Intro

On Wednesday, Citron Research published a highly critical report of Ligand Pharmaceuticals (LGND). The report seemingly caused the stock to tank 15.7% to end the day at $110.05. Citron called Ligand’s pipeline a “pipe dream”.

As you may recall from my previous post, I am bullish on LGND. Does this damning report do anything to change my strategy?

3 Reasons Why Citron Doesn’t Change My Mind About Ligand

Reason #1: No Misleading Information from 10-K

Citron implies that Ligand tried to mislead the public into thinking that the bulk of their revenues come from big-name Pharma like Eli Lilly and Bristol-Myers Squibb.

Advertisements

In reading Ligand’s most recent 10-K, I don’t get any sense that they’re exaggerating their revenues from Lilly nor Bristol. The 10-K was audited by Ernst & Young LLP.

Reason #2: UPS Mailbox Doesn’t Prove Shell Company

Citron implies that some of Ligand’s partners are shell companies. For example, they cited that Sermonix Pharmaceuticals has a business address is a UPS mailbox. It’s not illegal to use a UPS mailbox as a company’s business address, but it does seem a little odd. So I did some digging.

According to Bloomberg, Sermonix’s CEO is Dr. David Portman M.D. Dr. Portman has a 5-star rating on Healthgrades. The Sermonix management team consists of 3 M.D.’s.

In America, it’s very difficult to become an M.D. It’s typically 4 years of undergraduate studies followed by 4 years of medical school followed by some residency program. Getting into medical school is highly competitive. And M.D’s are held to very high ethical standards.

I’m not saying that there aren’t unethical M.D.’s out there. But I think it’s highly unlikely that 3 M.D.’s would put their name on a shell company. These doctors have served their communities for years or decades. Now all of a sudden they’re putting their livelihoods and reputations on the line? Doesn’t make sense!

Reason #3: My Rules Help Me to Sleep at Night

My guidelines saved me. One of my investment rules is to put no more than 10% of principal into a single stock. At this point, I’ve been buying Ligand on the way down. At this point, I’ve put 5.2% of one of my portfolio’s principal in the stock. So even in the worst case, I can’t lose more than that.

Is That It?

All that said, I’m not just going to dismiss Citron’s report. I will continue monitoring Ligand’s situation and see what unfolds.

Disclosure

I/we are long LGND

I wrote this article myself and it expresses my own opinions. I’m not receiving compensation for it (other than from Wolves Of Investing), and I have no business relationship with any company whose stock is mentioned in this article.

0 0 votes
Article Rating
0
Would love your thoughts, please comment.x

Pin It on Pinterest

Shares
Share This