Ligand (LGND) Q2 FY26 earnings call: guidance and Q&A

Have there been any surprises or unexpected positive developments in the XOMA portfolio since closing the acquisition, particularly regarding assets initially valued at zero?

Management confirmed positive developments on assets initially valued at zero during the underwriting process. The team is connecting with partners and finding interesting new investment opportunities within mid-stage and earlier pipeline assets, aligning with Ligand's portfolio management strategy.

“We did focus our underwriting process on some of the later-stage pipeline assets. And since the acquisition closed, we've been connecting with each of the partners in our new portfolio and finding some really interesting new investment opportunities, both within kind of the mid-stage pipeline as well as some earlier opportunities.”

asked by Matthew Hewitt · answered by Lauren Hay

What are the pros and cons of XOMA's financial royalty investment structure compared to Ligand's historical approach, and will Ligand pursue more such financial royalties?

XOMA's 'zombie strategy' involved acquiring distressed companies for tax assets and net cash. Ligand has considered this but focuses on asset quality and royalty cash flows. While some tax benefits are being pursued, the main focus remains on the quality of the asset and its ability to generate royalty cash flows, not small, de minimis deals.

“But our main focus is on the quality of the asset and the ability to monetize that in terms of royalty cash flows downstream.”

asked by Matthew Hewitt · answered by Todd Davis

Given the scaled-up royalty assets post-XOMA, will Ligand continue with asset-based deals or pursue larger, portfolio-like transactions?

Ligand will continue to execute on the same type of deals, typically sub-$100 million, in the $25 million to $75 million range, focusing on specific royalty assets or project financings. The market for these deals is still very significant relative to Ligand's deployment capacity, allowing for consistent annual investment.

“So I do think that we expect to continue to execute on the exact same type of deals, sub-$100 million, typically in the $25 million to $75 million range around specific royalty assets that we acquire or project financings that we do with partners.”

asked by Annabel Samimy · answered by Todd Davis

Does the recent $700 million convertible note offering with a 0% coupon change Ligand's deal size or hurdle rates for new investments?

The low cost of capital does not change Ligand's strategy, underwriting criteria, or target returns. It primarily allows for greater alpha and spread for investors. Deal sizes will remain in the same ballpark, focusing on the sub-$100 million market where demand for this type of capital is high.

“Our strategy and our underwriting criteria as well as target returns remain unchanged. Lower cost of capital just allows us to deliver greater alpha and a spread for our investors.”

asked by Yigal Nochomovitz · answered by Todd Davis

With the XOMA acquisition closed, is Ligand considering divesting or spinning off any assets from the acquired portfolio?

While no specific divestitures can be named yet, Ligand is actively assessing the full XOMA portfolio, including unpartnered and early-stage assets. The goal is to identify opportunities to create upside beyond original underwriting, potentially through small investments to establish proof of concept for licensable assets or by supporting existing partners through follow-on financings.

“There are many assets. In fact, a significant majority of the assets that we either do not have enough information about or they were just very early. So we valued those at 0. So again, it's kind of a triage approach.”

asked by Joseph Pantginis · answered by Todd Davis

Mirum disclosed an FDA recommendation for a Phase III trial for Volixibat in PSC. How does this impact Ligand's timeline and risk adjustment for the product?

Ligand was disappointed by the news but maintains conviction in Volixibat for both PSC and PBC. The FDA's recommendation for a Phase III trial for PSC, despite positive Phase IIb data and breakthrough therapy designation, will delay potential approval. The partner is targeting iterative discussions with the FDA and a submission in H1 next year, pushing timelines out, but the PBC study remains on track.

“So it pushes it out a little bit in terms of the potential approval date. They're now targeting iterative discussions with the FDA that they get through the breakthrough therapy designation and then a submission in the first half of next year as opposed to the last half of this year.”

asked by Sahil Dhingra · answered by Lauren Hay