By John Vandermosten, CFA

NASDAQ:LGND

READ THE FULL LGND RESEARCH REPORT

Ligand Pharmaceuticals, Inc. (NASDAQ:LGND) reported 2024 financial and operational results posting revenues of $167 million, a 27% rise over prior year levels. Drivers for the result were a 30% increase in royalty revenues and a 44% increase in contract revenue. Adjusted core earnings per share were $5.74, up from 2023’s $4.06. Despite the better-than-expected performance, the company maintains 2025 guidance of low teens revenue growth and earnings of $6.00 to $6.25 per share. Just days before the earnings announcement, Ligand completed a $75 million royalty financing for Castle Creek Biosciences to support the latter’s D-Fi candidate for a Phase III study in dystrophic epidermolysis bullosa (DEB). Ligand led the syndicate making the investment, contributing $50 million along with others who put up the rest. The arrangement provides a high-single digit royalty to its investors. Looking more broadly, the company’s asset portfolio generated positive news including strong launch data, pursuit of new indications and increasing optimism over potential sales.

2024 Financial and Operational Results

Ligand reported full year 2024 results in a press release and Form 10-K filing with the SEC on February 27^th. A conference call was held with an accompanying slide deck to discuss results with investors following the release. For the year ending December 31^st, 2024 revenues of $167.1 million were recognized. GAAP net loss per share for 2024 totaled ($0.22) and core adjusted EPS was $5.74. For the full year 2024 versus the same prior year period:

• Revenues of $167.1 million rose 27% from $131.3 million due to strong growth in all reportable segments. Royalty revenues rose by 27% driven by contributions from the acquisition of Qarziba and an increase in Filspari. Captisol sales rose 9%, with the increase attributed to timing of customer orders. Contract revenue was up 44% as milestones related to Ohtuvayre, Capvaxive and Filspari were recognized;
• Cost of revenue, which is related to Captisol, totaled $11.1 million, an increase from $10.5 million. This represents a gross margin on Captisol sales of 64.1%, up from 62.9%;
• Amortization of intangibles declined slightly to $33.0 million vs. $33.7 million;
• Research and development expense totaled $21.4 million vs. $21.5 million falling 13% due to lower employee-related and lab supply expenses related to Pelican prior to its spin-off in September 2023. The decrease was partially offset by additional costs associated with incubating the Pelthos business;
• General & Administrative expenses were $78.7 million, up 49% from $52.8 million due to a one-time stock compensation expense associated with the departure of the former Chief Operating Officer, an increase in stock-based compensation and an increase in expenses related to the acquisition of Novan (Pelthos);
• Other adjustments include a $30.6 million financial royalty asset impairment related to Takeda’s abandonment of the soticlestat program and a fair value adjustment of $15.1 million related to certain Agenus partners discontinuing development of their programs;
• Non-operating income and expenses were $25.1 million vs. $51.7 million as Ligand recognized a gain on the sale of Viking common stock. Net interest income was $5.0 million vs. $7.0 million with greater interest expense driving the reduction;
• Income tax expense of $6.6 million represented a tax rate of 260% compared to tax expense of $9.8 million and a 15% tax rate;
• Net loss was ($4.0) million vs. $53.8 million or ($0.22) and $3.03 per share, respectively. Adjustments to GAAP earnings added back $108.5 million or $5.96 per share to generate core earnings of $5.74 per share^[1]

As of December 31^st, 2024, cash, equivalents and short-term investments totaled $256 million. This amount compares to the $170 million balance held at the end of 2023. Free cash flow generation for 2024 totaled $95.2 million while cash from financing added $97.1 million to the company’s coffers, predominantly from stock option exercises. Over the year, cash balances rose by $86 million with the difference coming from investments in Apeiron, Agenus and InvIOs.^[2] The company maintains access to a revolver credit and an at-the-market (ATM) facility with Stifel, Nicolaus that can expand its access to capital as needed. Ligand maintained its 2025 guidance for revenues from $180 - $200 million and core EPS of $6.00 - $6.25.

New Acquisition

On February 25^th, Ligand announced its participation in a royalty financing for Castle Creek Biosciences. Castle Creek is a gene therapy company targeting the COL7A1 gene with its D-Fi candidate in dystrophic epidermolysis bullosa (DEB). DEB is a rare disease and studies that have been mostly conducted in Europe find a prevalence from 14 to 20 persons per million.^[3] Ligand led a syndicate of investors contributing $50 million of the $75 million that will support the Phase III study of D-Fi in DEB. Other investors in the financing include Paragon Biosciences, Valor Equity Partners and Xoma Royalty Corporation (NASDAQ:XOMA). The investment pays a low single digit royalty on sales on this asset which is expected to have over $1 billion of market potential worldwide.

Additional information included in the press release describes Castle Creek’s lead asset. D-Fi is an injectable autologous gene-modified cell therapy candidate for the treatment of DEB, a devastating, progressive, painful and debilitating rare genetic skin disorder. DEB is caused by a mutation in the COL7A1 gene, leading to a deficiency of normal type VII collagen (COL7) protein, impairing the connection between the epidermis and the dermis. Skin is extremely fragile and blisters easily as skin layers separate. D-Fi is comprised of a patient’s own dermal fibroblasts, which are genetically modified ex vivo with a self-inactivating lentiviral vector containing the COL7A1 gene to express COL7. D-Fi is locally administered by intradermal injection into chronic wounds where the COL7 protein can support the formation of anchoring fibrils in the skin. In clinical studies, D-Fi has been generally well tolerated, with injection site reactions (skin discoloration, erythema, hemorrhage, pain, and swelling) being the primarily reported adverse drug reactions. D-Fi was granted Orphan Drug Designation for the treatment of DEB and granted Rare Pediatric Disease, Fast Track, and Regenerative Medicine Advanced Therapy designations for the treatment of recessive dystrophic epidermolysis bullosa (RDEB) by the FDA.

Another treatment for DEB was approved in 2023 branded Vyjuvek (beremagene geperpavec-svdt), sponsored by Krystal Biotech. It is administered topically but presents several shortcomings that may be addressed by Castle Creek’s D-Fi. Vyjuvek cannot penetrate the wound when it is closed. There are also limitations on the surface area of the skin that may be treated with the therapy. Vyjuvek works with a similar mechanism of action to D-Fi, restoring functional copies of the COL7A1 gene. This should support a smooth registrational pathway for D-Fi as the FDA is familiar with the approach. Ligand management anticipates that the two products will work well in combination. We favor rare disease assets as they address unmet needs, treat tight-knit populations and generate patient advocacy groups that support clinical trial enrollment and awareness of the product when approved. Rare diseases also receive support from regulatory agency expedited programs contributing to faster and less expensive approval.

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^{[1] Details of the GAAP to core earnings reconciliation are in Ligand’s 2024 earnings press release.}

^{[2] InvIOs is privately held spin-off of Apeiron. This investment was part of an €8 million round with other investors to help finance the research and development of three innovative early-stage immuno-oncology assets. Apeiron has previously out-licensed these assets to InvIOs and is entitled to future royalties and milestone payments.}

^{[3] Hess, M., et al. Epidemiology of inherited epidermolysis bullosa in Germany. October 2022.}