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Ligand Sells Promacta Rights for $827M, Updates '19 View

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Ligand Pharmaceuticals Incorporated (LGND - Free Report) announced the sale of all rights to Novartis’ (NVS - Free Report) blockbuster drug, Promacta (eltrombopag), to privately-held Royalty Phamra for $827 million. The sale also includes the royalty rights to worldwide net sales of Promacta, which generated the highest revenues, almost $100 million, for Ligand in 2018. The sale of Promacta is expected to close on Mar 6.

Promacta has been the leader in its category in the past year amid competition from new drugs. Sales of Promacta have witnessed compound annual rate of 32% over the past five years. At this growth rate, the drug has generated significant revenues for Ligand in royalty payments. Novartis has paid Ligand $291 million in royalty payments over the past 11 years. Novartis is also developing the drug for label expansion in new patient population.

Although the majority of the current patents covering Promacta are set to expire in mid-2021 in the United States, Ligand’s Captisol technology, used in drug development, is protected till 2029. The Captisol patent may limit generic competition for the drug and will help it generate significant revenues following its patent expiration after mid-2021.

Investors were dismayed by the asset sale as Ligand’s shares fell 7.1% in after-market trading on Mar 5 following the news. Shares of the company are down 11.1% so far this year against the industry’s gain of 14.9%.

In the press release, Ligand stated that the sale has almost doubled its cash resources to $1.4 billion, which help Ligand to develop its technologies and acquire companies to drive growth over the next five to 10 years or beyond. The company will also be able to continue development of its OmniAb platform, which it expects to generate $500 million to $1 billion in annual royalties beginning 2030. Captisol and OmniAb along with LTP technology is estimated to generate over $3.5 billion in potential contract payments

Ligand will primarily use the proceeds from the sale to acquire long-term revenue generating assets, fully-funded Shots on Goal and technology platforms. The company will also use the proceeds to buy back shares, which will increase earnings per share (“EPS”).

Following the sale of Promacta rights, Ligand’s royalty revenues will majorly be driven by Amgen’s (AMGN - Free Report) Kyprolis and Acrotech Biopharma’ Evomela, previously owned by Spectrum Pharma (SPPI - Free Report) .

2019 Guidance Update

Along with the announcement of the asset sale, Ligand also updated its revenue and earnings guidance for 2019.

The company expects its total revenues to be $118 million, down from the previously expected amount of $224 million. The decline in revenues is likely to be lower royalty revenues, which are currently expected to be $48 million compared with $154 million expected previously. However, guidance for license fees and milestones, and material sales was maintained. However, adjusted EPS is guided to be $32.25 compared with the previous guidance of $6.05.

For the first quarter of 2019, total revenues are expected to be at least $38 million, approximately consisting of $19 million in royalties, $12 million in license fees and milestones and $7 million in material sales. Royalty revenues will include $15 million royalty on sales in the first two months of 2019.

Zacks Rank

Ligand currently has a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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