Ligand Pharmaceuticals: How a Biotech Royalty Model Drives Sustainable Growth

Ligand Pharmaceuticals (NASDAQ: LGND) has quietly built one of the most innovative revenue models in the biotechnology sector, leveraging a portfolio of drug royalties and proprietary technologies to generate low-risk, high-return growth. With its 2024 financial results showing a 27% year-over-year revenue increase—driven largely by its royalty streams—investors are taking notice. This article explores how Ligand's strategy of monetizing pharmaceutical partnerships and proprietary assets creates a scalable, sustainable revenue engine, and whether it's a compelling investment opportunity.

The Power of the Royalty Model

Ligand's core strategy revolves around licensing its proprietary technologies and securing royalty agreements with pharmaceutical partners. Unlike traditional biotech firms that gamble on internal drug development, Ligand minimizes risk by letting partners handle R&D and commercialization while collecting a percentage of sales. This model has proven remarkably resilient, with royalty revenue growing from $85 million in 2023 to $108.8 million in 2024, a 28% jump. Key contributors include:
- Kyprolis (carfilzomib): A multiple myeloma drug with global sales exceeding $2 billion annually.
- Vaxneuvance: Merck's 21-valent pneumococcal vaccine, which saw a U.S. sales jump of 32% in 2024.
- New assets like Qarziba (Recordati): Acquired in 2024, this ulcerative colitis therapy added $10.4 million in first-year royalties.

The scalability of this model is evident. Ligand projects royalty revenue of $135–140 million in 2025, a 24% increase over 2024. This growth isn't just from existing drugs; it reflects the addition of newer partnerships, such as its $50 million investment in Castle Creek Biosciences' D-Fi gene therapy for dystrophic epidermolysis bullosa, which will yield royalties starting in late-stage trials.

Diversification: The Key to Sustainability

Ligand's portfolio is intentionally diversified across 13 major royalty streams, four therapeutic areas (oncology, rare diseases, vaccines, and cardiovascular), and geographies. This reduces dependency on any single drug's performance. For example:
- Teriparatide Injection (for osteoporosis) and Evomela (a melphalan biosimilar) have steady sales.
- Ohtuvayre (for chronic obstructive pulmonary disease) achieved 16,000 prescriptions in its first six months on the market in 2024.

The company also mitigates risk by holding equity stakes in partners, such as Agenus Inc. (which develops checkpoint inhibitors) and Pelican Technology Holdings (recently divested at a profit).

Captisol: The Engine Behind Growth

At the heart of Ligand's model is its Captisol technology, a proprietary chemical that stabilizes proteins and improves drug delivery. This platform generates two revenue streams:
1. Direct sales: Captisol itself is sold to partners for use in drug formulations. Sales rose from $28.4 million in 2023 to $30.9 million in 2024.
2. Royalties: When Captisol-enabled drugs (e.g., Kyprolis or Rylaze) hit the market, Ligand receives a cut of sales.

The technology's versatility is unmatched. It's used in 24 FDA-approved drugs and supports over 100 clinical-stage therapies. With Merck's Capvaxive (a Captisol-formulated vaccine) now under regulatory review in Europe, this revenue stream has clear upside.

Risks and Challenges

No model is without flaws. Ligand's growth hinges on its partners' success, and setbacks—like Takeda's discontinuation of the epilepsy drug soticlestat—can hurt. The 2024 impairment charge of $30.6 million from that program highlights execution risk. Additionally, patent expirations (e.g., Evomela's biosimilar competition) could pressure royalties over time.

Investors should also monitor dilution risks. Ligand has issued restricted stock units and stock options to employees, which could increase shares outstanding and dilute returns.

Valuation and Investment Thesis

Ligand's adjusted EPS rose 41% in 2024 to $5.74, with a cash balance of $256 million providing ample firepower for acquisitions. At current prices (~$180/share as of June 2025), the stock trades at 31x 2025E EPS, a premium to peers but justified by its royalty model's predictability.

Investment recommendation: Buy with a long-term horizon. While biotech volatility is inherent, Ligand's diversified, low-risk revenue streams and cash-rich balance sheet position it to outperform during market downturns. Investors should prioritize dollar-cost averaging and watch for catalysts like FDA approvals (e.g., ZELSUVMI in mid-2025) or new royalty deals.

Conclusion

Ligand Pharmaceuticals' royalty-driven model is a masterclass in biotech financial engineering. By avoiding the high-risk, high-cost world of drug development and instead monetizing others' success, it's built a business with high visibility into future cash flows and low capital intensity. While not immune to setbacks, its growth trajectory—bolstered by a robust pipeline of new therapies and partnerships—makes it a standout play in a sector where most companies burn cash. For income-oriented investors seeking growth, Ligand's royalty engine offers a compelling combination of stability and upside.