Yesterday was a busy day for biopharmaceutical company Ligand Pharmaceuticals
Ligand's decision to deal all of its marketed drugs was prompted by a coming cash crunch for the company. Thus far in 2006, Ligand has burned through $26 million, leaving the company with $60 million in cash left in the bank. That wouldn't be so bad if it didn't also have a $38 million payment due in October to Organon, for the termination of a previous marketing agreement for Avinza.
With the sale of Avinza, King will pay Ligand $265 million in cash and cover the remaining payments to Organon. In addition, Ligand still stands to gain from Avinza via a tiered royalty structure, starting at 15% for the first 20 months that King promotes Avinza, then fluctuating based on sales until the drug's patent runs out in 2017.
With $113 million in sales for 2005 and $66 million in sales for the first half of 2006, Avinza is not a high-growth drug anymore. Thus far in 2006, prescriptions have been basically flat, and the growth seen in sales has come mostly due to price increases for the drug at the beginning of the year.
With better marketing and a larger sales force, King may be able to unlock more value from Avinza. But since King is giving up a large royalty to Ligand and is still paying more than twice yearly sales for a drug with stagnating revenues, I'd say Ligand turned out best in this deal.
Now for the Eisai deal. In return for the company's four marketed oncology drugs, Eisai will pay Ligand $205 million in cash. This is another fairly good deal for Ligand, since the oncology drugs have not been growing sales much lately, either. For the first six months of 2006, the oncology drugs have collectively had $29 million in sales. In 2005 and 2004, the drugs tallied a combined $53 million and $51 million in sales, respectively.
So where does all this leave Ligand? Assuming all of Ligand's convertible debt is converted into shares in 2007, which seems likely, the company will have something around $500 million in cash at the end of 2006, depending on its rate of cash burn.
At a current market cap of about $840 million (and assuming all its debt is converted into shares), Ligand sports an enterprise value of around $400 million. Based on the dearth of drugs in the pipeline, counterbalanced by the company's proven ability to get drugs through the clinic and onto the market, this seems like a decent -- but not great -- price to pay for those considering an investment in Ligand.
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