On August 6, Ligand Pharmaceuticals (NASDAQ:LGND) reported second-quarter 2026 results showing royalty revenue up 32% year over year, just weeks after the company closed its acquisition of XOMA Royalty. Total revenue reached $63.7 million for the quarter, up from $47.6 million a year earlier, and Ligand raised the low end of its full-year adjusted earnings guidance. The headline growth numbers are easy to like. What is harder to ignore is that Ligand just more than doubled its royalty portfolio and added $700 million in convertible debt in the same stretch.
Doubling The Royalty Book
Royalty revenue is where Ligand’s growth is actually coming from, and it has been strong on its own merits. Royalties totaled $48.0 million in the second quarter, up from $36.4 million a year earlier, with Travere Therapeutics’ Filspari, Pelthos Therapeutics’ Zelsuvmi, and Merck’s Ohtuvayre leading the increase. That growth compounded further in the first half, when royalties reached $91.0 million, up 42% from $63.9 million a year ago. The Filspari story helps explain why: the FDA approved the drug in April to treat FSGS, a second rare kidney disease beyond its original approval, and Travere reported $141 million in US net sales in early August, up 96% year over year.
Then there is the XOMA deal. On July 14, Ligand closed its acquisition of XOMA Royalty, adding more than 120 commercial, clinical, and preclinical assets, including Roche’s Vabysmo, Servier’s Ojemda, and Zevra Therapeutics’ Miplyffa. That pushed Ligand’s total portfolio past 200 royalty assets, more than double what it held before. Management expects the deal to add roughly $0.50 per share to 2026 adjusted earnings and $1.50 per share in 2027, and it came with about $700 million in deployable capital left over to keep buying royalty streams at a stated pace of $150 million to $250 million a year.
Paying For All This Growth
That growth is not coming cheap. G&A expense jumped to $29.1 million in the second quarter from $20.2 million a year earlier, driven by transaction costs tied to the XOMA deal along with higher headcount and stock compensation. R&D expense nearly tripled to $14.7 million, largely because of a $12.3 million funding arrangement with Orchestra BioMed. A large share of the quarter’s reported profit also did not come from the royalty business at all: net non-operating income of $55.7 million included a $35.7 million non-cash gain tied to swings in the value of Ligand’s Pelthos Therapeutics stock holdings, a figure that can move the other way just as easily.
The financing behind the XOMA deal carries its own risks. Ligand funded part of it by issuing $700 million in convertible senior notes due 2031, and while the notes carry 0% interest, the attached warrants only avoid diluting shareholders if Ligand’s stock stays below $524.34 per share. Ligand also spent $60 million buying back 228,859 shares at roughly $262 each. Meanwhile Captisol sales, one of Ligand’s older product lines, slipped to $8.0 million in the quarter from $8.3 million a year earlier, and fell further over the first half to $16.6 million from $21.7 million. Elsewhere in the portfolio, Agenus discontinued its BATTMAN Phase 3 trial for BOT/BAL in July, even as it lined up a redesigned trial with the FDA.
What The Market Is Pricing In
Hedge fund ownership in Ligand slipped slightly, from 24 funds in the prior quarter to 23 in the most recent one, a mild pullback rather than a rush for the exits. Short interest sits at 14.72% of the float, a heavy level that points to real organized skepticism about how durable this growth is. Yet the stock trades at a forward price-to-earnings ratio of 25.19 as of September 3, which prices in continued double-digit earnings growth rather than doubt.
Where This Leaves Investors
Ligand’s second-quarter numbers back up a straightforward growth story: royalty revenue is rising fast, the XOMA acquisition doubled the portfolio, and guidance moved higher. But the reported profit leaned heavily on non-operating gains that will not repeat every quarter, and the balance sheet now carries $700 million in new debt alongside a portfolio still being integrated. For the growth case to hold, royalties from Filspari, Ohtuvayre, and the newly added XOMA assets need to keep compounding on their own, without help from investment gains.
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