Exclusive: Emmanuel Lemelson Talks Ligand Pharmaceuticals

Lemelson Capital chief investment officer Emmanuel Lemelson recently increased his short position in Ligand Pharmaceuticals LGND after its second quarter earnings report.

“Any company whose EPS is down 76 percent year over year while its stock awards are up 100 percent and has just $21,000 in tangible equity to buttress a $1.1 billion market cap [...] seems like an exceptional short candidate,” Lemelson told Benzinga.

He continued that strong competition and a five-year bull market contribute to his short position.

In an exclusive interview with Benzinga, Lemelson discussed his short position in Ligand Pharmaceuticals. Shares have sold off more than 20 percent since Lemelson Capital published its bearish thesis on the stock in mid-June.

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Second Quarter Earnings

Although Lemelson didn't like the report, Wall Street did, as shares rose on top and bottom line beats. One of Lemelson’s many concerns is Ligand’s use of non-GAAP earnings.

Rather than using non-GAAP reporting to take out extraordinary items, “the use of which some might argue serve almost exclusively to cloak the skyrocketing stock awards to management in the face of plummeting earnings,” Lemelson said.

Lemelson’s News Flow

The fund manager further spoke out against Ligand’s company news, calling releases a pyramid scheme of words. He explains:

“Management seems to have become more concerned with convincing people of the value of their reasoning, which is highly biased toward driving their share price higher than expressing the unbiased facts. Yet, they present their data as if it were neutral and broadly-accepted.

“Definitions for why a company with immaterial earnings should trade at such a dear multiple must eventually run out, and the stock price will plummet just as their earnings have.”

Looking Forward

The fund has been very successful with its short position and sees significant downside ahead, as shown by its decision to short more shares.

“If investment decisions are predicated on sound investment policy, a rational assessment of a company’s financial showings and a clear assessment of management quality, uncertainties can be greatly mitigated," Lemelson concluded.

Ligand shares were last trading at $51.21, down 3.5 percent on the session.