Overview

Ligand Pharmaceuticals is a biopharmaceutical company that enables scientific advancement by supporting the clinical development of high-value medicines. The company’s business model focuses on generating revenue streams from licensing its technologies, purchasing royalty rights, and funding drug development programs in exchange for economic rights.

Ligand operates two main technology platforms - Captisol, a chemically modified cyclodextrin that improves drug solubility and stability, and NITRICIL, which allows for “tunable” drug release profiles. The company has established partnerships with leading pharmaceutical companies like Amgen, Merck, Pfizer, and Gilead to leverage its technologies and generate revenue from royalties, material sales, and milestone payments.

Financial Performance

In the first quarter of 2025, Ligand reported total revenue and other income of $45.3 million, a 46% increase from the $31.0 million reported in the same period in 2024. This growth was driven by:

• A 44% increase in royalties to $27.5 million, primarily due to income from the Qarziba financial royalty asset and higher Filspari sales.
• A 46% increase in Captisol material sales to $13.5 million, due to the timing of customer orders.
• A 64% increase in contract revenue and other income to $4.4 million, mainly from a regulatory milestone payment related to Xinshumu.

The company’s operating costs and expenses increased by 191% to $81.5 million in Q1 2025, compared to $28.0 million in Q1 2024. This was primarily due to:

• A 68% increase in the cost of Captisol to $4.8 million, in line with the higher Captisol sales.
• A $44.1 million increase in research and development expenses to $50.1 million, related to a funding arrangement for the D-Fi royalty rights acquired from Castle Creek Biosciences.
• A $7.8 million increase in general and administrative expenses to $18.8 million, driven by employee-related costs and operating expenses for the Pelthos business.

Ligand reported a net loss of $42.5 million in Q1 2025, compared to net income of $86.1 million in Q1 2024. This was largely due to a $123.1 million swing in non-operating income, from a $110.8 million gain in Q1 2024 to a $12.4 million loss in Q1 2025, primarily related to changes in the fair value of the company’s equity investments.

Strengths and Weaknesses

Ligand’s key strengths include:

• Diversified revenue streams: The company generates revenue from royalties, Captisol material sales, and contract/milestone payments, reducing reliance on any single product or partner.
• Efficient business model: Ligand’s “infrastructure-light” approach allows it to benefit from partners’ late-stage development, regulatory, and commercialization capabilities.
• Valuable technology platforms: Captisol and NITRICIL provide differentiated solutions that are in demand by pharmaceutical companies.
• Robust partnerships: Ligand has established collaborations with many of the world’s leading biopharmaceutical companies.

Potential weaknesses and risks include:

• Reliance on partner success: Ligand’s revenue is dependent on the commercial performance of its partners’ products, which the company cannot fully control.
• Volatility in non-operating income: Changes in the fair value of Ligand’s equity investments can significantly impact its overall financial results.
• Concentration in certain therapeutic areas: A significant portion of Ligand’s revenue is derived from oncology and rare disease products, making it vulnerable to developments in these specific markets.
• Ongoing legal proceedings: The company is involved in legal disputes related to the opioid crisis, which could result in unfavorable outcomes.

Outlook and Future Prospects

Ligand’s outlook appears mixed. On the positive side, the company continues to see strong growth in royalties from products like Filspari, Ohtuvayre, and Capvaxive, as well as increasing Captisol material sales. The Pelthos Therapeutics transaction is also expected to provide a new revenue stream and growth opportunity.

However, the company’s reliance on the performance of its partners’ products, as well as the volatility in its non-operating income, create uncertainty around future financial results. Additionally, the ongoing legal proceedings and the need for continued investment in research and development could put pressure on Ligand’s profitability.

To mitigate these risks, Ligand may need to further diversify its revenue sources, either through additional partnerships, acquisitions, or the development of its own proprietary assets. The company’s access to capital, through its revolving credit facility and potential equity offerings, provides some financial flexibility to pursue these strategies.

Overall, Ligand appears to be navigating a challenging environment, but its diversified business model, valuable technology platforms, and established partnerships suggest that the company has the potential to generate sustainable growth and returns for investors over the long term, provided it can successfully manage the risks and uncertainties it faces.