Today was a rough one, with the POSSIBILITY of inflation rearing it's ugly head with surprisingly high CPI data today.

Remember that one bad day does not a trend make, and the market will now be marking time until the Fed meets Tuesday, May 18. Then we'll see what kind of guidance the Fed gives us; you can be sure that bond prices will follow the Fed's lead, and most likely stocks will follow bonds. With the 30 year Treasury Bond yield nose-diving 2 8/32 for a yield of 5.92%, you always have to be concerned that a healthy bond yield will lure money out of the stock market. If that happens, lower stock prices would be probable.

So what is our strategy now? It's the same as it was in our May 12, 1999 column. Stay invested, and don't chase either momentum or high P.E. stocks. When I say momentum, I don't mean stocks that are just trying to build some momentum after a long base-building period; I mean stocks that have been making new highs that result in P.E.'s that are 2-3 times their estimated earnings growth rate for the next 12 months. Whenever the market hits an air pocket, those are the stocks that are sure to wind up in the emergency room.

Our strategy also included buying stocks with good fundamentals that have had a setback in recent weeks, or have been long slumbering, but whose price and volume action indicate an awakening.

Last time I promised you more detail on two stocks selling for around $10, that have a marketable product NOW. You will remember they are Ligand Pharmaceuticals (LGND) and Isis Pharmaceuticals (ISIP), both of which I own. Today we will cover Ligand.

Ligand is a Biotech with a lot of promise, having made the transition from a discoverer and developer of drugs, to a marketer as well. They claim to have a leadership position in gene transcription technology, primarily related to Intracellular Receptors and Signal Transducers and Activators of Transcription; please don't ask me to explain that.

Anyway, the bad news is that they are losing money; for the 3 months ended 3/31/99 they lost 14.5 million vs. a loss of 13.5 million. That equates to (.32) vs. (.35) on 46 million and 38 million shares respectively. Net worth is a negative 15.8 million, and cash/equivalent is 46 million, or about 9 months cash burn on hand. Wow! How can I like this stock?

Here's how. In February 1999, they received FDA approval to market 2 drugs. The first is ONTAK, for treatment of cutaneous T-Cell Lymphoma. The second is Panretin gel, for treatment of Kaposi's Sarcoma. Sales just barely began in the 1st quarter, with the former drug having sales of .5 million directly to patients, and the latter drug having 3.7 million in sales to establish distribution. Of course, these sales are expected to significantly ramp up in the next two quarters.

They have 19 drugs in the pre-clinical testing stage, and 6 drugs in phase I/II stages. They have 9 drugs in phase II/III stages, for the treatment of cancer of the breast, lung, head and neck, and cancer pain therapy, and other diseases. After phase III, there is FDA marketing approval, hopefully. Their partners in various drug development programs include: Pfizer, American Home Products, Eli Lilly, Cytel, Novartis, Glaxo Wellcome, SmithKline Beecham, Abbott Laboratories, and Elan.

Ligand went public in 1992, reached a high of 19 3/4 in May 1996, and reached a low of 5 in August 1998. Their last 12 month range has been 5 - 15. Today they closed at 10 11/16 down 1/16, which is pretty good relative strength for a disastrous day like today. Yes, they're losing money, which they have invested in drug development and marketing, and it appears to me that they are poised to make that leap to profitability, which is their major goal. You can pay double this price to buy Biotechs that are 5 to 10 years from having a marketable product, and some will NEVER have a product.

Finally, their blue-ribbon collaborators/partners validates both their technology and capability, and that's what makes Ligand a buy in my book. Stay tuned.

The Market Pro - May 14, 1999

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