I have been following this thread for about a year. At that time, I bought into ALRT. IMO, the interim clinicals made likely the exercise of the Ligand option and this offered a cheap way into LGND (via the LGNDW warrants).
I was lurking as a non-subscriber, and am here by virtue of the free trial subscription. We shall see if I stay or if I am chased-off by the attack poodle. For the record, I have a LGNDW position that is significant to me and my background is in Business not Biotech.
I have one thought that I would like to share. This is because some recent posters have questioned the direction of the Ligand Management -- particularly the ongoing dilution in the stock.
Until about the time of the Lilly diabetes deal, I would have had to agree. I had a nagging fear that I was funding a research institute. However, I now detect a clarity that was not previously apparent. IMO, the Ligand Management focus is on long-term shareholder interests. I think Ligand Management will maximize shareholder value by remaining independent and marketing drugs for major indications on a stand-alone basis.
How best can Ligand achieve this? The first issue is how can Ligand remain independent. The best defense to takeover is to place your stock with parties that are unlikely to sell to the potential acquirer. The best such group that I can think of is the major pharmaceutical companies. Companies are unlikely to want to share results. Moreover, negotiating a series of clean breaks is likely to be difficult. I believe that the number of alliance partners and the equity interests that have established in these agreements (most notably Lilly) create a barrier to acquisition.
This is very important or else the current shareholders are just providing interim finance. I have no doubt many shareholders that bought in at 15 in September 1996 (post no. 1 and a high point) could be squeezed out for 25 in September 1998. This is 35% p.a. return - a pretty standard venture rate.
Another strong defense is the price itself. Many companies are bought because they are undervalued by the market. The economic models used by analysts generally relying on estimated earnings. The discount applied to future earnings is markedly higher in the absence of earnings is markedly high in the absence of any earnings. Once there are earnings, it appears on the screen of many more investors who can apply their own models of earnings growth to derive valuation estimates. Therefore, achieving earnings will ratchet up the stock price effectively. What this will do is to encourage the financial investor to recognize the value in the Company that a potential acquirer could recognize on the basis of the clinical results. The danger for the stockholder is where the technical buyer (the pharma) can recognize the value in advance of the market because this allows for a discount on purchase.
The second issue is how to develop, produce and market their own drugs on a stand-alone basis (without Partners) for major indications. Paraphrasing a comment that I remember clearly from a while ago "Ligand has more than enough indications to overwhelm a mid-sized pharma". Ligand has to focus on areas of key interest. While I have no way to comment on the wisdom of their choice areas, they have indicated their focus and it does not appear unreasonable.
Ligand management has, therefore, identified its key markets and now needs to move forward in them. With the immense costs of getting such drugs to market, licensing other "good" products in other than core markets is the most sensible strategy. Accelerating profitability will bring positive operating cash flow with which to fund development of its own drugs. A successful company is one that recognizes its own weaknesses as well as its own strengths. The only difference between the prospects for a good biotech and pharmas is the cost of capital. Trying to "keep it all" too early is, IMO, a reckless strategy and one that is likely to erode long-term shareholder value. Ligand now really has the capability to take drugs for major interest areas all the way to market.
This is IMO why the Lilly deal is a watershed. It indicates Ligand Management is sufficiently focused and confident to give up significant interests in Targretin for Diabetes to focus on the other indications. There is a clear choice here. The test will be, however, if Ligand licenses products in key areas. That would be my cue to exit as an indication that it wanted to remain a "university"
So for the time being, I am long Ligand. Management has my vote for the time being. It has a strong chance of remaining independent while it brings its drugs to market. I would love to believe that this is the upward ride and that there will be no more dips. My heart hopes so but my heads tells me not quite yet. One more dip to go and I am waiting to accumulate.
Many thanks for the regular posters who provide so much useful information and analysis. |
