Lemelson Doubles Short Position In Ligand Pharmaceuticals, Says It's Created 'Pyramid Scheme Of Shell Companies'


Rev. Emmanuel Lemelson was recently a guest on #PreMarket Prep, a daily trading idea radio show hosted by Joel Elconin and Dennis Dick. 

Shares of Ligand Pharmaceuticals Inc. LGND hit new 52-week highs of $94.94 on Friday after the company updated the impact from the Viking Therapeutics Inc VKTX initial public offering.

Ligand said that it sees $28.2 million of non-operating income during the second quarter related to its "gain on deconsolidation" from the Viking IPO of which the firm showed a nearly 50 percent ownership stake. The company also adjusted its full year 2015 earnings per share guidance from $2.14 to $2.18 to a new range $3.45 to $3.50, which accounts for the IPO.

Lemelson Short

One hedge fund manager took the opportunity to add to his short position in Ligand on the news.

Reverand Emmanuel Lemelson of Lemelson Capital Management discussed why he doubled his short position on Thursday during Friday's Benzinga #Premarket Pep show.

In Lemelson's words, Ligand has created a "pyramid scheme of shell companies" by IPO'ing Viking that has "almost no prospect" of future revenue and earnings with no assets. In the future, he said, Ligand will be used as a case study in to the "excesses of the stock market."

He continued that Viking is merely a "tenant in their building" with "a few people renting space," while underwriters are promoting the issue "like it's going out of fashion."

Lemelson argued that Ligand is using its ownership stake to boost its balance sheet with the profits from the IPO being recorded as earnings. Ligand won't record any losses in its P&L from Viking even though the company "is guaranteed" to show losses in the future, he added.

"That's extraordinary financial engineering," the hedge fund manager argued. "That really makes the Greece financial apparatus look like saints."

In his opinion, Lemelson concluded that the company isn't "building a real product or business" and is merely a company with 18 employees and a $2 billion market capitalization.

"That's the kind of thing you want to short. It's just not sustainable."

Lemelson's commentary on Ligand begins at the 1:37:20 mark below.

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Posted In: Analyst ColorBiotechShort IdeasExclusivesTrading IdeasInterviewGeneral#PreMarketPrepDennis DickEmmanual LemelsonJoel ElconinLemelsn Capital ManagementPyramid Scheme
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