Marlborough, MA, June 16, 2014 — Lemelson Capital Management, a private investment management firm, today announced that it is short Ligand Pharmaceuticals Inc. (NASDAQ:LGND), a biotechnology company. The firm today also released a research report that concludes that Ligand shares have no intrinsic value and the Company runs a considerable short-term risk of insolvency and bankruptcy.
The full research report on Ligand can be found here: http://amvona.com/featured/finding-alpha/item/36339
The Lemelson Capital report details multiple significant threats that undermine the argument for any intrinsic value of the stock. These include “going concern” risk, a cumulative $671M loss since inception, a mounting competitive threat to the company’s primary marketable asset, Promacta®, extreme shareholder dilution, increasingly risky supplier and customer concentration, litigation risks and a valuation of 115x earnings.
“As purely speculative issues go, Ligand is one of the most egregiously offenders trading on any U.S.-based exchange,” said Lemelson Capital’s Chief Investment Officer Emmanuel Lemelson. “Management must understand that they undertake a sacred bond of trust as stewards to both return and enlarge shareholder capital, which management has never done in this case,” he said.
In the report, Lemelson Capital points to multiple factors that suggest LGND is overvalued significantly and may have no intrinsic value at. Among these factors:
1.) Ligand Pharmaceuticals Inc. (NASDAQ:LGND)’s primary royalty-generating asset, Promacta®, which comprised 72% of the company’s Q4 2013 royalty revenues, is expected to lose commercial relevance as competitive therapies, recently made available, become more widely utilized. Evidence of deteriorating Promacta® revenue is already evident in the company’s Q1 2014 reporting, representing a trend that almost certainly will accelerate substantially in subsequent quarters. In fact, FDA comments suggest that new competitive therapies may eliminate almost entirely any demand for Promacta®;
2.) With increasing revenue deterioration for Promacta®, Ligand needs substantial offsetting growth in its Captisol® program to avoid catastrophic ensuing negative revenue and profitability trends. But Captisol® remains a precarious basis of company revenue, both single sourced and showing no sign of significant potential for revenue growth;
3.) Ligand Pharmaceuticals Inc. (NASDAQ:LGND) represents a clear “going concern” risk with immaterial or negative net cash flow from operations (results show negative cash flow in eight of its last ten fiscal years), rapidly declining collaborative R&D revenue, and open-ended liability risks from ongoing or anticipated litigation;
4.) Ligand Pharmaceuticals Inc. (NASDAQ:LGND) has significantly inflated its perceived value through a series of misleading and inaccurate comments that suggest the Company has robust and diversified revenue prospects when, in reality, 2/3 of its so-called pipeline actually involves only one product;
5.) Ligand vastly overstates the value of its so-called “collaboration” with major pharmaceutical corporations, which have led thus far to a cumulative $669M loss of shareholder capital over the company’s 27-year existence and show no sign of reversing course; and
6.) The company has unscrupulously promoted its stock by omitting or downplaying key facts from the discussion of its forward prospects, including that the company now has diluted its share count an astonishing 72.4% since December 2004, is trading at an egregiously overvalued price to free cash flow multiple of 82, and company insiders have been selling the stock aggressively at these vastly inflated multiples.
Lemelson Capital’s Chief Investment Officer Emmanuel Lemelson today warned that the company was one of the most prominent examples of irrational valuations of any stock on any U.S.-based trading exchange. “This is not a stock that is merely overvalued,” Lemelson said. “Rather, this is a prominent example of a company that appears to have no intrinsic value at all trading at an extraordinarily rich valuation. Its business model, which was already virtually indiscernible, now includes no immediate plan for addressing a major forthcoming loss of revenue from its singular largest royalty generating asset and the company’s substantial track record of burying shareholder capital,” he said.
Lemelson Capital is currently short shares of Ligand Pharmaceuticals Inc. (NASDAQ:LGND) for its clients.
See full report on Lemelson Capital Short Case: Ligand Pharmaceuticals (LGND) in PDF Format here.