Why Ligand Pharmaceuticals Inc. Shares Popped

Ligand shares soar after the company reports better than expected fourth-quarter results and provides its fiscal 2014 guidance. Can shares head even higher?

Feb 11, 2014 at 3:56PM

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 company that develops and acquires royalty rights to pharmaceutical products, gained as much as 15% after the company reported better than expected fourth-quarter results and provided its 2014 guidance.

So what: For the quarter, Ligand Pharmaceuticals reported a revenue increase of 8% to $14.7 million as royalty revenue jumped 48% to $7.1 million. Adjusted net income was $0.35 per share as net income advanced 76% to $1.9 million. By comparison, the Street had only been looking for Ligand to report earnings per share of $0.23, so this was a pretty sizable beat. Ligand attributed its royalty revenue boost to higher sales of Promacta and cancer drug Kyprolis. Ligand also provided mixed forward guidance that includes an EPS forecast of $0.22-$0.25 for the first quarter on $13 million-$14 million in revenue, as well as full-year EPS of $1.40-$1.50 on $62 million-$64 million in revenue. Wall Street had certainly been looking for better first-quarter figures, with EPS estimates of $0.29 and the consensus revenue figure at $15 million. All things considered, though, investors overlooked that weakness by focusing on Ligand's full-year EPS forecast which is well ahead of the $1.12 expected by Wall Street.

Now what: Royalty companies in the biotech and pharmaceutical sector can be quite profitable due to their inherently low costs, but they're also really difficult for analysts on Wall Street to get a good bead on, so I wouldn't be too shocked if Ligand delivers results that are wildly ahead of behind the Street's prognostications. That aside, even though Kyprolis has a bright future, and I fully can appreciate Ligand's dozens of ongoing projects, at 50 times the midpoint of its projected 2014 EPS, and currently without a dividend, Ligand looks far too pricey for my tastes.

Ligand shares may be soaring today, but even it may have difficulty keeping up with this top stock in 2014
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Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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