By John Vandermosten, CFA
NASDAQ:LGND
READ THE FULL LGND RESEARCH REPORT
Ligand Pharmaceuticals, Inc. (NASDAQ:LGND) reported outstanding results for its third quarter, with revenues almost double our estimates and adjusted core earnings per share (EPS) more than 60% greater. While contributions from the spin out of Pelthos contributed the most, revenue growth in other areas was also strong. Royalties grew almost 50% and Captisol increased over 70%. Other activity since the previous quarterly update includes a $460 million convertible note issuance and new investments in Orchestra BioMed, Pelthos’ Xepi, and two assets with Arecor.
Ligand reported third quarter 2025 revenues of $115.5 million, a 123% rise over prior year levels. Drivers for the result were a $53 million contribution from Pelthos and greater than expected growth from Filspari, Ohtuvayre, Qarziba, and Captisol. Adjusted core earnings per share were $3.09, up from 3Q:24’s $1.84. Ligand raised 2025 revenue and earnings guidance by 8 to 10% resulting in a new range of anticipated revenues between $225 to $235 million and earnings per share of $7.40 to $7.65.
3Q:25 Financial and Operational Results
Ligand reported third quarter 2025 results in a press release and Form 10-Q filing with the SEC on November 6th and 7th, respectively. A conference call was held with an accompanying presentation to discuss results with investors following the release. For the quarter ending September 30th, 2025, revenues of $115.5 million were recognized. GAAP earnings per share for 3Q:25 totaled $5.68, and core adjusted EPS was $3.09. For the third quarter of 2025 versus the same prior year period:
- Revenues of $115.5 million rose 123% from $51.8 million. Pelthos contributed $24.5 million of the total from the out-license of Zelsuvmi and $28.6 million from the gain on the sale of the business. Intangible royalty asset revenues increased by 51% to $40.2 million, aided by contributions from Filspari, Ohtuvayre, and Capvaxive. Financial royalty asset sales increased by 25% to $6.4 million. Captisol revenues rose 71% to $10.7 million due to the timing of customer orders. Contract revenue and other income increased 320% to $58.2 million and includes the $53.1 million related to the Pelthos transaction;
- Cost of revenue, which is related to Captisol cost of goods sold, totaled $3.8 million, increasing 55% over prior year levels. This represents a gross margin on Captisol sales of 64.5%, up from 60.8%;
- Amortization of intangibles was $8.1 million vs. $8.3 million with the change due to deconsolidation of LNHC on July 1st, 2025;
- Research and development expense totaled $21.0 million versus $5.7 million, with $17.8 million of the amount attributable to the acquisition of the AVIM Therapy royalty rights from Orchestra;
- General & Administrative expenses were $28.4 million, up 16% from $24.5 million, with the increase primarily due to transactions costs;
- Fair value adjustments to partner program derivatives of ($0.8) million compared to $7.8 million with prior year amounts related to certain Agenus partners discontinuing development of their partnered programs;
- Other non-operating items were $86.2 million vs. ($9.5) million. 3Q:25 items include a $75.9 million gain related to the Pelthos transaction, along with a $9.8 million unrealized gain on Palvella common stock, among other items. Net interest income was $3.0 million, up from $0.6 million, reflecting higher cash and investment balances;
- Income tax expense of $23.9 million represents a tax rate of 16.9% compared to income tax expense of $0.8 million;
- Net income was $117.3 million versus a net loss of $6.3 million or $5.68 and ($0.39) per share, respectively. Adjustments to 3Q:25 GAAP earnings subtracted $2.59 per share to generate core earnings of $3.09 per share.[1]
As of September 30th, 2025, cash, equivalents, and short-term investments totaled $665 million. This amount compares to the $256 million balance held at the end of 2024. Free cash flow in the third quarter totaled $13.1 million, while cash used in financing generated $410 million, largely due to proceeds from the convertible note issuance. The company maintains access to a revolving line of credit and an at-the-market (ATM) facility with Stifel, Nicolaus that can expand its access to capital as needed.
Arecor Therapeutics Investment
Ligand indirectly announced its investment in Arecor Therapeutics plc (LSE:AREC.L), posting a copy of Arecor’s press release detailing the sale of global royalty rights related to AT220 and technology access fees related to AT292. AT220 is a biosimilar product marketed by a large global pharmaceutical company, and AT292 is an optimized recombinant Alpha 1‑antitrypsin (AAT)-Fc fusion protein for emphysema patients. Both rely on the Arestat formulation technology for improved performance of the underlying molecule.
Ligand will pay Arecor up to $11 million, comprised of a $7 million upfront payment and follow-on of $4 million, which will be paid after the achievement of certain commercial milestones related to AT220 and AT292. $1 million of the follow-on amount is expected to be paid in 2026. In return for the investment, Ligand will receive approximately one million warrants with an exercise price of 67.39 pence[2] with a 10-year life. It will also receive global royalty rights related to AT220 and all potential milestones and technology access fees related to AT292.
Funds from the deal will support Arecor’s development of AT278, an ultra-concentrated, ultra-rapid acting insulin candidate, and an oral delivery of peptides platform technology. The financing extends Arecor’s cash runway until 1H:27.
Few details are disclosed for AT220. The license agreement was executed in 2015, leading to the development of a novel and differentiated formulation of the Arecor partner product. The product was first commercialized in November 2023, generating royalties under a worldwide licensing agreement.
AT292 is a formulation-enhanced version of INBRX-101 (now SAR447537), which was developed by Inhibrx and now owned by Sanofi. It is intended to treat Alpha 1‑antitrypsin deficiency (AATD). AATD is an inherited rare disease characterized by low levels of AAT protein, predominantly affecting the lung with progressive deterioration of the tissue. INBRX-101 may help to reduce inflammation and prevent further deterioration of lung function in affected individuals.
The Arestat reformulation technology consists of a patented series of over ten different mechanistically defined families of specific combinations of excipients, which, when selected and combined with a therapeutic medicine, will deliver novel formulations with enhanced properties. The technology can be applied to antibodies, complex biologics, peptides, and vaccines and can provide greater safety and a superior therapeutic profile to the underlying molecule. A further explanation of the Arestat technology can be found on the Arecor website.
Pelthos’ Transformation to Public Company
Ligand announced that it had identified a suitor to take its subsidiary Pelthos Therapeutics public in an April 17th press release. Ligand’s subsidiary combined with the public company Channel Therapeutics (NYSE:CHRO), which was a clinical stage life sciences company developing pain therapeutics. Since the acquisition of Novan by Ligand in 2023, Zelsuvmi has received FDA approval, Pelthos was created, and the company is now public, trading on the NYSE American exchange. The transaction closed in July 2025, and Scott Plesha became CEO of the combined company, and Mr. Knuettel (former CEO of Channel) is CFO.
Prior to the merger with Channel, Pelthos had been building inventory and preparing for commercial launch, leading to a July 10th announcement introducing Zelsuvmi. It included Pelthos’ payment of a $5 million milestone to Ligand. Along with the merger, investors placed $50.1 million with the new entity. Ligand now owns approximately 50% of Pelthos and is entitled to a 13% royalty on Zelsuvmi sales and may receive an additional $5 million in commercial sales milestones.
On November 7th, Pelthos announced an $18 million convertible note financing to support the acquisition of Xepi (ozenoxacin) cream. Xepi is a non-fluorinated quinolone antimicrobial indicated for the topical treatment of impetigo due to Staphylococcus aureus or Streptococcus pyogenes in adult and pediatric patients two months of age and older. The drug was approved by the FDA in December 2017. It is an attractive complement to Zelsuvmi, also focused on pediatric skin conditions. The convertible note Pelthos issued was partially financed by Ligand, who contributed $9 million of the total. Ligand will be eligible for a low single-digit royalty on US sales of Xepi. Based on our review, it appears that Xepi is not being actively commercialized at least in part due to issues related to its third-party manufacturer.
Convertible Senior Note Issuance
On August 11th, 2025, Ligand announced its intent to offer up to $460 million in convertible senior notes with a five year life. The deal includes a hedging transaction to limit dilution above the conversion price. It closed on August 14th. Ligand was able to complete the entire $460 million offering, generating net proceeds of $445.1 million after deducting fees and expenses (approximately 3.2% load). The company also spent $45.9 million of the net proceeds to hedge dilution exposure above the conversion price using long call options with a $194.79 strike price, partially funded by short call options (issuance of warrants) with a $294.02 strike price. Ligand further repurchased 102,034 shares of its stock as part of the transaction.
The notes will mature on October 1st, 2030, unless converted, redeemed, or repurchased earlier, and the notes will pay interest of 0.75% semiannually. The initial conversion rate is $194.79, but under certain circumstances, such as a merger transaction, can be reduced to $147.01. This is equivalent to 5.1338 shares under normal circumstances or 6.8022 shares if a triggering event takes place. After October 6th, 2028, Ligand may force redemption of the notes if equity shares have traded at 130% of the conversion price for 20 of 30 trading days.
This transaction adds a substantial amount of capital to Ligand’s coffers and provides more firepower for the royalty aggregator to take advantage of investment opportunities in the life sciences space. We think that the investment environment has numerous opportunities at attractive valuations ripe for the picking. The additional $400 million net of hedging and fees that Ligand has added to its balance sheet increases its potential. However, management noted that the bottleneck to a faster pace of investment is human capital. Therefore, we expect to see a modest increase in investment pace rather than an abundant increase in the near term.
SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you each morning. Please visit our website for additional information on Zacks SCR.
DISCLOSURE: Zacks SCR has received compensation from the issuer directly, from an investment manager, or from an investor relations consulting firm, engaged by the issuer, for providing research coverage for a period of no less than one year. Research articles, as seen here, are part of the service Zacks SCR provides and Zacks SCR receives payments totaling a maximum fee of up to $50,000 annually for these services provided to or regarding the issuer. Full Disclaimer HERE.
________________________
[1] Details of the GAAP to core earnings reconciliation are in Ligand’s earnings press release. Material adjustments include Share-based compensation expense, Amortization, change in fair value for Pelthos securities and gain on sale of Pelthos.
[2] As of November 3rd, 2025 Arecor (AREC.L) had a price indication of 71.50 pence on the London Stock Exchange.