Ligand Pharmaceuticals Incorporated (NASDAQ:LGND) is building a business model that differs from that of many drug developers. Rather than relying on internally operated drug development programs, the company funds third-party programs and acquires royalty interests in exchange for economic rights in those assets. That model allows it to generate royalties and other income when the partnered products succeed.
Ligand’s royalty strategy gained significant scale with its acquisition of XOMA Royalty, which added more than 120 assets to its portfolio. We recently explored how the deal could transform Ligand’s royalty business in Ligand Pharmaceuticals (LGND): Massive XOMA Acquisition Doubles The Royalty Book.
That model is expanding. On September 24, Ligand announced a $47 million financing agreement with AvenCell Therapeutics, a privately held clinical-stage company developing CAR-T therapies.
The AvenCell deal has two funding arrangements. Ligand has committed up to $6 million to AvenCell’s Series C financing and up to $41 million to AvenCell’s drug development programs. The larger commitment is staged rather than paid upfront. The first tranche is payable at closing, while the remaining three tranches depend on predetermined clinical milestones and other financing conditions.
Photo by Myriam Zilles on Unsplash
That matters considering where AvenCell currently stands with its programs. AvenCell’s lead program AVC-201 is in a Phase 1b trial, while AVC-203 is in a Phase 1a program.
Also Read: Ligand Pharmaceuticals (LGND): Massive XOMA Acquisition Doubles The Royalty Book
Building Diversified Royalty Exposure
Ligand Pharmaceuticals Incorporated is positioning for a cut of AvenCell’s sales if its programs succeed commercially. Ligand would get between mid-single-digit and low-double-digit royalties on the global annual net sales from AvenCell’s current and future pipeline.
The AvenCell deal represents Ligand’s latest effort to expand and strengthen its royalty model. In July, Ligand completed the acquisition of XOMA Royalty, adding more than 120 assets to its portfolio across diverse development stages.
Ligand’s portfolio now features more than 200 assets, including more than 40 marketed products. The portfolio is built around more than 55 partners and across 20 therapeutic areas.
Ligand’s diversified approach helps spread exposure across therapeutic areas, development stages, and pharmaceutical partners. That’s important because Ligand does not need every individual asset in its portfolio to become a blockbuster to create value.
The company still has plenty of financial capacity to grow its royalty portfolio. As of June 30, Ligand had $1.36 billion in cash, cash equivalents, and short-term investments. Following the XOMA acquisition, the company said it had approximately $700 million of deployable capital available for additional royalty acquisitions and strategic investments.
The AvenCell deal adds another potential royalty stream to a model that is already producing results. Ligand’s royalty revenue grew 32% YoY to $48 million in Q2. The company is now targeting royalty revenue of $225 million to $250 million in full-year 2026.
Early-Stage Programs Are Wild Cards
AvenCell’s therapies remain early-stage, with lead programs AVC-201 and AVC-203 still facing substantial clinical, regulatory, and commercial risks. So a successful financing agreement does not guarantee that the pipeline therapies will make it to the market.
If Ligand overpays for development-stage opportunities or funds programs that ultimately fail, investors may not see the expected returns.
Hedge Funds Largely Hold Their Ground as Short Interest Rises
At the end of Q2, 23 hedge funds held Ligand Pharmaceuticals Incorporated versus 24 in Q1. Aristeia Capital initiated a position, while Squarepoint increased its stake by 257%. Short interest recently rose to 14% of the float from 13.2%. The 2.6 million shorted shares have 13.5 days to cover.
The AvenCell deal not only expands Ligand’s royalty model, but also contributes to a more diversified portfolio.
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