Squetch,
It's kind of a quiet Sunday afternoon and I thought we ought to have a little fun. I thought maybe a bit of controversy would stir things up.
First, I want to make clear that I've had an investment in Ligand since February and that its significant, at least for me. Also, I've been investing in biotechnology since 1982 and I've got the scars to prove it. Its that experience which gives me perhaps more cynical view of events. Let me lay out a case which is as plausible if not more probable than that being discussed lately. Harrison's observation regarding the burn rate and willingness to take exception to conventional wisdom yesterday triggered my decision to publish an alternative view of events.
First, I became interested in Ligand because of leptin, not the diabetes deal. I began by asking who would likely be interested in leptin, given it's history and the patent literature. It became obvious only two contenders existed: Amgen and Millennium. Amgen, of course, licensed much of the specific leptin technology from Rockefeller University several year's ago and in their fashion, have been building a fortress around it. Millennium, on the other hand, has done an effective job of covering the first level precursors and effectively boxed Amgen out if the specific leptin molecule is not itself the primary effector of weight reduction. (And it appears it is not.) When I studied further, I found the Ligand connection with Rockefeller and the more basic signaling technology that they had licensed. It then seemed obvious that there was tremendous merit in Amgen partnering with Ligand. Effectively, it would outflank Millennium and give them dominance over a leptin-acting mode of action.
Next I began looking at Ligand's pipeline and was really impressed. However, it was immediately apparent that Ligand was not going to "bootstrap" that size cache. Having followed Amgen since the mid-80's, I had concluded several years ago that Amgen was truly deficient in that area, a conclusion that was attracting much currency in January-February. Furthermore, Amgen's CEO, Binder, was primarily a financial/legal guy with a penchant for aggressively asserting patent positions. At the same time, Robinson, who is science-focused, was making very bold statement's at H&Q regarding a leptin deal. I therefore concluded Amgen was going to buy Ligand and that was when I took my position.
Along with several others on the thread, I talked to Susan Atkins several weeks after H&Q and got the same story: "its in the lawyer hands". I am a senior executive and I frankly don't buy the argument that lawyers were holding up the deal. If senior executives at two companies agree to a deal, they'll give their attorneys a modest period (perhaps a matter of weeks) to finalize a deal, certainly no more. If they don't or can't, senior management simply gives it to outside counsel, or, if they are more ruthless, fire the lawyers and hire new ones. My conclusion is that the difficulties were substantive and were management-to-management as opposed to attorney's "crossing i's and dotting t's" (:>). Within the picture I conjectured, I concluded that the deals demise had more to do with succession within the merged companies. My guess (if any of this is accurate) is that Robinson wanted to be designated heir-apparent in the merged company and Amgen's current executive suite was adamantly opposed. My supposition is that the deal finally collapsed in March-April. And, yes I'm saying I think a lot of institutions bought in November and December, when talks would have been heating up, and bailed when serious difficulties arose, e.g, during the stock's collapse. What I think lend credence to this is Amgen's recent deal with Guilford. They obviously were on the prowl during the period I was speculating on the Ligand's imminent purchase and ended up with a signaling pipeline.
I want to emphasize I have first hand knowledge for none of this. But I do find it curious that Ligand's management's infatuation with leptin has declined from the point where it was important enough that the Chief Executive made it the centerpiece of his talk at the most prestigious conference in biotechnology to its status as a "freebee" in its current licensing speculation. That does not bespeak lawyer's machinations!
Now, the really interesting question is: how does all this play into Ligand's current situation? Henry posted a number of times that there was a bidding war ongoing, with the participants being Warner Lambert, Lilly and JNJ. His description suggests that Ligand was trying to play-off the various parties so that they could get a very significant upfront payment. Until recently, his supposition was that JNJ was in the lead, would buy AGN and then license diabetes moities from LGND. There's an apparent flaw in this logic, that I'm surprised no one noted, especially given recent events: If AGN was owned by JNJ, why would they need to do anything other than simply wait? As an equal co-partner with Ligand, they could see who would step forward to license the technology from Ligand knowing that JNJ is in a position to control the terms of the license and would likely be a co-licensee. JNJ took apart U. S. Surgical in a market USS practically owned, overcoming a formidable patent estate and established market presence. Who has the kohonnas to take on JNJ, on a one-on-one basis? Certainly not Lilly or WLA. And with Ligand's burn rate and cash position, time was on JNJ's side. I see such a threat as being Ligand's motivation to call ALRI before a diabetes deal was consummated.
But this strategy entails certain risks as well. As someone noted earlier, if Ligand "goes it alone", the burn rate goes up, not down. That's contrary to Robinson's expressed intentions and he'd have to sell tons more stock to raise the kind of capital he needs. We all know what that would do to LGND's share price and his tenure as CEO. And even if Ligand lays off diabetes to Big Pharma, even $50 million doesn't go far, given their pipeline. IMO, that pipeline would choke a medium sized major. How is Ligand going to fund it from scratch? Ain't gonna happen!
I think as of last Wednesday, Ligand is in play! (It may have been for some time before.) I think that JNJ effectively forced Robinson to that position by its threat to buy AGN in response to his demand for $100 million for technology which, no matter how good the Phase III, still must pass the FDA gauntlet. I believe the deal may come off between $25-30/share, higher if its stock-for-stock. And, yes, I think these events could bring on a bidding war also!
Remember, this is all sheer speculation. The only "knowledge" I have is contained in this discussion. My only assertion is that something close to this does, at least superficially, explains events in what has been a very unusual year for Ligand. At a minimum, it should stimulate a healthy reassessment of other possible explanations for recent events.
Ted |
