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Ligand Pharmaceuticals on Long Road Back

Ligand and Wyeth are in late-stage clinical trials on an experimental drug for osteoporosis, and Robinson said he expected Wyeth to submit an application to the FDA. Wyeth has stopped trying to develop a related compound as a cancer treatment. Two experimental contraceptives being developed with Wyeth have been put on hold.

Other compounds using Ligand technology that are in mid-stage clinical testing include treatments for diabetes and clogged arteries being developed by Eli Lilly. Research on another diabetes drug has been set aside for now. In addition, GlaxoSmithKline is in mid-stage clinical trials on compounds for heart disease and insufficient blood platelets.

Tales of Royalty

Given the massive financial restatement and the absence of formal 2005 data, it's still hard to get a clear picture of Ligand. The company issued a lengthy Nov. 18 press release on its financials, while its Webcast for investors required 73 slides, and the presentation ran about two hours.

Only a handful of analysts continue following the company. George Farmer of Wachovia Securities suspended coverage in early September, citing the impending delisting by Nasdaq. Before dropping coverage, Farmer said Ligand's research activities are "based on stellar science." The company's marketed and experimental products "should command significant value" if Ligand pursues "strategic options," he said. He had an outperform rating when he last covered the stock.

Jim Reddoch of Friedman Billings Ramsey has an underperform rating on Ligand. "The restated financials show much lower numbers than expected," he wrote in a Nov. 21 research report. He doesn't own shares, but his firm says it seeks to do investment banking with companies mentioned in its reports.

Reddoch says sales of Ligand's biggest product, the painkiller Avinza, were lower than expected. Avinza is an extended-release form of morphine for patients with chronic, moderate to severe pain.

Prescription sales growth for Avinza has been slowing since the third quarter of 2004 but CEO Robinson told investors he believes the drug can be revived, at least through 2007, with an effective sales and marketing effort.

Ligand is fighting with its Avinza marketing partner, the Dutch drug company Organon, saying it has overpaid the Akzo Nobel (AKZOY) unit. Organon disputes the claim.

Without strong growth from Avinza, Ligand "is a royalty story," says Reddoch. "While one or two of these may be winners for now, potential Ligand acquirers are unlikely to pay up for them because the royalties are small, Ligand has little developmental control and the drugs are higher risk."

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