Why Ligand Pharmaceuticals Inc. Shares Popped

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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.

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Sean Williams

A Fool since 2010, and a graduate from UC San Diego with a B.A. in Economics, Sean specializes in the healthcare sector and in investment planning topics. You'll usually find him writing about Obamacare, marijuana, developing drugs, diagnostics, and medical devices, Social Security, taxes, or any number of other macroeconomic issues.

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