Why Ligand Pharmaceuticals Shares Dipped

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Ligand Pharmaceuticals (NASDAQ: LGND  ) , a biotechnology acquisition and development company targeted at securing royalty revenue, fell as much as 15% after reporting its third-quarter results and providing a disappointing fourth-quarter forecast.

So what: For the third quarter, Ligand reported a 104% increase in revenue, to $13 million, primarily as a result of a near-quadrupling in materials sales due to the timing of customer purchases of Captisol. Net income jumped to $2 million from a loss of $0.2 million in the previous year, and Ligand delivered adjusted EPS of $0.12. Comparatively, Wall Street had expected just $10.8 million in revenue and a profit of $0.06 per share. Looking ahead, though, is where everything fell apart. Ligand is estimating fourth-quarter revenue of $11 million to $12 million on EPS of $0.15-$0.17, compared to the current consensus of $14.2 million in revenue and $0.21 in EPS.

Now what: Here we see the upside and the downside of royalty revenue companies in the biotech sector. The positive is that Ligand has extremely low operating costs because of its workforce of less than two dozen people. Focusing on acquisitions and development leads to a relative tight cost structure that allows only a small amount of revenue to equal big profits. Conversely, royalty revenue companies are completely at the mercy of other companies' sales and customer purchasing habits, which can lead to some wild swings come earnings season. Overall, I tend to like the royalty revenue model, but I'm a bit concerned that  at $1.1 billion in market value, even with royalty revenue from potential blockbuster Kyprolis, Ligand might be a bit frothy here.

Two biotech stocks transforming the health-care landscape
The best way to play the biotech space is to find companies that shun the status quo and, instead, discover revolutionary, groundbreaking technologies. In the Motley Fool's brand-new FREE report, "2 Game-Changing Biotechs Revolutionizing the Way We Treat Cancer," find out about a new technology that big pharma is endorsing through partnerships, and the two companies that are set to profit from this emerging drug class. Click here to get your copy today.

Read/Post Comments (1) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 13, 2013, at 4:05 PM, BJVR wrote:

    what do others think of LGND stock.... Buy, Hold, or SELL/////?

    Thanks, BJVR

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2706131, ~/Articles/ArticleHandler.aspx, 9/26/2016 5:03:49 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 2 days ago Sponsored by:
DOW 18,261.45 -131.01 -0.71%
S&P 500 2,164.69 -12.49 -0.57%
NASD 5,305.75 -33.78 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/23/2016 4:00 PM
LGND $115.78 Down -2.38 -2.01%
Ligand Pharmaceuti… CAPS Rating: ***