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Licensing Deals Help Ligand to Stay Lean

Ligand Pharmaceuticals Inc. has forged a creative new licensing deal with a small La Jolla startup — further indication that the once-beleaguered biotech is making a marked turnaround.

Ligand (Nasdaq: LGND) has licensed five of its drug development programs to Viking Therapeutics Inc., a San Diego startup. The company is also investing $2.5 million in Viking to help it advance Ligand’s drug compounds, essentially outsourcing midstage clinical trial work so that Ligand can focus on what it does best: early-stage research and development.

Ligand, founded in 1987, was once rather large — employing upward of 500, with sales of $176 million in 2005. But thanks to an expensive operating structure, costly acquisitions and high legal costs, it failed year after year to post profit.

Today, the company is a fraction of that size — it employs just 20 — but is profitable, thanks to its focus on partnership and licensing deals for its in-house research. Ligand grew revenue for the first quarter ended March 31 by 37 percent to $16 million, and its royalty revenues increased 35 percent to $7.9 million. The company’s profit for the quarter was $2.1 million, compared with $1.5 million for the first quarter 2013.

Today, Ligand’s stock value and market capitalization are strong. Shares closed at $66.86 May 29, and the company’s market value was $1.4 billion. A year ago, it was trading at $28.08, and analysts have upgraded the company’s stock outlook in recent months.

CEO Change Ushers Turnaround

But just a few years ago, in 2010, Ligand had an accumulated deficit of $692 million. Having gone public in 1992, it employed 519 workers by 2004. It had five drugs approved in that time and was posting steady sales, but the company was run by scientists, analysts said, and couldn’t find a means to become profitable. From 2005 to 2006, the employee count plummeted from 493 to 122, according to regulatory filings, and continued to drop.

But despite its lean size, the company began a transformation four years ago when new management came in. CEO John Higgins took over in 2007, drastically cutting expenses and embracing a new business model that’s centered on acquiring distressed biotechs and partnering with large pharmaceutical companies, such as GlaxoSmithKline PLC (NYSE: GSK), Merck & Co. Inc. (NYSE: MRK) and Pfizer Inc. (NYSE: PFE), that will bear the financial burden of commercializing drugs.

“Success [in research and development] has been the backbone of our prolific out-licensing activities over the past few years,” Higgins said.

The programs licensed by Viking include therapies for type 2 diabetes and anemia. Ligand’s course of action has been to internally establish proof of concept and initial data, then partner with outside companies to manage more advanced clinical and regulatory development. It will be Viking’s task to further these programs, and the $2.5 million investment will help support that, said Higgins, who is also the company’s president.

“This is a creative licensing transaction that combines a bold portfolio of early- and midstage assets with a company that can advance these programs to major inflection points in the near term,” said Higgins. He added that Viking’s programs will likely generate newsworthy clinical outcomes over the next year or two, and could “be the basis for important new drugs in major therapeutic categories.”

LIGAND PHARMACEUTICALS INC.

CEO: John Higgins

Revenue: $49 million in 2013; $31.4 million in 2012

Net income or loss: Net income of $11.4 million in 2013; net loss of $527,000 in 2012

No. of employees: 20

Headquarters: La Jolla

Year founded: 1987

Stock symbol and exchange: LGND on Nasdaq

Company description: Has a vast portfolio of partnered drug programs — more than 90 in development, with drugs like Promacta, Kyprolis and Captisol serving as primary revenue drivers

Key factors for success: The ability to leverage a lean corporate structure, bringing in revenue from royalty and licensing deals as opposed to direct product sales

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