Expanding Royalty Portfolio Will Strengthen Global Healthcare Reach

Key Takeaways

• Diverse royalty partnerships, new therapeutic categories, and global healthcare trends boost recurring revenue, earnings visibility, and long-term margin potential.
  
• Opportunistic asset-light acquisitions and strong industry positioning underpin margin expansion, pipeline growth, and sustained revenue momentum.
  
• Heavy dependence on a few royalty assets, drug pricing pressures, and limited R&D investment heighten risks to stable long-term revenue and earnings growth.

Catalysts

A biopharmaceutical company, develops and licenses biopharmaceutical assets worldwide.

• Strong revenue and earnings growth are expected as Ligand broadens its high-margin royalty portfolio, with multiple partnered drugs (such as O2vir, Filspari, Qarziba, and Zelsuvmi) in various stages of commercialization or late-stage development. This expanding royalty base enhances recurring revenue, earnings visibility, and long-term cash flow predictability.
  
• Demographic trends-including an aging global population and the expanded global healthcare infrastructure-are driving demand for innovative therapeutics developed by Ligand's partners, increasing royalty potential and supporting above-market revenue growth.
  
• Ongoing expansion into new disease categories, first-in-class therapeutics, and underpenetrated markets (e.g., the Pelthos/Zelsuvmi pediatric dermatology launch and Merck's global rollout of O2vir) creates meaningful optionality and potential upside for both royalty income and long-term net margins.
  
• Ligand's opportunistic M&A and capital deployment strategy leverages a disciplined, asset-light model, acquiring late-stage assets and underappreciated technologies at attractive risk/reward profiles, which supports both margin expansion and sustained top-line growth.
  
• The accelerating pace of R&D outsourcing and drug discovery innovation-along with increased regulatory support for differentiated, high-value products-positions Ligand as a key royalty and platform provider, deepening their pipeline and further supporting future recurring revenue and sustainable earnings growth.

Ligand Pharmaceuticals Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ligand Pharmaceuticals's revenue will grow by 18.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from -40.4% today to 38.4% in 3 years time.
• Analysts expect earnings to reach $121.1 million (and earnings per share of $5.81) by about September 2028, up from $-75.9 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $145.9 million in earnings, and the most bearish expecting $96 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 37.6x on those 2028 earnings, up from -42.7x today. This future PE is greater than the current PE for the US Pharmaceuticals industry at 19.0x.
• Analysts expect the number of shares outstanding to grow by 3.71% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.

Ligand Pharmaceuticals Future Earnings Per Share Growth

Risks

• Sustained drug pricing pressure and emerging payer cost-containment trends could limit forecasted royalty streams on key products, particularly if U.S. pharmaceutical prices converge toward lower European levels in the coming decade, directly constraining long-term revenue and earnings growth.
  
• Over-reliance on a concentrated set of royalty assets-such as Ohtuvayre (O2vir), Filspari, Qarziba, and Zelsuvmi-creates vulnerability to partner execution setbacks, regulatory headwinds, or competitive launches; unexpected declines or failures in a single major asset could materially reduce revenue and earnings consistency.
  
• Shifting regulatory and political stances in the U.S. and abroad (e.g., faster biosimilar approvals, resistance to patent evergreening, Medicare and international price negotiation) pose threats to royalty longevity and predictability, increasing risk of earlier revenue erosion and net margin compression.
  
• Incremental increases in foreign tax exposure (from U.K. and Austrian royalty revenues) and potential further geographic expansion may erode net income growth, as higher statutory rates on international royalties reduce bottom-line leverage even if topline revenue rises.
  
• The absence of significant internal R&D investment may hinder Ligand's ability to continually replenish its royalty pipeline in a more competitive and crowded biotech landscape; if the external deal flow or acquisition environment tightens, this could limit future revenue growth and pressure long-term net margins.

Valuation

• The analysts have a consensus price target of $178.125 for Ligand Pharmaceuticals based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $206.0, and the most bearish reporting a price target of just $155.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $315.6 million, earnings will come to $121.1 million, and it would be trading on a PE ratio of 37.6x, assuming you use a discount rate of 6.8%.
• Given the current share price of $165.4, the analyst price target of $178.12 is 7.1% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.