Ligand Pharmaceuticals (LGND) Deep Research Report: Pricing In Perfection on 2026 Royalties – Or Patience Rewarded?

Ligand Pharmaceuticals (NASDAQ: LGND) has quietly morphed into something closer to a specialty finance platform for drug royalties than a traditional biotech. Instead of betting its future on in-house R&D, it buys or finances royalty streams on other companies’ drugs, then collects a slice of sales as those products scale.

That model is working – for now. Royalty revenue is growing fast, the balance sheet is flush with cash, and management has laid out an ambitious 2026 framework that leans heavily on a handful of “hero” assets like Travere’s FILSPARI and Verona/Merck’s Ohtuvayre. But the market has noticed. LGND has rallied more than 70% over the last year and now trades at a lofty multiple that assumes the 2026 royalty story executes almost perfectly.

In our latest work, we walked through the same process we’d use for an institutional client and came away with a clear stance: LGND is a WAIT, not an outright buy, at current levels. We think patience – either for a better price or for cleaner 1H26 proof points – is the higher-probability move for disciplined investors.

Below, we’ll break down why we’re cautious on new money here, what needs to go right for the bull case, and what we’re watching over the next 3–9 months.

How Ligand Makes Money: The Royalty Aggregator Model

Ligand’s business model is straightforward conceptually but complex in practice. The company:

• Funds or acquires royalties and milestones on partner-controlled drug assets
• Collects contractual royalties as those partner drugs generate net sales
• Augments this with Captisol sales and contract revenue as secondary lines

As management explained at its Investor Day, the forward story is about turning roughly $1 billion of “deployable capital” into an expanding portfolio of cash-flowing royalties, with FILSPARI and Ohtuvayre as the current flagship drivers of growth in 2025–2026, alongside products like Qarziba and emerging contributors such as Zelsuvmi Ligand Investor Day 2025 guidance, Dec 9 2025.

Recent numbers underscore the momentum – and the concentration:

• 3Q25 royalties: $46.6M, up 47% year over year
• 9M25 royalties: $110.5M, up 49% year over year

Management explicitly tied that growth to FILSPARI, Ohtuvayre, and Qarziba as the main drivers Ligand 3Q25 results, Nov 6 2025. So while the royalty portfolio is diversified on paper, the P&L is highly sensitive to just a few products today.

On top of that, the company has deliberately amplified its financial firepower. In 2025, Ligand:

• Raised $460M of 0.75% convertible notes due 2030 (net proceeds ≈ $445M)
• Ended 3Q25 with $664.5M in cash, cash equivalents, and short-term investments
• Highlighted around $1B of deployable capital for new royalty transactions

Ligand 3Q25 results, Nov 6 2025 and Investor Day 2025 guidance, Dec 9 2025

That capital is the engine of the royalty aggregator story. Whether it turns into durable per-share value or gets burned in lower-quality deals is the core long-term question.

The 2026 Guidance: What’s Already Priced Into LGND Stock?

In December 2025, management did something we actually like from a governance perspective: they raised the bar publicly.

According to the 2025 Investor Day guidance (Dec 9 2025), Ligand is targeting for FY26:

• Total revenue: $245M–$285M
• Royalty revenue: $200M–$225M
• Captisol revenue: $35M–$40M
• Contract revenue: $10M–$20M

Crucially, they framed royalties as the primary step-up driver in that outlook. Everything else – Captisol and contract revenue – is important but not large enough to bail out a serious miss on the royalty line.

At the same time, the market has already rewarded the story:

• Stock price has moved from $116.55 to $198.58 in roughly 12 months (+70.4%)
• Valuation now sits at about 78.9x P/E and 103.1x EV/EBITDA (FMP data cited in the report)

Those multiples are “growth compounder” territory. They assume:

• FILSPARI keeps ramping strongly
• Ohtuvayre delivers meaningful royalties and remains visible enough that investors can model it
• Ligand redeploys capital into a solid pipeline of future royalty payers

If any of those pillars wobble, there isn’t much multiple cushion. That’s why we say the stock is essentially pricing in a successful 2026 step-up to $200M–$225M in royalty revenue already.

FILSPARI: The Most Important Near-Term Royalty Swing Factor

If you’re going to follow just one datapoint for Ligand in 2026, we’d argue it should be FILSPARI demand, as reported by Travere.

From Travere’s own update, the launch is entering 2026 with real momentum:

• 4Q25 new patient start forms (PSFs): 908 – an all-time high
• Preliminary US FILSPARI net product sales in 4Q25: about $103M

Travere corporate update and 2026 outlook, Jan 12 2026

Those PSFs are important because they act as a leading indicator of future revenue – if Travere converts those starts into long-term therapy and maintains payer access, a ~$100M+ quarterly sales run-rate is achievable.

Ligand’s 2026 royalty guidance heavily leans on that happening. Our view:

• If 1Q26 and 2Q26 updates show FILSPARI sales staying close to or above that ~$100M per quarter level (and PSFs holding near 900), the FY26 royalty framework starts to look a lot more de-risked.
• If Travere prints sequential deterioration – PSFs dropping materially below 908 or quarterly sales rolling over from that ~$103M starting point – investors will have to rethink how steep the FILSPARI royalty ramp really is.

That’s why our one-pager explicitly calls out a re-assessment window of 3–6 months: we want to see how those early 2026 numbers come in before upgrading the stock.

From a risk-management perspective, we treat FILSPARI as a thesis boundary. A sustained rollover in PSFs or net sales versus 4Q25 undermines the largest near-term driver of Ligand’s royalty line, and by extension, the 2026 guidance math Travere corporate update and 2026 outlook, Jan 12 2026.

Ohtuvayre and the Merck Factor: Growth vs Visibility Risk

The second big leg of the story is Ohtuvayre, originally commercialized by Verona and now transitioning under the umbrella of Merck after a roughly $10B acquisition deal expected to close in 4Q25 AP News on Merck–Verona deal, Jul 2025.

On paper, this looks like a strong catalyst for Ligand:

• Merck brings greater commercial scale, deeper pockets, and global reach
• A large pharma owner can often drive faster ex-US expansion and deeper market penetration

However, as we’ve seen many times with royalty names, there is a trade-off:

• Large pharma companies often cut back on product-level reporting, especially for smaller assets
• Without clear Ohtuvayre-specific sales metrics, investors are forced to infer its contribution from Ligand’s aggregate royalty line

The Merck Q4 and full-year 2025 financial results (Feb 3 2026) don’t provide robust product-level detail for Ohtuvayre in the material we reviewed. That creates a “visibility premium” risk: the market is currently paying a high multiple assuming both strong growth and clean attribution, but may compress the multiple if it loses confidence in being able to track Ohtuvayre’s performance.

For us, the Ohtuvayre watchpoints over the next 6–18 months are:

• Does Merck give at least some segment or brand-level disclosure that helps investors follow Ohtuvayre?
• Failing that, does Ligand continue to call out Ohtuvayre by name as a top royalty contributor in quarterly commentary?

Ligand 3Q25 results, Nov 6 2025 and Merck Q4/FY25 results, Feb 3 2026

If both visibility and FILSPARI momentum were to deteriorate at the same time, our framework would shift from “wait” to “exit.”

Is LGND Stock a Buy in 2026?

Based on the inputs we have, we’d frame the risk/reward like this:

At $198.58, LGND is trading very close to our base-case intrinsic value. That’s not where we typically like to initiate new positions, especially when:

• Upside to the bull case is modest vs the downside to the bear case
• The equity story is heavily front-loaded into the next 6–9 months of partner data
• The valuation multiple is already stretched

Our stance today:

• For new investors: we’d rather wait for either a pullback closer to the $175 “attractive entry” zone or stronger 1H26 confirmation of FILSPARI and Ohtuvayre trajectory.
• For existing holders with a low cost basis: we think it’s reasonable to continue holding, but we’d start trimming if the stock moves materially above $225, where our trim-level threshold sits.

This is exactly the type of situation where a rules-based process helps. You don’t need to guess the next quarter; you need clear price bands and data-driven triggers that tell you when the thesis is improving or breaking.

Midway through our work, we leaned on DeepValue to keep the process repeatable: parsing SEC filings, linking royalty drivers back to source documents, and structuring the thesis into scenarios. If you’re trying to run this kind of playbook across multiple names, Read our AI-powered value investing guide to see how to scale this without drowning in 10-Ks and earnings transcripts.

Margin of Safety: Strong Balance Sheet, Thin Valuation Cushion

One of the most attractive aspects of Ligand – even at today’s price – is the balance sheet.

According to the 3Q25 results release (Nov 6 2025), Ligand had:

• $664.5M in cash, cash equivalents, and short-term investments as of September 30, 2025
• Net debt of about -$65.2M (i.e., net cash) with net debt to EBITDA around -1.6x

This gives management time and optionality. Even if one or two royalty drivers underwhelm, Ligand is not facing a solvency crisis or a forced-fire-sale of assets. It can sit tight, adjust capital allocation, and pursue new deals.

But a strong balance sheet is not the same as a wide margin of safety for equity holders. At 78.9x P/E and 103.1x EV/EBITDA, the risk is less about financial distress and more about a permanent multiple reset if royalty growth disappoints.

The key downside boundary we see:

• A meaningful cut to the FY26 royalty guidance (from $200M–$225M)
• Or a scenario where FILSPARI and Ohtuvayre are no longer named as central drivers in guidance updates

Investor Day 2025 guidance, Dec 9 2025

In that world, even if the company remains liquid and healthy, investors could see both earnings estimates and the multiple compress simultaneously, leading to material capital impairment from today’s price.

So we’d summarize it like this:

• Balance sheet margin of safety: Strong
• Valuation margin of safety: Thin at current levels

That’s another reason we prefer waiting for either better pricing or more de-risked fundamentals.

Will Ligand Deliver Long-Term Growth Beyond 2026?

Looking past the near-term FILSPARI/Ohtuvayre story, the more strategic question is whether Ligand can become a repeatable royalty compounding machine.

Management’s long-term roadmap, laid out in the Investor Day guidance (Dec 9 2025), focuses on:

• Maintaining a redeployment loop: converting ~$1B of capital into multiple new royalty streams without slipping on underwriting quality
• Reducing top-product concentration as the “guided basket” of drivers (FILSPARI, Ohtuvayre, Capvaxive, Qarziba, Zelsuvmi) grows into a broader base
• Showing that the model can sustain premium valuation through product transitions (new launches offset mature or declining assets)

There are real tailwinds:

• FILSPARI has strong momentum and Japan expansion optionality, with Chugai planning a Japan NDA submission in 2026 Travere corporate update and 2026 outlook, Jan 12 2026.
• Merck’s global infrastructure could accelerate Ohtuvayre adoption despite the reporting opacity risk AP News on Merck–Verona deal, Jul 2025.
• Zelsuvmi has shown a credible initial launch with $7.1M in first-quarter net sales, 2,716 units shipped, and 1,169 prescribers in its first quarter post-July 2025 launch Pelthos 3Q25 results, Nov 13 2025.

The company is also actively deploying capital. In 2025, it committed $130M across six royalty investments and led a $75M financing in Castle Creek Biosciences, investing $50M for a high-single-digit royalty Ligand Castle Creek deal, Feb 25 2025.

To us, this suggests a credible long-term pipeline of deployable capital and deal flow. The open questions are:

• Can Ligand maintain underwriting discipline as competition from large funds (e.g., Royalty Pharma, private equity) heats up?
• Will the company be able to smooth volatility from single-asset exposure by growing the middle of the portfolio fast enough?
• Can management keep returning to the market with de-risked proof (like 2026 guidance and product-level KPIs) to justify a structurally higher multiple?

We think the answer might be yes over a 5–10 year horizon. Our hesitation is more about entry timing and what’s already in the price than about the underlying business model.

What We’re Watching in the Next 3–9 Months

To make our own process repeatable, we define specific checkpoints. For LGND, our key 90-day and 180-day watchpoints are:

By early May 2026 (around 90 days):

By early August 2026 (around 180 days):

Framing your thesis in terms of concrete, date-linked triggers like this helps avoid emotional decision-making when a high-multiple stock inevitably gets more volatile.

Putting It All Together: Our Bottom Line on LGND

Bringing all the pieces together:

• Ligand is a capital allocation story more than a classical biotech – a royalty aggregator with a growing war chest and a proven ability to grow royalty revenue quickly.
• The current equity narrative is highly concentrated in two near-term royalty engines, FILSPARI and Ohtuvayre, supplemented by Qarziba, Zelsuvmi, and a long tail of smaller assets.
• Management has raised investor expectations by publishing a 2026 framework that leans heavily on royalty revenue hitting $200M–$225M, and the stock has rallied to reflect that.
• Valuation now implies a high bar for execution, leaving limited upside for new buyers in our base case and meaningful downside if either FILSPARI demand or Ohtuvayre visibility disappoints.
• The balance sheet is strong, with net cash and ample liquidity, which reduces solvency risk but does not eliminate multiple compression risk.

Our stance as of February 2026:

• Rating: WAIT
• Conviction: 2.5 / 5
• Attractive entry zone: Around $175
• Trim zone: Above $225
• Re-assessment window: 3–6 months, keyed to FILSPARI and Ohtuvayre proof points

We’re prepared to upgrade or downgrade that stance based on how the next 1–2 quarters of partner data play out. For now, we think the most rational move is to stay patient, keep a close eye on the key metrics, and only lean in when the price or the evidence improves the skew.

Sources

• Ligand Reports Third Quarter 2025 Financial Results and Raises Guidance (Nov 6 2025)
• Ligand Hosts 2025 Investor Day and Introduces 2026 Guidance (Dec 9 2025)
• Travere Therapeutics – Corporate Update and 2026 Outlook (Jan 12 2026)
• AP News – Merck to acquire Verona/Ohtuvayre deal (~$10B) (Jul 2025)
• Merck – Our Q4 and Full-Year 2025 Financial Results (Feb 3 2026)
• Investor's Business Daily – Various coverage of Ligand’s royalty model and stock performance (Aug 2025–Feb 2026)
• Nasdaq (Motley Fool) – Ligand Q2 2025 revenue commentary (Aug 2025)
• Seeking Alpha – Ligand hosts 2025 Investor Day and introduces 2026 guidance (Press release mirror, Dec 2025)
• Investing.com – Ligand Q2 2025 presentation commentary (Aug 2025)
• Pelthos Therapeutics Announces Third Quarter Fiscal 2025 Financial Results – Zelsuvmi launch metrics (Nov 13 2025)
• Ligand Leads $75 Million Royalty Financing in Castle Creek Biosciences (Feb 25 2025)