While investors certainly haven’t embraced shares of Ligand Pharmaceuticals (NASDAQ:LGND), insiders recently have been jumping on the bandwagon. Since the beginning of the year, company directors and executives have purchased about 175,000 shares of the San Diego area-based biotechnology company.
Insiders usually know more than the investing public, but in this case the basis of their enthusiasm isn’t obvious.
Perhaps it’s the deal Ligand announced in January that the company says has the potential to bring it $100 million in revenue. The deal gives Chiva, a U.S.-based affiliate of Hainan Kaihua Pharmaceutical, the rights to develop and market two liver disease drugs. One is a potential treatment for hepatitis B, and the other is being tested as a treatment for the most common type of liver cancer. Ligand said Chiva is also getting a nonexclusive license for several newer drugs.
Ligand added that it could get more than $100 million in milestone payments and royalties on sales if the products are approved; up to $1 million of that could come in 2011. Ligand said it could also get a 10% equity stake in Chiva. If Chiva licenses the drugs to another company, Ligand also will get a portion of that revenue.
That sounds like a lot of “coulds” and “ifs” to base a buying decision upon, especially for a company that has been on a slippery slope for the past five years. Since March 2006, the company’s shares have dropped a prodigious 87%, from about $77 to $10. During the same period both the overall Nasdaq and the Nasdaq Biotechnology Index are up 20%.
Boosted by the insider trading, Ligand shares are at least trending north, having jumped 10% since the beginning of the year.
Ligand is promising a reversal of fortunes in 2011 after recording substantial drops in sales and earnings in 2010. The company says it expects $22 million to $24 million in revenue in 2011, and expects its operations to be profitable by the end of the year. Those results are a far cry from 2010, when Ligand lost $12.5 million on a 40% revenue drop.
Ligand’s business is based almost entirely on generating revenue from partnerships and collaborative research. The company suffered this past November when its partnership with Roche on a hepatitis C treatment ended. That deal initially promised a possible payout of more than $200 million if milestones were met. (There’s that “if” qualifier again).
In fact, uncertainty has become a fact of life for small companies like Ligand as Big Pharma terminates more partnerships to rationalize their R&D budgets.
Despite its prospects being tied to the whims of other firms, Ligand does have a leg up on other small biotech companies. The company has an impressive list of partners, including Pfizer (NYSE:PFE), Merck (NYSE:MRK), Bristol-Myers Squibb (NYSE:BMY), Celgene (Nasdaq:CELG), GlaxoSmithKline (NYSE:GSK) and AstraZeneca (NYSE:AZN). Furthermore, Ligand expects to receive revenue from eight partner-marketed products in 2011 and has a portfolio of more than 50 additional programs that could generate some solid income down the line.
Who knows? Maybe the company insiders really do know something.
