Can Ligand (LGND) Spring A Surprise This Earnings Season?

Ligand Pharmaceuticals Incorporated (NASDAQ:LGND) is scheduled to report first-quarter 2017 results on May 9, after the market closes. Ligand’s earnings history has been disappointing as it missed expectations in three of the last four quarters and beat estimates in one. Overall, the company had an average negative surprise of 34.18% in the trailing four quarters.

However, Ligand’s shares had outperformed the Zacks classified Medical-Biomedical and Genetics industry so far this year. Shares of the company had gained 9.9%, while the industry recorded an increase of 5.2%.



In the last reported quarter, Ligand posted a negative earnings surprise of 114.71%. Let’s see how things are shaping up for this announcement.

Factors at Play

Ligand is a biotechnology company focused on the development and licensing of biopharmaceutical assets. The company's Captisol formulation technology has helped it to form partnerships with several leading healthcare companies that provide it with funds in the form of milestone and royalty payments. Royalties depend on the sales of its two key partnered assets – Novartis AG’s (NYSE:NVS) Promacta and Amgen’s Kyprolis.

We expect investor focus to remain on updates on the company’s partnerships and major pipeline assets at the first-quarter conference call.

In Apr 2017, the company announced that it has entered into another commercial license and supply agreement with Marinus Pharmaceuticals, Inc., granting it rights to use Captisol in the formulation of its intravenous (IV), ganaxolone. Under the terms of the agreement, Ligand is entitled to potential milestone payments, royalties and revenues from the future sales of Captisol-enabled ganaxolone.

Ligand expects 2017 earnings of approximately $2.70 per share on revenues of $130 million. The company expects this amount to increase if additional contract revenues are received in 2017.

Furthermore, Ligand continues to strike new licensing agreements and expand its portfolio. In 2017, Ligand expects to receive up to an additional $30 million of contract payments.

The company has several major pipeline assets in its portfolio. With regard to its internal pipeline, several candidates are being developed for indications like diabetes. One of the most advanced candidates in its portfolio is LGD-6972, which is presently undergoing a phase II study for the treatment of type II diabetes. Data from the study is expected in the second half of 2017, which should bring in future licensing opportunities.

Operating expenses vary on a quarterly basis depending mainly on the timing of costs associated with internal programs and business development activities.

Earnings Whispers

Our proven model does not conclusively show that Ligand is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here, as elaborated below.

Zacks ESP: The Earnings ESP for Ligand is 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 55 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Liganda has a Zacks Rank #3. Though the company’s favorable Zacks Rank increases the predictive power of ESP, its 0.00% Earnings ESP makes surprise prediction difficult.

Note that we caution against stocks with Zacks Rank #4 or 5 (Sell-rated) going into an earnings announcement, especially when the company is seeing a negative estimate revision.

Other Stocks That Warrant a Look

Here are some health care stocks that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter.

FIBROGEN INC (NASDAQ:FGEN) is scheduled to release results on May 9. The company has an Earnings ESP of +23.81% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Editas Medicine, Inc. (NASDAQ:EDIT) is expected to release results on May 15. The company has an Earnings ESP of +32.26% and a Zacks Rank #3.

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