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Ligand Pharmaceuticals - Appendix
Ligand Pharmaceuticals - Appendix
Table of Contents
Overview ................................................................................................................................................... 1
Disclaimer.................................................................................................................................................. 2
ITP not a commercially viable application for Promacta ........................................................................ 3
No indication Kyprolis 2014 sales will even cover CEOs compensation ............................................... 3
A Silly Report? Duavee and CE Melphalan ........................................................................................ 6
Viking Therapeutics ................................................................................................................................... 7
A curious relationship ............................................................................................................................... 9
Speculation has no intrinsic value, 100% downside risk reaffirmed ...................................................... 10
Full Disclaimer ......................................................................................................................................... 11
Overview
Lemelson Capitals original June 16, 2014 report can be found here.
Promacta sales, which represented as much as 72 percent of Ligand royalty revenue as recently
as Q4 2013, have slowed sharply in Q1 and are expected to continue to decline, a point
recognized in recent analyst commentary. There is no evidence of a significant market for
Amgens total revenue from Kyprolis in Q1 2014 was just $68 million, representing royalties to
LGND of just $1,020,000.
Contrary to recent analyst commentary regarding significant revenue contribution in the near
term from sales of Duavee and Captisol-enabled (CE) Melphalan, Duavee sales have been
and will continue to be immaterial for the foreseeable future, while an NDA has not even been
filed for CE Melphalan.
There are no indications that Captisol sales will increase materially in the future, and it is likely
to become the companys only significant source of future revenue. Recent analyst commentary
concedes that single-sourced Captisol represents the majority of the Companys pipeline.
The companys recent and highly complex arrangement with Viking Therapeutics, a sub-tenant
in one of Ligands buildings, deserves close scrutiny, since the latter of the two appears to serve
only as shell for Ligand to further access pubic markets via a $58 million IPO and an arrangement
(not disclosed in related press releases) to convey 50% of Viking equity, post successful offering
to Ligand.
Given extraordinary and growing liabilities associated with Ligands key products, as well as
questionable transactions associated with the Viking IPO, Lemelson Capital reaffirms downside
risk for LGND at 100%.
Disclaimer
Following publication, Lemelson Capital may transact in the securities of the company. Lemelson
Capital has obtained all information herein from sources it believes to be accurate and reliable.
However, such information is presented as is, without warranty of any kind whether express
or implied. Lemelson Capital makes no representation, express or implied, as to the accuracy,
timeliness, or completeness of any such information or with regard to the results obtained from
its use. All expressions of opinion are subject to change without notice, and Lemelson Capital
does not undertake to update this report or any information contained herein.
The first line of therapy for ITP is a corticosteroid, usually prednisone. In children,
idiopathic thrombocytopenic purpura usually runs its course without the need for
treatment.
(REFERRING TO NEW THERAPIES THAT WILL REPLACE PROMACTA AS AN INDICATION FOR HEP C)
LIGAND PHARMACEUTICALS INCORPORATED'S (LGND) Q1 2014 RESULTS EARNINGS CALL TRANSCRIPT
Once the Hep C application is lost, there is no evidence of a significant, commercially viable
market for Promacta. ITP, which has been mentioned as an alternative application, does not
have significant commercial viability.
But I think we are just about seeing a peak in the third line area for Kyprolis.
Name
John L. Higgins
Year
2014
2013
2012
2011
Total Compensation
% Increase
?
$
$
$
3,004,911
2,371,336
1,633,156
Average % Increase:
26.7%
45.2%
36.0%
Even if Kyprolis were to receive designation as a second-line indication and sales reached the
highest end of all expectations and tripled in coming years, the royalty rate payable to LGND
would barely exceed an anemic $18 million.
any setback that may occur with respect to Promacta or Kyprolis could
significantly impair our operating results and/or reduce the market price of our
stock.
Further, the manufacture, use or sale of our potential products or our collaborative
partners' products or potential products may infringe the patent rights of others. This
could impact Captisol, Promacta, Kyprolis, Avinza, Duavee, Viviant and Conbriza,
Nexterone, and other products or potential products.
So Kyprolis you know we have at the moment a third line plus indication. There is a
finite level of growth you can get in the third line.
we expect significant revenue contribution in the near term from Duavee and CE
Melphalan
ROTH CAPITAL ANALYST JOSEPH PANTGINIS RESPONDING TO LCMS JUNE 16 RESEARCH REPORT ON LGND
JOHN SHARP, VICE PRESIDENT, FINANCE AND CHIEF FINANCIAL OFFICER (REFERRING TO FY 2014)
LIGAND PHARMACEUTICALS' CEO DISCUSSES Q4 2013 RESULTS, EARNINGS CALL TRANSCRIPT
CE Melphalan is not even mentioned in the Companys 2013 annual report. According to the
companys website, an NDA has NOT even been filed for CE Melphalan (a fact also recognized in the
companys Q1 2014 conference call).
According to Streetinsider.com, Joseph Pantginis, Roth Capital analyst, on June 17, 2014, referred to the
original June 16, 2014 Lemelson Capital Management research report on LGND as silly. On the same
day and again on June 25, 2014, Mr. Pantginis reiterated his buy rating on LGND shares with a $92 price
target.
At $92 per share, LGND would trade at 159x earnings and its market cap would swell to over $1.9 billion
for a Company that has earned just $9.2 million in the last twelve months. Such a price would represent
almost 30x book value (all of which is intangible).
In another article published by SmarterAnlyst, Mr. Pantginis further referred to the report as foolish.
According to TipRanks, which measures analysts success rates based on how their calls perform,
analyst Joseph Pantginis, who covers LGND, currently has a one-year average return of -6.5% and is
ranked #3027 out of 3104 analysts.
During the same period, while Mr. Pantginis returned a loss of 6.5%, the S&P 500 rose approximately
17.6%.
Mr. Pantginis was not able to invalidate any point raised in LCMs original June 16, 2014 research report,
but did admit in the response that LGNDs pipeline is in fact highly concentrated in just one product,
namely Captisol. Further, Mr. Pantginis acknowledged that current LGND management has been in
place ~six of the last ten years (a period of time when shareholders were diluted by some 72%).
Viking Therapeutics
On Thursday May 22, Viking Therapeutics, a clinical-stage biopharmaceutical company, which consists
entirely of technologies it in-licenses from Ligand, released a joint statement together with Ligand,
announcing that it had signed a broad licensing deal with Ligand Pharmaceuticals. Shares of Ligand
closed 3% higher on the news, representing an increase of almost $40 million in market capitalization
for Ligand in just a matter of hours.
Viking does not intend to conduct any preclinical studies or trials and does not own any products or
intellectual property or manufacturing abilities and leases space from Ligand. Viking appears to be a
single-purpose vehicle created to raise more capital from public markets for its sponsor, Ligand
Pharmaceuticals.
In the release, Mr. Higgins stated:
"A relationship such as this one with Viking gives Ligand the opportunity to entrust
valuable internal programs to a dedicated team with the operational resources to
take them to the next level."
This is a creative transaction that establishes a bold portfolio of early- and mid-stage
assets that have the potential to generate substantial news flow
However, once again there is a substantial difference between the Companys press releases and SEC
filings in Vikings recent S1 registration.
Our independent registered public accounting firm has expressed substantial doubt
about our ability to continue as a going concern.
Additionally, as of March 31, 2014, we do not believe that we will have sufficient
cash to meet our operating requirements for at least the next 12 months...
Under the terms of the Master License Agreement, we will pay Ligand an upfront fee
of $29.0 million, subject to adjustment in certain circumstances, payable in equity
upon the closing of this offering
According to Vikings balance sheet, the firm has no assets and yet plans to raise $58 million in public
markets, 50% of which, or $29 million apparently will go directly to Ligand, a fact revealed in the SEC
filing but not the related press releases on the licensing agreements. On the announcement of the
creative transaction, Ligand shares themselves gained almost $40 million in value. The combined total
of these two events equals almost as much as Ligands projected 2015 gross revenues.
The legality of such a transaction may one day be challenged by shareholders in either company. The
ethics should already be clear. The objectives of alchemy have no place in legitimate finance.
The casual observer might even mistake what Ligand leadership has coined a creative transaction as a
common game of three-card Monte, played on any street corner shills included.
A curious relationship
On April 7, 2014 Viking suddenly terminated its relationship with its independent registered public
accounting firm and auditor MaloneBailey just one month after they had engaged them.
From September 24, 2012 (Inception) through April 7, 2014, neither we nor anyone
on our behalf consulted with Marcum regarding (1) the application of accounting
principles to a specified transaction, either completed or proposed, (2) the type of
audit opinion that might be rendered on our financial statements, or (3) any matter
that was either the subject of a disagreement, as described in Item 304(a)(1)(iv) of
Regulation S-K and the related instructions thereto, or a reportable event as
described in Item 304(a)(1)(v) of Regulation S-K.
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In other words, Marcum was merely hired, but the company has not yet even consulted with the firm on
any material issues. The financial statements provided on the S1 accordingly are unaudited.
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Full Disclaimer
As of the publication date of this report, Lemelson Capital Management LLC has a short position
in the Company covered herein (Ligand Pharmaceuticals) and stands to realize gains in the event
that the price of the stock declines. Following publication of the report, Lemelson Capital may
transact in the securities of the Company covered herein. All content in this report represents
the opinions of Lemelson Capital. Lemelson Capital has obtained all information herein from
sources it believes to be accurate and reliable. However, such information is presented as is,
without warranty of any kind, whether express or implied. Lemelson Capital makes no
representation, express or implied, as to the accuracy, timeliness, or completeness of any such
information or with regard to the results obtained from its use. All expressions of opinion are
subject to change without notice, and Lemelson Capital does not undertake to update or
supplement this report or any information contained herein.
This document is for informational purposes only and it is not intended as an official
confirmation of any transaction. All market prices, data and other information are not
warranted as to completeness or accuracy and are subject to change without notice. The
information included in this document is based upon selected public market data and reflects
prevailing conditions and Lemelson Capitals views as of this date, all of which are accordingly
subject to change. Lemelson Capitals opinions and estimates constitute a best efforts judgment
and should be regarded as indicative, preliminary and for illustrative purposes only.
Any investment involves substantial risks, including, but not limited to, pricing volatility,
inadequate liquidity, and the potential complete loss of principal. This reports estimated
fundamental value only represents a best efforts estimate of the potential fundamental
valuation of a specific security, and is not expressed as, or implied as, assessments of the quality
of a security, a summary of past performance, or an actionable investment strategy for an
investor.
This document does not in any way constitute an offer or solicitation of an offer to buy or sell
any investment, security, or commodity discussed herein or of any of the affiliates of Lemelson
Capital. Also, this document does not in any way constitute an offer or solicitation of an offer to
buy or sell any security in any jurisdiction in which such an offer would be unlawful under the
securities laws of such jurisdiction. To the best of Lemelson Capitals abilities and beliefs, all
information contained herein is accurate and reliable.
Lemelson Capital reserves the rights for their affiliates, officers, and employees to hold cash or
derivative positions in any Company discussed in this document at any time. As of the original
publication date of this document, investors should assume that Lemelson Capital is short
shares of Ligand and may have positions in financial derivatives that reference this security and
stand to potentially realize gains in the event that the market valuation of the Companys
common equity is lower than prior to the original publication date. These affiliates, officers, and
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individuals shall have no obligation to inform any investor about their historical, current, and
future trading activities. In addition, Lemelson Capital may benefit from any change in the
valuation of any other companies, securities, or commodities discussed in this document.