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Ligand Sees Opportunities in CyDex Acquisition

LIGAND PHARMACEUTICALS INC.

CEO: John Higgins.

Revenue: About $23 million in 2010.

Net income or loss: Unavailable.

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No. of local employees: 18.

Headquarters: La Jolla.

Year founded: 1987.

Stock symbol and exchange: LGND on the Nasdaq.

Company description: A pharmaceutical company now with over 60 drug development programs. The therapies address diseases such as hepatitis, Alzheimer’s, diabetes, anemia, asthma, rheumatoid arthritis and osteoporosis.

Ligand Pharmaceuticals Inc. of La Jolla has bought CyDex Pharmaceuticals Inc. in a deal that Ligand officials predict will more than double revenue while broadening its potential for new deals.

CyDex “had a portfolio of partnerships that fit very nicely with our business,” said John Higgins, president and CEO of Ligand. “It was a very convenient way to significantly expand our business.”

Ligand has a focus on drug discovery while CyDex has specialized in reformulating existing drugs, making Ligand’s purchase of CyDex practical and beneficial, Higgins said.

“For us, this was a private company and we saw an opportunity to make an offer and add these new assets into a business at a time we think that Ligand could move into a growth period,” Higgins said.

Ligand paid $31.2 million for CyDex and agreed to pay $4.3 million in cash on the one-year anniversary of the closing, according to a Ligand statement.

CyDex of Lenexa, Kan., formed in 1993, is a pharmaceutical company that generates sales from four marketed drugs and its Captisol drug reformulation technology. Captisol technology is used to improve the solubility and stability of active pharmaceutical ingredients in medications, according to information on CyDex’s Web site. Nine CyDex employees will stay put in Lenexa, Higgins said.

“We believe Ligand’s broad licensing network and business acumen, coupled with the opportunity to share in future upside in the business, created an attractive exit for CyDex shareholders,” said Ted Odlaug, CyDex’s former president and chief executive officer, in a Ligand press statement.

The Revenue Picture

CyDex generated revenue of $16.3 million in 2010 while Ligand reports about $23 million in revenue for 2010, Higgins said.

Ligand’s acquisition payment to CyDex shareholders consists of $11.2 million of Ligand’s internal cash and $20 million borrowed on a 42-month secured term loan, according to a company statement. Ligand is also exploring other financing options for up to $10 million more in borrowing, for a total potential borrowing of $30 million, the statement said.

The purchase of CyDex means that Ligand now has more than 60 drug development programs. The therapies address a range of diseases, including hepatitis, Alzheimer’s disease, diabetes, anemia, asthma, rheumatoid arthritis and osteoporosis.

Ligand’s acquisition of CyDex comes as financial markets have opened up and there is more optimism about mergers and lending by banks is returning, said Mick Swartz, associate professor of clinical finance at the University of Southern California’s Marshall School of Business.

The deal likely will improve cash flow and help Ligand to diversify, Swartz said.

“I think they view this deal as bringing more cash in sooner,” he said.

A merger can pose challenges when two companies and, therefore, cultures come together, Swartz said.

“Sometimes that synergy doesn’t happen,” Swartz said. “You have to make everybody feel like they’re on the same team.”

The fact that both companies are relatively small and they are in the same industry will work in their favor, Swartz said.

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