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Can Ligand (LGND) Pull a Surprise This Earnings Season?

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Ligand Pharmaceuticals Incorporated (LGND - Free Report) is scheduled to report second-quarter 2017 results on Aug 7, after the market closes. Ligand’s earnings history has been disappointing as it missed expectations in all of the last four quarters. The company delivered an average negative surprise of 58.30% in the trailing four quarters.

However, Ligand’s shares have outperformed the industry so far this year. Shares of the company have rallied 19% while the industry has recorded a 9.8% increase.

Last quarter, Ligand delivered a negative earnings surprise of 29.09%. Let’s see how things are shaping up for this announcement.

Factors at Play

Ligand’s Captisol formulation technology has helped it form partnerships with several leading healthcare companies that provide it with funds as milestone and royalty payments. Royalties depend on the sales of its two key partnered assets – Novartis AG’s (NVS - Free Report) Kyprolis and Amgen’s Promacta.

We expect investor focus to remain on the company’s updates regarding partnerships and major pipeline assets at the second-quarter conference call.

In Jul 2017, the company announced that it has entered into another commercial license and supply agreement with Amgen, granting it rights to use Captisol in the formulation of its anti-CD33 x anti-CD3 (BiTE) bispecific antibody, AMG 330. Under the agreement terms, Ligand is entitled to potential milestone payments, royalties and revenues from the future sales of AMG 330.

At the first-quarter conference call, the company had estimated 2017 earnings to be approximately $2.70 per share on revenues of $130 million. It also expects this amount to increase further if additional contract revenues are received this year.

We expect an update on several major pipeline assets in the company’s portfolio at the second-quarter conference call. With regard to its internal pipeline, various candidates are being developed for indications like diabetes. One of the most advanced candidates is LGD-6972, presently undergoing a phase II study for treatment of type II diabetes. Data from this trial is awaited in the second half of 2017 to likely bring in future licensing opportunities.

Notably in June, Ligand announced receipt of a milestone payment of $1.5 million after its partner Melinta Therapeutics’ pipeline candidate, Baxdela (delafloxacin) was approved of by the FDA. This should likely contribute to revenues in the second quarter.

Baxdela was sanctioned to treat acute bacterial skin and skin structure infections (ABSSSI), caused by susceptible bacteria. Melinta leveraged Ligand’s Captisol technology to develop the IV formulation of Baxdela. Besides the milestone payment, Ligand is entitled to earn a 2.5% royalty on Baxdela IV sales.

Operating expenses vary on a quarterly basis, depending mainly on the timing of costs associated with internal programs and business development activities.

Earnings Whispers

Our proven model does not conclusively show that Ligand is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as elaborated below.

Zacks ESP: The Earnings ESP for Ligand is 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 25 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Though Ligand’s Zacks Rank #3 increases the predictive power of ESP, its 0.00% Earnings ESP makes surprise prediction difficult.

We caution against the Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some top-ranked health care stocks you may want to consider, as our model shows that these have the right combination of elements to come up with an earnings beat this quarter:

Syndax Pharmaceuticals, Inc. (SNDX - Free Report) is expected to release results on Aug 8 with an Earnings ESP of +9.88% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Arena Pharmaceuticals, Inc. (ARNA - Free Report) is scheduled to release results on Aug 7. The company has an Earnings ESP of +5.88% and a Zacks Rank #2.

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