Due to the recent price drop LGND is again on my radar screen since with two approved products, LGND has a good change of a brighter future.
In my recent posts, I criticized the high burn rate, which forces the LGND management to search for new fundings enevitable leading to stock dilution. This gets more and more difficult since investors discount this through lower stock prices. The ELAN deal is a good example for this kind of funding deals.
According the last quarterly report,LGND has burned through 354M$, which includes acquisition costs. The burnrate stated by management runs at 30M$ per year only but I prefer to include acquisition costs, since without acquisitions, LGND would not have the products and the pipeline.
I still regard the Seragen deal as negative. The total cost of the Seragen deal was 83.8M$,again paid with LGND stock. The current cash position is uncomfortably low at about 39M$ So much about the present.
LGND has two products on the market, for niche indications (Karposis sarkoma and CTLC cancer. I am not sure about the market potential, but a somewhat sceptical guess would be about 80M$ peak sales. This almost certainly will not lead to profits this year and may be barely enough to break even next year (if nothing goes wrong.
The company maker/breaker will be the Targetin indication for breast cancer. If this goes well, the company may go to 500M$ revenue (not more, since my guess is, they will have to sign up a marketing partner to get the sales force access). However, since the Diabetes
studies for Targeting went bust because of side effects, the success of Targetin not only depends on efficiacy, but also on the severity of sides effects. This could well limit the market potential of Targetin.
The rest of the pipeline is not worth that much in the near future, since most are licensed out to partners for singe digit royalities (most likely for the lower singe digits) and later stage products are years away from the market.
My investment conclusion is that LGND is a higher risk bet amongst the biotechs. The liquidity cushion is quite thin, and when revenues won't pour in during 1999/2000 the future will look very bleak. However,if ONTAK and Panretin sell reasonable well and finally target is a
success,LGND may be a 5 bagger. This makes LGND a very interesting spekulative investment. However, I am somewhat concerned, that the most recent weakness is due to bad news leaking out from the Targetin trials. If this is the case we may well look at 5$ per share.
(Sorry for my poor English..its my second language..) |
