Ted, I think that the discussion of a LGND buyout is a usefull exercise. I have provided some piece-meal arguements, some of which may have been difficult to understand without a suffient elucidation of my rationale.
Briefly stated, I think that many Biotech buyouts come when the company falls short of expectations, or meeting long term goals becomes a difficult exercise. I think that LGND's current situation is just the opposite. Its future looks brighter than ever and it really has a legitimate shot of becoming the next AMGN for investors and the next fully interegrated Biopharmaceutical focusing on targeted drug discovery for Biotechs. I think that its current status is quite distinct from the Biotechs that you mentioned previously.
My first arguement concerns timetables. LGND has set the timelines to be met. They accelerated the ALRI spending to force a call by the end of this year, beginning of next year, moving the call date up by at least 2 1/2 years. This accelerated spending plan was announced in January and I think that it was based in part on extensive discussions on deals centering on retinoids. As early as February the "late 3Q, early 4Q" time frame was announced and I have heard nothing to put such a time frame in question. In fact everything, including Robinson's statements last week (as well as retiterated BUY recs which came out before the ALRI call announcements as well as those that came out after) are consistant with that time frame.
I predicted that the diabetes deal would come outbefore the ALRI call because I expected that the call would be made in part with LGND stock and the higher the LGND share price, the lower the number of shares needed for the call. Since the countdown doesn't begin until Oct 6, a diabetes announcement on or about that date would be conisitant with that rationale (and it could come just after that date because I expect LGND's price to rise in anticipation of the announcement).
Since LGND has set the date for the call, I think that the diabetes deal is done. Moreover, I think that the deal will provide sufficient funding to fill the void left by the ALRI off balance sheet funding. Moreover, I think that the terms of the ALRI buyout allows even greater partcipation in retinoid development. Not only can LGND do deals, but so can AGN, and AGN has repeated alluded to new corporate partners (which could happen via a buyout or major deals, particularly in the area of metabolic diseases). Thus I think that LGND has already made financial agreements that would carry tyem through 1999, which is when they expect to be profitable. Their timetable is a major surprise, since most if not all analysts projected profitability in 2000 (Lehman Brothers had a loss of $1.20 in 1999 and Roberston Stephens projected a small, $0.10, profit in 2000). Since Robinson's projections have been included in analyst's reports, he really should be basing such an optimistic call on some real results (terms of the diabetes deal).
Earlier I had mentioned the VC status, because some companies are sold out by the VCs as part of their exit strategy. Hybritech is a good example. LGND's former Board Chair, Brook Byers, negotiated a $1/2 Billion buyout of Hybritech by LLY. Kleiner Perkins Caufield & Byers made their first investment in LGND via Progenx in 1987. They usually have 7-8 year time frames for exiting. They chose to exit from LGND via equity sales in Dec 1995. Thus, that pressure is no longer a significant factor for LGND.
Other companies sell out when it becomes difficult to meet long term objectives. For LGND, I think that just the opposite has happened. Hybritech was supposed to develop into a major therapeutics company. They couldn't do it alone and neither could LLY after the buyout. Cetus was relying on IL-2 for their major therapeutics play. Although it has been approved for kidney cancer, its widespread cancer applications has yet to be realized, long after the CHIR buyout.
LGND on the other hand has been remarkably successfull. Their first receptor specific drug to be approved was Tazarotene. AGN has successful obtained FDA approval and it is currently being marketed for acne and psoriasis. LGND's second choice was Panretin. Its topical trail for KS was halted an it appears to be a slam dunk for approval. Moreover its Oral form induces complete remissions in APL and it also appears to be a slam dunk for approval. LGND's third choice was Targretin. It is the first rexinoid to enter clinical trials and its topical application for CTCL has produced stronger results the longer atients were on the drug. It is also well on its way toward registration. In addition to cancer, it has also demonstrated prevention applications in animal models of diabetes, obesity, and breast cancer. Although the human data for diabetes has not been released to the public, it has been shown to LGND's future diabetes partner and I think that the size of the deal will address the robustness of the data. LGND's fourth compound is Droloxifene. PFE has advanced it into Phase III for breast cancer and Phase II for osteoporosis. LGND's second PFE candidate, CP366,156 is about to enter Phase II trials after successfully completing Phase I (in the US and Europe). LGND's six candidate, ALRT1550 is finishing Phase I (with results "better than we could have hoped for") and is about to enter Phase II for a variety of cancers.
Thus although LGND is still in the "hopes & dreasms" category, its clinical candidates are all advancing quite nicely. The first should come to market in 1998 and profitability for LGND projected for 1999. LGND's pipeline puts most pharmas to shame. They are about to move into Biotechs' top tier. I see no reason to sell at this time. |
