Ligand Pharmaceuticals Highlights XOMA-Fueled Royalty Growth, $700M in Deployable Capital

Key Points

• XOMA acquisition doubled Ligand’s portfolio to more than 220 partnered programs, adding seven commercial-stage assets, 14 late-stage programs and over $2 billion in potential milestones. Ligand expects at least $1.50 in incremental adjusted EPS contribution from XOMA next year.
• Second-quarter revenue rose 34% year over year to $64 million, while adjusted EPS increased 48% to $2.37. Ligand raised the low end of its full-year adjusted EPS outlook to $9 and ended the quarter with $1.4 billion in cash and investments.
• Ligand says it retains approximately $700 million in deployable capital after the acquisition and is targeting further royalty investments. Key catalysts include FILSPARI’s expansion, positive phase III data for Palvella’s rapamycin program and up to seven pivotal readouts by the end of 2027.

Ligand Pharmaceuticals NASDAQ: LGND outlined its royalty-focused growth strategy, recent XOMA acquisition and portfolio catalysts during a company presentation, highlighting a larger commercial-stage asset base and planned investment capacity.

Chief Financial Officer Tavo Espinoza said Ligand has operated as a royalty aggregator since late 2022 and early 2023, acquiring existing royalty interests, creating synthetic royalties by providing development capital to drug developers, acquiring assets in distressed or orphaned situations, and licensing its technology platforms.

The company’s royalty model provides Ligand with a percentage of partners’ drug sales while leaving manufacturing, development and commercialization responsibilities with the partner, Espinoza said. He added that royalties are non-dilutive, meaning Ligand’s royalty percentage does not change when a partner raises additional equity financing.

XOMA Acquisition Expands Portfolio

Ligand completed its acquisition of royalty aggregator XOMA in July. Espinoza said the transaction doubled the company’s portfolio to more than 220 partnered programs and was immediately accretive. Ligand raised its earnings guidance by $0.50 per share for the current year and said it expects the acquired business to contribute at least $1.50 per share next year.

The acquisition added 120 programs, including seven commercial-stage assets and 14 late-stage clinical programs, according to Melanie Herman, executive director of investor relations and FP&A. Three commercial assets identified as current growth contributors are Roche’s VABYSMO, OJEMDA, marketed by Servier in the U.S. and Ipsen outside the U.S., and Zevra Therapeutics’ MIPLYFFA.

Herman said the acquired contracts also include more than $2 billion in potential milestones, though those opportunities carry clinical and regulatory risk. Ligand is also entitled to 25% of any proceeds from litigation involving Janssen and XOMA related to TREMFYA, with no associated legal costs borne by Ligand, she said.

Ligand expects to reduce XOMA’s operating costs from more than $30 million to less than $5 million under its ownership, primarily through the elimination of public-company expenses. The company also acquired more than $110 million in Section 174 research and development tax credits and net operating losses, which it expects to use over the next three to five years.

Quarterly Results and Capital Position

For the second quarter, Ligand reported total revenue of $64 million, up 34% from the prior-year period, and total royalty revenue of $48 million. Herman said royalty growth was driven principally by FILSPARI, OHTUVAYRE and ZELSUVMI, with FILSPARI contributing the majority of the increase.

Adjusted earnings per share were $2.37, up 48% year over year. Ligand ended the quarter with $1.4 billion in cash and investments following a $700 million convertible debt financing completed in June. After the XOMA acquisition, the company said it retained $700 million of deployable capital when its revolving credit facility is included.

The convertible debt carries a 0% coupon rate, Herman said. Ligand intends to repay the principal in cash and purchased a call spread designed to prevent dilution up to a stock price of $524 per share. The company also repurchased 229,000 shares for $60 million.

Ligand raised the low end of its full-year adjusted EPS guidance to $9 from $8.50 while maintaining the high end at $9.50. Revenue and royalty-revenue guidance were unchanged; Herman attributed the EPS increase primarily to additional interest income and a lower share count following the financing.

Portfolio Catalysts

Lauren Hay, vice president of portfolio strategy and investments, said Ligand has 15 key commercial partnered royalty programs and is diversified by therapeutic category, indication and partner. The company is “therapeutically agnostic,” she said, but focuses on products addressing unmet medical need, a strategy that has resulted in meaningful exposure to oncology and rare diseases.

Hay said nine of the 15 commercial programs reflect new investments or approvals since Todd Davis became chief executive officer in 2022. Ligand’s selected late-stage pipeline could collectively represent $400 million in incremental peak royalty revenue, although Hay noted that phase III assets have an estimated general probability of success of about 53% and not all programs are expected to succeed.

Among recent developments, FILSPARI received approval in focal segmental glomerulosclerosis, or FSGS, after previously being approved for IgA nephropathy. Ligand receives a 9% royalty on the product. Hay said FILSPARI’s first quarter of sales following the FSGS approval exceeded analyst expectations and that the product benefits from being the first and only FDA-approved treatment for the condition.

Hay also discussed Palvella Therapeutics’ topical rapamycin program for microcystic lymphatic malformations. She said the company reported positive phase III data and is pursuing a rolling new drug application submission. Ligand receives a tiered royalty of 8% to 9.8% on the program.

Looking ahead, Ligand expects up to seven pivotal study readouts by the end of 2027, along with potential regulatory and geographic expansion catalysts for several partnered products. Espinoza said the company deployed $1 billion across 19 investments during the past three years and generally targets royalty investments below $100 million per asset while maintaining diversification across its portfolio.

About Ligand Pharmaceuticals (NASDAQ:LGND)

Ligand Pharmaceuticals, Inc is a biopharmaceutical company that acquires, develops and out-licenses proprietary technologies designed to help pharmaceutical and biotechnology companies discover and develop novel medicines. Operating primarily through its research services and royalty-generating businesses, Ligand focuses on building a diversified portfolio of technology platforms and partnering with industry leaders to advance therapeutic candidates across multiple disease areas.

The company's product offerings center around several core platforms.

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