Citigroup believes investors should consider Ligand Pharmaceuticals for a more conservative bet on the biotech industry. The bank initiated the biotech stock with a Buy rating and a $270 price target, implying a 46% upside from Ligand's Monday closing price of $184.67. Shares have soared nearly 79% this year. Mountain LGND YTD LGND YTD Chart Citi analyst Yigal Nochomovitz attributed Ligand's rally so far this year to “recent realized gains from long-term investments contributing to profitability,” he wrote. However, he still believes that the stock's current level understates its ultimate valuation as the stock could rise further from now on due to upcoming catalysts with associated programs. The analyst called Ligand “the ideal choice for investors seeking exposure to the benefits of biotechnology while mitigating volatility” due to its broad product portfolio. By contrast, most biotech companies offer a binary bet on one or two drugs. “LGND's focus on 1) royalty aggregation of development/commercial stage assets, 2) licensing of novel platforms, and 3) investments in mid-to-late stage clinical programs limits biotech volatility by avoiding the risk of concentration in a single name without restricting upside,” the analyst added. In the near term, Nochomovitz foresees an increase in royalty income driven by strong commercial performance and various collaborations and licenses from Filspari, Kyprolis, Ohtuvayre and Qarziba. While royalties from cancer treatments Kyprolis and Qarziba are expected to decline modestly in the coming years, this should be more than offset by the other two assets. “Together, the four products contribute ~60-70% of LGND's total expected 2025 royalties of ~$150 million,” he wrote. “We expect Filspari and Ohtuvayre to each generate >$1 billion in sales in 2027, which we estimate would result in royalties from these two products equivalent to royalties generated by all assets in 2025 of ~$150 million.” Filspari slows the deterioration of kidney function in adults with primary immunoglobulin A nephropathy, while Ohtuvayre is for patients with chronic obstructive pulmonary disease. Nochomovitz also applauded Ligand's investments in late-stage clinical programs, which signal the next stage of long-term growth. Collective royalties from these shows in 2035 are expected to equal those of Filspari and Ohtuvayre combined.
