Ligand Pharmaceuticals Hit By Bearish Citron Report

Ligand Pharmaceuticals Inc. LGND shares were falling Wednesday after Citron Research issued a report alleging that Ligand’s business model is a “pipe dream," saying the company is deceiving investors about its long-term outlook.

Citron’s Take

“Ligand is a company designed for the ‘lazy investor’ whose stock price has 80-percent downside from its current levels,” Citron editor Andrew Left said in the short report.

Ligand makes extraordinary efforts to promote its “Big Six” drug pipeline, which includes drugs being developed by Eli Lilly & Co (NYSE LLY) and Bristol-Myers Squibb Co BMY, Left said. Yet half of Ligand’s projected “Big Six” revenue milestones come from one company, Viking Therapeutics VKTX, he said. 

“If Ligand thought the Viking pipeline was even remotely realistic, they would not be buying back their own stock — rather they would buy Viking stock or the whole company." 

Both Ligand and Viking investors have been net sellers of the company’s stock, Left said. 

Vernalis is supposedly going to account for another 10 percent of future revenue milestones, according to Citron. 

“With a primary Vernalis drug failing its trials and the acquisition price for the entire company being slightly more than a public shell, Citron has broken down the busted pipeline of the $11-million Vernalis that is supposed to bring in $364 million of ‘potential milestones,” Left said. 

Citron has a $35 price target for Ligand stock, implying about 67-percent additional downside.

At the time of publication, Ligand Pharmaceuticals had not responded to a request for comment on the Citron report. 

Other Critics

Citron isn’t the only Ligand critic. Grant’s Interest Rate Observer set a $20 price target for the stock just last week.

Lemenson Capital Management CIO Rev. Fr. Emmanuel Lemelson has been a Ligand bear since 2014 and even sent a letter to Congress alleging the company has a long record of fraud.

“Ligand’s accounting and business model is by design opaque and complex,” Lemelson said in his 2018 letter. “The SEC, by ignoring the warnings about Ligand, despite a multiyear effort to explain the fraud in clear and simple terms, has categorically failed in its core mission.”

Lemelson has also compared the behavior of Ligand management to that of disgraced former Retrophin CEO Martin Shkreli, who is now serving a prison sentence for securities fraud.

"After several years researching the business practices of Ligand, a clear pattern of unethical conduct has emerged, including abuse of accounting loopholes and guidelines and misuse of the Orphan Drug Act of 1983, which has been used to increase the prices of its drugs dramatically," Lemelson said in 2016.

Feuerstein Fires Back

STAT News' Adam Feuerstein issued his own criticism of Citron on Twitter on Wednesday.

"So, @CitronResearch short thesis on $LGND boils down to $VKTX needing to blow up. Alright, good luck, Andrew. If $VKTX pans out, you’re toast, but then, he’ll probably be out by then. The rest of the report is un-readable," Feuerstein wrote.

Few companies do more to disclose information about their business than Ligand, the biotech expert said. 

"What I found most disappointing (and fundamentally dishonest) about Andrew’s work is the accusation that $LGND is lying to investors about its royalty-based business model," he wrote.

Feuerstein urged investors to take a look at Ligand's 10-K filings and said the Citron report was closer to sensationalism than research.

After Wednesday’s sell-off, Ligand shares are down 52 percent overall over the past six months. The stock was trading down 17.65 percent at $108.51 at the time of publication Wednesday. 

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