Image source: Getty.
Continue Reading Below
Shares of Ligand Pharmaceuticals (NASDAQ: LGND), an owner of royalty assets in the healthcare space, are falling by more than 13% as of 3:30 p.m. EDT in response to its partner Amgen (NASDAQ: AMGN) reporting disappointing clinical news.
Amgen released Phase 3 results from its CLARION trial earlier today. This was a head-to-head study that pitted Amgen's hit cancer drug Kyprolis against Takeda's Velcade in treating patients with newly diagnosed multiple myeloma.
Results from the 54-week study showed that patients who used Kyprolis showed a progression-free survival (PFS) of 22.3 months. Unfortunately, that was only slightly ahead of the 22.1 months observed in the Velcade group, so the trial failed to prove statistical significance.In addition, patients in the Kyprolis group had a fatality rate of 6.5%. That was higher than the 4.3% rate observed in the Velcade group.
Continue Reading Below
Traders are punishing Ligand's stock in response because it earns a royalty on total sales of Kyprolis. In fact, Ligand credits much of its recent financial growth to the huge success of Kyprolis. Thus, if this clinical update ultimately leads to a slowdown in sales of Kyprolis then it threatens to slow Ligand's revenue and profit growth, too.
While this news certainly isn't good, I'm more inclined to look at this drop as a buying opportunity than a reason to abandon ship. While Kyprolis is an important drug, investors should remember that Ligand currently has 150 other partnered or licensed programs in development. That gives the company multiple ways to win, even if Kyprolis doesn't live up to its full potential.
Currently, analysts are projecting that Ligand's profit growth will exceed 45% over the next five years. While that rate is likely to fall in light of today's update, shares were only trading for about 21 times next year's earningsestimateto begin with. I'd argue that that valuation was already quite low given the company's prospects, so it wouldn't surprise me one bit to see shares bounce back from today's drubbing in the coming weeks.
A secret billion-dollar stock opportunity
The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.
Brian Feroldi has no position in any stocks mentioned.Like this article? Follow him onTwitter where he goes by the handle@Longtermmindsetor connect with him on LinkedIn to see more articles like this.
The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.