Ligand Pharmaceuticals Incorporated LGND was upgraded by Zacks Investment Research to a Zacks Rank #2 (Buy) from a Zacks Rank #3 (Hold).
Why the Upgrade?
Ligand has been witnessing an upward trend in earnings estimates following its Dec 17 announcement that it will be acquiring a privately held company, Open Monoclonal Technology, Inc. (OMT), in a deal valued at $178 million. OMT is a leader in genetic engineering of animals for the generation of monospecific, bispecific and polyspecific human therapeutic antibodies using its OmniAb platform.
The proposed acquisition is expected to diversify Ligand's business by adding a proprietary antibody-generating platform, OmniAb, to the company’s technology portfolio, which already consists of Captisol drug-formulation technology.
Ligand expects to have more than 140 fully-funded programs and over 83 partners after the transaction is closed. We note that Ligand’s Captisol formulation technology has allowed it to enter into several licensing deals with several leading health care companies like Novartis AG NVS and Amgen Inc. AMGN among others. Currently, this biotech company possesses a portfolio of more than 125 fully funded programs with more than 72 partners and it continues to expand its partnership portfolio by inking deals with new partners and expanding relationships with existing ones.
OmniAb, which is well protected by patents, will help create a strong platform for Ligand to seek new licenses and partnerships, and thereby generate royalties.
Positive Financial Impact
Ligand even provided an encouraging outlook for 2016 and 2017. Including this acquisition, Ligand expects 2016 total revenues between $113 million and $117 million (old guidance: $107–$111 million). However, adjusted earnings remain unchanged at $3.33 to $3.38 per share. For 2017, Ligand expects total revenues to exceed $158 million with adjusted earnings of more than $4.95 per share (old guidance: revenues and earnings were estimated to exceed $146 million and $4.75 per share, respectively).
While the deal is projected to be slightly accretive to adjusted earnings in 2016, it is expected to be accretive to adjusted earnings by approximately 4% to 8% per year over the next several years. The deal is slated to close in Jan 2016.
Royalties to Continue to Drive Growth
Meanwhile, royalties from Ligand’s key partnered assets, Promacta and Kyprolis, should continue to drive the company’s top-line growth. Kyprolis is expected to generate more than $500 million in sales in 2015. Ligand expects to earn higher royalties as both Promacta and Kyprolis together are expected to record about $1 billion in sales in 2015 on the back of strong prescription growth.
These factors clearly indicate that Ligand is likely to continue its growth momentum in the coming quarters as well.
A Stock to Consider
Investors interested in the biotech space can consider another favorably placed stock, Baxalta Incorporated BXLT, which holds a Zacks Rank #1 (Strong Buy).
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