Deutsche Downgrades Ligand As Risk/Reward Becomes Challenging

Deutsche Bank has downgraded Ligand Pharmaceuticals Inc. (NASDAQ: LGND) to Sell from Hold on valuation.

Despite acknowledging the long-term potential of Ligand's "more than 150 shots-on-goal," the brokerage sees downside in shares over the next one year if there is lag in revenue momentum and lack of new pipeline "upsides."

That said, Deutsche Bank noted "that one particularly high-profile opportunity, MRK's BACE inhibitor, could create significant volatility when Phase III studies read out in mid-2017."

Despite expecting continued strong royalty growth from core assets Promacta and Kyprolis, downside, Deutsche said that Kyprolis could face greater competitive pressure as newer entrants in the multiple myeloma market gain traction.

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The notable ones are Johnson & Johnson (NYSE: JNJ)'s Darzalex, Bristol-Myers Squibb Co (NYSE: BMY)'s Empliciti and Takeda Pharmaceutical Co Ltd (ADR) (OTC: TKPYY)'s Ninlaro.

"We note that monthly IMS sales growth for Kyprolis has slowed from 40 percent in 1Q16 to 17 percent in 2Q16, with growth in May (18 percent) and June (5 percent) well below the April level (32 percent)," analyst Gregg Gilbert wrote in a note.

Among Ligand's other "Big 6" pipeline assets, Gilbert models material royalty contribution from Melinta's Baxdela starting in 2017.

Following the company's second-quarter results, the analyst cut his 2016 EPS estimate by 5.8 percent to $2.75. However, Gilbert hiked his price target on the stock by $6 to $110.

At time of writing, shares of Ligand had fallen 6.48 percent on the day to $123.82.

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