos could take place in the near term unlocking an attractive upfront and royalty stream for Ligand. While management has not provided any hints on 2025 numbers, Ligand has announced its analyst day on December 10th. We expect to see 2025 guidance and an update to revenue and earnings expectations then. We maintain our valuation of $128.00 per share. 

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¹ Details of the GAAP to core earnings reconciliation are in Ligand’s 3Q:24 earnings press release.

² FSGS is a kidney disease that causes scarring in the glomeruli, the tiny filters in the kidneys that filter waste from the blood. The scarring can affect some (focal) or all (global) of the glomeruli. Protein may leak into the urine and kidney function can be reduced requiring diet modification and anti-inflammatory treatment. There are no disease modifying therapies for FSGS.

³ SGLT2 inhibitors are used to treat type 2 diabetes. They work by blocking the sodium-glucose cotransporter 2 (SGLT2) protein in the kidneys. This protein normally reabsorbs glucose from the urine back into the bloodstream. By blocking SGLT2, SGLT2 inhibitors prevent the kidneys from reabsorbing glucose, causing the body to excrete more glucose in urine. This helps lower blood sugar levels.

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