Ladies and gentlemen, thank you for joining us for the Ligand Pharmaceuticals Q2 2020 Earnings Conference Call. All participants are currently in listen-only mode. Following the presentation, we will have a question-and-answer session. Now, I would like to turn the call over to Patrick O'Brien, Senior Vice President of Investor Relations. The floor is yours, Patrick.

Thank you, Carmen and welcome to Ligand's second quarter of 2020 financial results and business update conference call. Consistent with recommendations for social distancing, all of our speakers for today's call are in separate locations. Speaking today for Ligand will be John Higgins, CEO; Matt Foehr, COO; and Matt Korenberg, CFO. We will be using slides to guide our discussion today. We will also use non-GAAP financial measures and some of our statements will be forward-looking. Additional information concerning risk factors and other matters concerning Ligand can be found in our Ligand's earnings press release, slides and our periodic filings with the SEC. Ligand undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. I would now like to turn the call over to John Higgins.

Patrick, thank you and good morning, everyone. Welcome. Thank you for joining our second quarter earnings call. I'm going to start with Slide 4. Some of you may be dialing in new to the Ligand story. Just a quick overview. Our company delivers innovation to the pharmaceutical and biotech industry to drive value for shareholders. Our business is focused on technologies, technologies that help discover drugs and make drugs possible. We've got a broad portfolio of over 200 partnered programs, partnering with over 120 companies in the industry. Ultimately, we're looking at driving financial growth, running an efficient business, funding quality projects, pursuing quality partnerships and driving growth. The way we drive our success is first on customer service. Our partners lead the way. They choose the targets, they go after markets and medical programs that they believe are important, and we serve them. We've got an amazing team. We're devoted to operational excellence. We have an excellent roster of partners and we want to match them in our quality and reputation. Ultimately, our focus is all on deploying capital, identifying projects and companies to invest in to help build our business. Finally, we can't do this without our team. We've got a strong company culture. We have a diverse, highly experienced Board of Directors, very active with management. We're focused on corporate governance, looking at environmental, social and governance factors that will help make our company better and help make our communities better as well. Before I go further, I do want to say thanks to our team. We're operating in a very difficult business environment, obviously with the pandemic, but this team is doing outstanding work. I just want to acknowledge our scientists, our business leaders and our team members. Our success is a team effort and Ligand is thriving right now. It's because of the strong efforts of the team and the work we're doing right now. I'm going to move to Slide 5. This is an overview of recent developments, a bit of a dashboard. Our financial performance this past quarter, now our outlook for the rest of the year speaks for itself. We are also backing up the financial performance with outstanding execution. Across the board, I'm going to give some highlights and then Matt and Matt are going to go a little deeper. But the business as a team and in terms of our productivity is executing very, very well. When we look at OmniAb, we've had major OmniAb achievements. We acquired this platform several years ago, and the last three or four months really has been a watershed period for the platform defining the success and potential of the platform. Captisol is a second major technology pillar of our business. We are seeing significant growth in sales with some expanded use by partners and we anticipate significant growth in volume sales for the rest of this year into the years beyond as well. Business development activity is very robust. Substantial new licensing, we secured new contracts, quality economics and some major payments, and we also closed an important new acquisition during Q2 as well. So, we're very pleased as we continue to expand the business. Ultimately, this is driving a strong balance sheet and growing cash flows. This is our strong business with the growing cash flows and our capital we are focusing on, investing in new opportunities, new platform technologies, identifying new sources of revenue to help drive our business. When we turn to slide 6, just a quick highlight on OmniAb. Matt Foehr is going to go deeper into this. But again, we acquired the platform several years ago. We had 15 partners at the time. Today, we have over 45. Over 45 partners are using this technology. It's an antibody discovery technology, with over 80 programs in development. When we acquired, again a few years ago, we did not have any programs in clinical development. Today now, there are 47 ongoing or completed trials. The past several months, due to the development of late-stage data, regulatory advancements and new program initiations, notably the next 12 months, within the next year or so, we are looking forward to potential approvals about the first drugs, if they are approved. We expect to begin to receive royalties on commercial sales for our first OmniAb programs, and also there are four major clinical data readouts in this period as well. OmniAb has always been a strong platform for Ligand, but I think there's more clarity around its potential now than ever before. When we turn to slide 7, this is an overview of our Captisol business. Captisol has been with us for about nine years or so. It's been a very important technology platform that has defined our view of how we can serve the industry, identifying quality technology platforms that help enable drugs. We are good at sourcing these technologies, but also we have proven our ability to enter very important partnerships with industry-leading companies that ultimately drive value for Ligand. Last quarter, we saw 40 customers placing orders and we received Captisol shipments. The major commercial assets today are Kyprolis, which is marketed by Amgen and Ono, and Evomela marketed by CASI and Acrotech. Notably, there are five other products that are in development that could launch in the next three years. We could see a significant increase in the major commercial offerings in the next few years. Captisol, as most of you know by now, is also used to solubilize remdesivir, which is Gilead's antiviral treatment for COVID-19. This is a very important therapy, obviously given the world health crisis ongoing right now. Beyond Gilead, we're also supplying quantities to partners that are participants in the global consortium. Notably, we've had a program around CE-Iohexol. Iohexol is an agent in the contrast market. This is a program we've been funding. We are very pleased to announce on this call that we are advancing now to a pivotal trial. Matt Foehr is going to go into more details. This is a very substantial market. We have the financial and the operating resources to make this investment and we're very excited to be able to advance this pivotal stage asset. We're now forecasting growing demand for Captisol and discussed in June to our customers, we are making a major investment to expand the production of Captisol to support the expected growth we see going forward. Finally, my last series of slides is really a simple roadmap for the next 12 months. We see major potential pipeline events playing out the next 12 months. The next few slides basically just add a little more color on nine specific programs. In the second half of 2020, and of course, we know there's just five months left, but we are calling out six programs that are in line for major data or regulatory events, and then another three we're calling out in the first half of 2021. That's on Slide 8. But if you look at slide 9, it's the same drug but we're just building it a little bit. There are three programs Palvella, Immunovant, and C-Stone, all have major data readouts coming. These are programs that we've talked about in detail, but now we have a line of sight on these data readouts. In the case of C-Stone, the Phase 3 data, if it's positive, will set the stage for an NDA filing in China which we forecast could happen by the end of this year. When we look at the next column for 2020, Takeda, Verona, and Amgen also have major data readout events, Phase 3 data or in the case of Amgen sNDA approval potentially by year-end. Again, these are programs that are on track that could deliver significant news events and ultimately products are approved which could lead to some important economics. I want to clarify with the Verona program they're infocentering, it's a Phase 3 trial start. It's not a data readout, it's a trial start. But that's significant because they had very positive Phase 2 data, they had a Phase 2 meeting with the FDA and closed a significant $200 million financing the last month or so, and so now have what they need to start this important trial. Now finally on slide 11, we just called out the major events we've seen in the first half of 2021 Retrophin, Sermonix, and Gloria again all have some major events coming out. When we look at these nine events in total, what's interesting to break it down to understand our business, three of them are OmniAb-based, two of them are Captisol-based. Another three programs came from acquisitions Ligand has done. It's a very good balance, representing how we are building our business. These are quality partners, they're tied to high-quality programs. Important medical markets and they all have strong economics. So we're pleased with this calendar. Again, just in conclusion we're excited about where Ligand is right now. We're well balanced between OmniAb and Captisol and again are pleased with the outlook for a major pipeline event. That's a quick overview of our business highlights. I'd like to now turn it over to Matt Korenberg who will walk through the financials in more detail.

Thanks, John. Before I go into the discussion of the numbers for the quarter, I wanted to provide investors with a quick update on the impact we see from COVID-19 on our business and the industry. As we look across our four business lines, we see positive signs across the business. For commercial products in particular, those that generate our royalties, partners are reporting that patient visits to health care providers were significantly lower in Q2, but that the pace of visits is increasing again. Our partners working on our programs are now reporting resumed enrollment in most of the clinical studies that may have been paused early on as a result of COVID-19. Our service work for various platforms has been uninterrupted with the implementation of social distancing in our labs. Our partners that are using OmniAb at their facilities report the same experience. Our production of Captisol continued uninterrupted throughout, including our significantly increased output. While there remains uncertainty with the ongoing impact of COVID-19, we see positive trends across the business for the remainder of 2020. Turning now to slide 14. As John mentioned, the second quarter of 2020 was an exciting period for Ligand, driven by our Captisol material sales combined with strong financial results across the business. I'm pleased to be able to deliver a very positive second quarter financial report and an increased outlook for 2020 and beyond. For the quarter, total revenues were $41.4 million with continued growth in royalties and another sizable increase in Captisol sales. Our revenue is up 66% over Q2 2019. Adjusted diluted EPS was $1 per share or 47% higher than Q2 of 2019. In addition, we generated over $24 million in cash flow from operations in Q2 2020 and our revenue, cash flow generation and EPS all exceeded our expectations. We exited the quarter with $810 million of cash, cash equivalents and short-term investments. It's a very strong capital position, especially given our outlook for increasing cash flow and considering that we used a large amount of our capital in Q1 for share buybacks and bond repurchases. In terms of capital deployment, our priority focus is on M&A and project investments across several types of targets ranging from small technology bolt-ons to large acquisitions that will hopefully deliver Ligand platform technologies and new revenue streams. Digging now a little deeper into our Q2 performance on revenue, total revenue for the second quarter of 2020 was $41.4 million and included $7.2 million of royalty revenue, $24.5 million of Captisol sales, $4.6 million of service revenue and $5.2 million of contract payments. With respect to royalties, Kyprolis and Evomela drove the year-over-year growth. Amgen posted $253 million of sales for Kyprolis in Q2, lower than Q1 but in line with our expectations given the softness expected by the pandemic. Ono, on the other hand, had outstanding Q2 sales for Kyprolis, posting $16 million, the largest quarter ever for the product in Japan. We feel good about royalties. If Q3 patient access recovers as expected, we could possibly exceed the revised outlook we previously gave for the full year, royalties in 2020. Captisol sales of $24.5 million in the quarter, compared to $8.5 million a year ago, up 186% or nearly three times the level in 2019. I'll touch a bit more on Captisol in the next few slides. Service revenue performed in line with our expectations for the quarter. Our contract revenue in Q2 2020 was in line with our revised expectations provided on our last earnings call and it came in just over $5 million. The most significant payment for this quarter was a $3 million milestone we earned upon the successful Palvella financing. Focusing more on the Captisol business now on slide 16, we saw continued substantial growth in Captisol material sales in Q2. We shipped Captisol to more than 40 customers during the quarter. The Captisol sales increase was driven by sales principally related to remdesivir. As you can see from the chart, the Captisol business has clearly moved to a much higher ongoing level as a result. When I discuss guidance details over the next two slides, you'll see that we currently project significant annual growth over 2019 with $90 million in Captisol sales this year, based on our current orders and plans. As typical in past years, quarterly sales for Captisol can be lumpy based on how customers' needs and planning develop throughout the year. We anticipate the $44 million of remaining Captisol expected for the year to be more heavily weighted towards Q4, with about 35% of the second half 2020 revenue coming in Q3 and the balance in Q4. We see the increased demand levels for Captisol continuing for the remainder of 2020 and then at much higher levels for 2021 and beyond. Turning to full revenue guidance, we are increasing our revenue guidance to $165 million of total revenue for 2020, up from our previous guidance of $140 million. Captisol revenue expectations are now $90 million for the year, up from our most recent guidance of $65 million. Captisol had a great year in 2019, pre-pandemic with sales exceeding our plans. Now in 2020, it's continuing the momentum we have with the existing customers and the added demand for supply due to the international consortium requiring Captisol to solubilize the treatment for COVID-19. As for our three other main segments of revenue, royalties, service revenue, and contract payments are in line with our previous estimates. Still in the pandemic precise forecasting is more difficult, but the total revenue among these three categories is intact given our prior outlook. Beyond 2020, we're not providing specific revenue guidance at this time. However, demand for Captisol is increasing from our core business customers and the added new demand for COVID-19-related products is expected to drive volumes of sales to levels higher than 2020 for the next year and beyond. As investors know and Matt Foehr will detail, we're significantly investing in our production capacity in order to supply the demand for remdesivir. We anticipate this significantly increased demand we project for 2021 will last at least for the next 24 months. We expect an ongoing need for remdesivir and therefore, Captisol well above our previous levels for years to come. As John stated in his quote in the earnings release, we expect to provide major business updates and discuss more about our financial outlook at a virtual Analyst Day later this year. Looking now to slide 18 and more of the details for the rest of the P&L, on the expense side, we expect an overall corporate gross margin for the year of approximately 80% to 85%. For R&D, we now expect $46 million to $50 million of total expenses for the year. Excluding stock comp and other non-cash expenses, we expect that R&D cash expenses will be $33 million to $35 million. For G&A, we expect total expenses of $37 million to $39 million. Excluding non-cash charges and stock comp, we expect G&A cash expenses to be approximately $21 million to $23 million. Together, we expect cash operating expenses for 2020 of $55 million to $58 million. Related to interest income and other income, we continue to maintain our cash and highly liquid short-term investments. Our realized interest rates remain relatively low, in keeping with the overall market environment. Given these lower yields in our current cash balance, we expect our other cash income of about $13 million to $15 million in 2020. These revenue and expense components all translate to a full-year 2020 adjusted earnings per diluted share of approximately $4.10, which is up 63% from the 2019 diluted EPS of $2.52 adjusted for the Promacta sale. There’s also an increase from our previous guidance of $3.65. Finally, I'll direct our listeners to review our Q2 earnings press release and the slides issued earlier today and also available on our website for a reconciliation of our adjusted financials to GAAP-reported items. With that, I'll turn the call over to Matt for some comments on our portfolio and pipeline. Matt?

Thanks, Matt. Our technologies and licenses associated with them really form the foundation of the portfolio at Ligand. I'll review some recent licensing activities and provide updates on the performance of our OmniAb and Captisol technologies. I'll also discuss our updated plan for our internal Captisol-enabled iohexol program. The recent months have been very productive in terms of licensing activity, referring now to slide 20 of the deck, which shows a summary of recent licensing deals related to our Vernalis design platform, or VDP, the Icagen ion channel technologies, as well as OmniAb and Captisol, which I'll discuss in more detail. The recent new deals have added upfront payments, future R&D service revenue and potential milestones of over $600 million and future royalties should products be commercialized. Moving now to slide 21. We believe OmniAb continues to be the best-in-class of cutting-edge antibody discovery tools. Antibody-based therapeutics are one of the most important, valuable and growing areas of the pharmaceutical industry. As of the second quarter of 2020, there are now more than 80 OmniAb-related programs in our partnered portfolio, representing 40% of the pipeline. OmniAb partners have now filed or have been issued more than 35 U.S. and international patents or applications, claiming OmniAb-derived antibodies as the primary invention, with partners such as J&J, Genmab, Merck KGaA and others. The number of active or recently completed clinical trials that include an OmniAb-derived antibody reached 47 in Q2 as John reviewed, with a number of new clinical trial starts in the first half of the year. Multiple OmniAb programs are now in late-stage development. Also, at ASCO, at the annual meeting in June, clinical data from OmniAb programs were highlighted by Genentech, by Janssen and by Gloria. Additionally, three Ligand partners are currently pursuing development of therapeutic antibodies that were discovered from OmniAb for the treatment of COVID-19. We continue to innovate and invest in the OmniAb platform, with internal R&D efforts, academic collaborations and through acquisitions. Our partners value the work we do and understand the importance of efficiently discovering fully human antibodies in a variety of formats. I'll now update on Captisol and refer to slide 22. We continue to invest significantly and scale up in our drug master files that we maintain in the U.S. and Canada, Japan, and China. The large safety database and other information in our DMFs are extremely valuable to our partners. We expect to file DMFs in additional countries this year as well. This slide reviews Captisol's key differentiating features, which include our global reach, with Captisol-enabled products now marketed in more than 70 countries, our know-how in intellectual property, the drug master files, as I mentioned, which includes safety data for various forms of administration, including IV and oral inhaled and subcutaneous. Our manufacturing quality and scale has seen significant operational activity and progress this quarter. We began shipping material manufactured at a larger manufacturing scale. Our team is progressing very well with our capital investment plan to attain 500 metric tons of annual capacity. We have significant equipment installations coming up later this month. I really want to thank our Captisol team, our manufacturing partners, our countless raw material partners like Wacker and others, various vendors, and equipment suppliers who've all made significant efforts to continue to enable the progress we've made and position us very well. All involved are well aware of the importance of their work, and we greatly appreciate their ongoing efforts. Part of our scale-up plan also includes leveraging additional sites for certain steps of the Captisol manufacturing process. In addition to the two European sites that currently manufacture Captisol according to GMP, our current plans include two additional sites for final step processing, one of which will be located in the United States. In addition to the investment to attain 500 metric tons of capacity with our batch processes that are validated, we are also evaluating potential simultaneous implementation of a proprietary continuous process approach which could add additional long-term capacity in excess of the 500 metric tons should that be needed. Captisol is a complex technology, yet it's a proven technology platform that is used in a number of life-saving medicines that are helping patients globally, perhaps the most high-profile of which is remdesivir. Slide 23 summarizes some recent developments relating to Captisol and remdesivir as reported publicly. I want to highlight recent publications relating to Captisol, including one by Ligand scientists and collaborators, illustrating the role that Captisol plays and the insertion of remdesivir into the Captisol cavity. As reported by Gilead, there have been recent emergency use authorizations and approvals in multiple geographies, new analyses of data and the launching of new clinical trials aimed at reaching additional patient populations and care settings. They announced new trials with an inhaled solution form and disclosed that they are evaluating potential steady subcutaneous. Given what's known and what's been published about Captisol's role with remdesivir for solubility and stability, it's expected these forms will use Captisol as well. I'll wrap up with some comments on one of our internal R&D programs referencing now slide 24. We've made the decision recently to conduct a pivotal trial for Captisol-enabled iohexol, a contrast agent used for hospital-based imaging procedures that could serve as the basis for potential registration of the product. We have the operational and financial resources to advance the program internally, and we expect to start the trial near the end of this year. The market for iodinated contrast agents is substantial with approximately 20 million imaging procedures per year, representing an estimated $1.5 billion in annual sales. We expect the trial will enroll approximately 500 subjects, and the objective of the pivotal trial will be to demonstrate a reduction in the incidence of contrast-induced acute kidney injury and the equivalence of image quality following administration of CE-iohexol compared to GE's Omnipaque. In conclusion, slide 25 shows an updated traditional snapshot of our partnered pipeline which is diverse and partner type therapy area distribution and underlying technology base. Before I turn it back over to the operator, I just wanted to recommend that investors follow Ligand on Twitter. Twitter is a great platform for us to communicate updates on our partnered program progress and it's a great way to keep up-to-date in real time. With that, I'll turn the call back over to the operator for questions.

Your first question will come from the line of Matt Hewitt with Craig-Hallum Capital. Please go ahead.

Good morning, gentlemen and congratulations on the fantastic quarter.

Thank you, Matt.

A couple of questions first on Captisol. Obviously, phenomenal quarter. Should we assume or can we assume that the $25 million increase in guidance is related to the partners that Gilead has signed up? And maybe if you could provide an update on how many of those nine you have contracted with? I think the last update it was four or five. We know that they've added more since then.

Yes. Matt, this is Matt Foehr. I can comment there. Yes, we obviously our supply in Captisol for remdesivir, we are supplying a number. We're actively supplying did in Q2 and expect and will supply more in Q3 to members of the manufacturing consortium. We've entered into contracts with a number of them. We've supplied I'll say R&D-grade quantities to most all of them and are in discussions with all of them. So as you would expect, different companies move at different paces. They have different approaches to manufacturing, etcetera, but we're in discussions with all of them.

Okay, that's helpful. I think you touched on this, but could we explore it a bit further? Gilead has publicly stated that they anticipate having 2 million treatment courses available by the end of this year. With their consortium involved as well, how should we interpret the distribution for next year? I know you mentioned over 90 million, but what should we consider regarding that split? If Gilead is projecting multiples of 2 million, can you clarify what that means? Additionally, how should we view the contributions from the other nine parties involved?

Yes, Matt. Gilead has said publicly with regard to 2021, they expect several million more treatment courses in 2021. As far as the consortium goes, there really haven't been many public statements around the number of treatment courses at this point. Obviously, the treatment paradigm is centered around a 5-day treatment course. But there are two different forms of the vial, lyophilized powder and an injection solution. The lyophilized powder uses Captisol at a ratio of 30:1, 30 parts Captisol to 1 part active ingredient, remdesivir. The injection solution uses Captisol at a ratio of 60 parts to one part, so 60 parts Captisol to 1 part remdesivir as is described in the label. But there really haven't been specific comments from the consortium on that.

Yes. And Matt, I would add just that we did say on the last call that the first 1.5 million treatment courses that Gilead had been talking about was roughly equivalent to the first increase we made. Obviously, as Matt just went through, there's a lot of variables in which treatment course and dose they're going to use and all those sorts of things. They also then up their production numbers for this year to two million. I think you can maybe draw from that that a portion of the orders that they're going to be delivered at the end of this year would obviously be used to produce remdesivir for next year. But certainly not anywhere near enough in that 90 million to cover what they're talking about for next year.

All right, thank you. And then I guess a couple of questions regarding iohexol and then I'll hop off. When do you anticipate that trial starting? And I'm sorry, if I missed that and the cost and how quickly can you enroll and wrap that trial up? Thank you.

Yes, we expect to begin the study towards the end of this year. It will be a proposed label-enabling adaptive design study aimed at demonstrating a reduction in the occurrence of contrast-induced acute kidney injury and the equivalence of image quality when comparing our CE-iohexol with GE's Omnipaque. The design will be adaptive, randomized, and double-blind, involving patients with impaired renal function who are undergoing invasive coronary angiographies. We anticipate recruiting around 500 patients. There will also be a pre-specified interim analysis of the rate of contrast-induced kidney injury after approximately 60% of the data has been collected. So, again, the study will start near the end of this year and is expected to take about 24 months to reach full completion, with an interim analysis occurring once 60% of the patients have been recruited.

Thank you. Your next question comes from the line of Joe Pantginis with H.C. Wainwright. Please go ahead.

Hey guys. Good morning. Thanks for taking the question. Hope you and your families are doing well. Matt Foehr, I'd love to start also with iohexol here. I guess my first question is, is this asset still up for business development? I guess, I'm looking forward to the potential commercial profile here. It's obviously an important decision that you guys made to bring it to pivotal studies here for this relatively large study. So I guess, I'm looking towards the next steps if you can get a label for it? Would you look to take it forward yourself, or is it still up for a potential partnering? And then the second part of that question is, just to allay any potential investor fears just based on your history to-date is this just that your decision process is that you've really had the resources to do this and you want to take full advantage of the economics that you can – and it wasn't having to do with say not being able to partner it at this point?

Yeah. Thanks, Joe. A key part of our business obviously is partnering. We take programs – look where we can answer a few questions and de-risk them in such a way that we can drive better downstream economics. That's really what we're doing here. This is a trial that we have the resources and the expertise on.

Matt Foehr, I might jump in here, because there's a bit of echo on your line? Joe, I'll take a crack at answering the question didn't mean to talk over to Matt Foehr. But Joe, if you're on a speaker, perhaps you can mute. The – we're very excited about this program. We're looking at the investment as a way to really expand the commercial potential for Ligand. We have interest in the program some participants in the existing market recognize the potential for a product like this. We were going to an advanced smaller formulation equivalent trial. We realized that given the profile Captisol has right now, our expanding cash flow we really believe we are in a much stronger position to advance the program ourselves. Ultimately, I expect we will still license this out. But we are also going to take the next 12 to 18 months to evaluate what it might look like for us to be more active in the commercial market as well. We don't plan to become a commercial entity. But again, we have the financial strength and the operational resources to advance this. Ultimately, we think this is – while any clinical program is not without risk, we think this is a good investment to potentially increase the potential for this asset.

That's really helpful, John. Thanks. I appreciate that. And then maybe a question for Matt Korenberg, with regard to the ongoing demand for remdesivir. Obviously, all the points have been highlighted already in the new formulations and increasing the dosages etcetera. I guess, I'm looking towards the potential volatility and how long this demand can continue when you say factor in things like government contracts along those lines as well even though there's obviously demand that would continue.

Yeah. Thanks, Joe. Our expectation really is for significant demand next year and over the couple of years. Following really based on the fact that even if – even with vaccines there may not be 100% effectiveness with other treatments, there maybe combination therapies and other things where remdesivir ends up being part of the treatment regimen across the landscape. Based on those dynamics and just generally, our interactions with all of our partners, we see significant volume demand for the near-term as the world kind of stocks up on remdesivir. Beyond that, we see an ongoing permanent place for the foreseeable future until we're done with coronavirus entirely, where we'll see ongoing demand for remdesivir.

That's really helpful. Thanks. And then, if you don't mind, just one quick question for Matt Foehr, again. Matt, you laid out a lot of different factors with regard to expanding your Captisol manufacturing investments, a lot of factors there. So I'm just curious, what you consider to be the top rate-limiting steps for all the different factors you mentioned?

Yes, Joe. The team has developed a very detailed plan in collaboration with our manufacturing partners that has progressed extremely well. I’d say we are well-positioned. We scaled up our process in Q2 and have delivered material from this scaled-up process. Previously, I would have referred to it as equipment fabrication, but that has gone very smoothly, and all the equipment is fabricated and ready for installation this month. So, we are very well-prepared for the expansion.

Thank you. Your next question is from the line of Balaji Prasad with Barclays.

Hi. Good morning, everyone. Thank you for taking my question. I have a couple of inquiries. Following up on your comments regarding sales to the generic companies or Gilead's partners, could you provide more clarity on the nature of your contracts with them? Do these generic contracts include any royalties? Additionally, do you have insight into how the sales composition between the partners and Gilead itself will look in the coming years?

Yes. Thanks, Balaji. This is Matt Foehr. The agreements with the partners in the manufacturing consortium are structured generally very similar to the deal we put in place with Gilead back in 2015 for remdesivir when the drug was originally being used for Ebola. So, at that time the economics were built entirely into the material portion. There's not a royalty with it, but the economics are built in the material portion. That's generally the structure we've been entering into and are pursuing with the members of the consortium as well. In terms of your question on the mix, really too early to say exactly. But as I mentioned earlier, we have already obviously shipped amounts to the partners in the consortium and have orders for continued shipments as well.

Thanks, Matt. Just one more follow-up on me. I think in your comment you mentioned that you are working with Gilead with the alternate forms of remdesivir. Did I hear that correctly that Captisol will be a part of the inhalation on subcu forms?

Yes, thanks, Balaji. Gilead has announced the launch of new trials for an inhaled solution and is also exploring a subcutaneous delivery method. Our drug master files contain substantial data related to these delivery methods, and given the established knowledge and published information about Captisol's role in remdesivir for both solubility and stability, it is anticipated that these delivery forms will also utilize Captisol.

Thank you. Last one from me and I'll jump back in the queue. Can you just take me through what the acquisition of the new ion channel discovery unit means for the business itself?

Yes. So yes, great question. We obviously announced the acquisition of Icagen, a deal that closed very beginning of Q2 so on April 1, and with the acquisition of Icagen we picked up ion channel technology that really fits well within our VDP platform and picked up some great partnerships. Ion channels are frequently a focus of partners both on the VDP side with Vernalis as well as with OmniAb. They've got deep biological expertise focused around both ion channels and transporters, which are usually seen as high-value targets. We also picked up partnerships with Roche and the CF Foundation as part of that. Notably in the quarter as was summarized briefly in the slides, we expanded the relationship with Roche with Icagen in Q2. So we're real pleased about that.

Thank you. Your next question is from the line of Larry Solow with CJS Securities. Please go ahead.

Good morning, everyone, and thank you for taking my questions. Congratulations on a successful quarter. I just have a couple of follow-ups. Most of my questions have been addressed. To summarize, it seems that the increased guidance reflects growth in Captisol. Your royalty revenues and the expectations for a rebound in product sales, as well as the ramp-up in clinical trials with your partners, appear to be on track with what you anticipated at the end of Q1 during your last update. Is that accurate?

Yes. Thanks, Larry. That's correct. There might be some minor shifts between the three categories, but overall we believe they align with our guidance for Q1. I expect that by the end of the year or certainly in the next quarter, we will be able to provide more detail on the specifics of each category. For now, they are all essentially the same.

Is the $25 million increase in Captisol due to your capacity expansion over the next couple of quarters? I understand you're increasing from 60 million to 500 million tons by the middle of 2021. Could you discuss the pace of this capacity expansion? Is it a limiting factor? Would you have achieved more than the $90 million in Captisol this year if you had more capacity available?

Yes. Good question. I think it's a fair way to characterize it that to get to the upper ends of where we've guided to and to exceed it, we will have had to have successfully expanded our capacity for the year. By the end of the year we'll have sold more than our 60-metric tons capacity that we had talked about prior to any expansion. Part of the reason for us needing to wait until now to talk about the full extent of 2020 or to the extent we have so far is really related to monitoring the ongoing ramp-up of production and then also ramp-up of capacity.

Okay. Great. Shifting gears a bit, could you remind us about Captisol-enabled iohexol? I have two questions. First, did you provide an approximate cost for the Phase 3 trial? I believe it will take over two years. Secondly, can you clarify the ratio of Captisol used in iohexol? It seems there is a significant amount of Captisol being used or planned for use in the formulation.

Yes, Larry. This is Matt Foehr. The trial is expected to take about 24 months and will cost around $20 million spread over that period. It fits well within our overall R&D budget, and we have the technical expertise to conduct the trial. We haven't revealed detailed information about the formulation, but it is a high Captisol user product and is expected to involve many tens of metric tons once a potential commercialized product is available. We're excited about the trial and feel well positioned to conduct it. I believe it will address some key questions and set us up well for partnership opportunities, as John mentioned.

Okay, great. If I could just ask one more question about capital allocation. Clearly, we have a bit of a windfall from remdesivir, and I hope that lasts for a while. So, there’s certainly better cash flow this year. You mentioned that you're investing some of that into the pivotal trial that you're conducting yourself, and also more funding for the Captisol expansion. What about share repurchases? Do you have any thoughts on that? Has that cooled off for now? Also, regarding acquisitions, is the COVID-19 situation creating more opportunities for you, or fewer? Is it too early to tell? Any thoughts on that? Thanks.

Yes. All good questions, Larry. The capital allocation discussion inside Ligand is always ongoing and we continue to evaluate everything from share repurchase, debt repurchase, consider dividends occasionally and M&A across the spectrum. First on the balance sheet side, we obviously did not do any share repurchase or bond repurchase in Q2. While we continue to think that the stock is undervalued and the bonds are undervalued. We typically will keep an eye on the relative moves of our stock and bonds to the market. In Q1, it was really dislocated. Coming into the year, we didn't really have specific plans to do large share repurchase or large bond repurchase. Both the stock and the bonds were quite dislocated from what we thought was proper value relative to the markets at the time. So we made significant buys there. Our stock has held reasonably well over the markets over the last quarter. So we've monitored it, but we did not buy any stock in Q2. Going forward, we'll continue to evaluate all these things to the extent the bonds continue to trade at discounts where we'll think about buying the bonds similar to the stock, if it does not move in the ways we think it should we'll buy stock. Largely though, the focus has been M&A for the year. With the pandemic environment, it was certainly a pause, if not a slowdown for a little bit, but discussions have certainly gotten back close to normal, although all virtual at this point largely. We're continuing to look at a number of things and I think we have some good stuff in the hopper. So we're looking forward to active dialogue and hopefully some transactions in the coming year.

Great. Thanks. Appreciate the color.

Your next question comes from the line of Scott Henry with Roth Capital.

Thank you, and good morning. Just a couple of questions. I don't know if you mentioned it yet, but did you give any color on how we should think about the trajectory over the second half with regards to revenue and timing?

Yes, Scott. Clearly, royalties are expected to grow due to the tiering and the overall growth of the products, with Q3 and Q4 anticipated to be larger than Q2 and Q1, respectively. As we see a rebound in patient visits and access, we expect Kyprolis to return to growth in Q3 compared to Q2, particularly in the U.S. and developed markets outside Japan, which already showed significant growth in Q2. We expect royalties to continue to increase sequentially from this point forward. For Captisol, we estimate the second half of the year will bring in about $44 million based on our guidance, with approximately 35% expected in Q3 and 65% in Q4. Milestones and service revenue tend to fluctuate, but we anticipate they will be fairly evenly distributed over the next few quarters.

Okay. That's very helpful. And then just a question on Captisol and remdesivir. I mean has remdesivir the attention that it's gotten led to perhaps a boost in other people looking at Captisol? I'm just trying to get a sense of what's the organic growth there if we strip out remdesivir. Will it over time be deleveraged from remdesivir, or is that just the bulk of it regardless?

Yes, Scott, that's a great question. As the business evolves, remdesivir has certainly drawn significant attention regarding the need for COVID-19 treatments, and Captisol is crucial for that drug. It is currently impacting our business related to this medication. Your point about a potential follow-on effect in stimulating interest in Captisol is accurate; there is indeed such an effect. The landscape has changed where many effective drugs require solubilization or stabilization. Captisol is well-regarded and has a strong platform, and the current situation has raised awareness not only of its technical capabilities but also of its strength in ensuring drug purity, maintaining a comprehensive drug master file, and offering high-quality manufacturing at scale. This has generated interest from existing customers and attracted new contracts. Additionally, it influences our strategy to pursue CE-iohexol for a pivotal trial, which could lead to significant market potential. Demonstrating drug safety in this large market is crucial. This reflects the growing recognition of Captisol's importance. The field is evolving, and a key indicator of our progress is the momentum we’re experiencing. 2019 was an exceptional year for Captisol, occurring before remdesivir's rise. We started the year with the highest forecast ever for the franchise and exceeded it, subsequently raising guidance and surpassing that as well last year. We’re optimistic, as we're already forecasting increased volumes into 2020, and this positive trend continues. We're very satisfied with how the franchise is performing.

Thank you for your insights. I really appreciated slides eight through 12 in the presentation. They provided a lot of information that helped clarify our focus moving forward. My question is whether the order of the six programs listed is determined by the timing of when these events should take place or by their potential revenue impact. I'm looking for guidance on how to interpret that order and what the next key event should be, considering the many developments happening.

Yes. I'll give a general comment and Matt Foehr can identify the next event. Generally, it is somewhat in order, only five months left and the five months are going to go really quickly. C-Stone combines two events, Phase III data plus regulatory filing. Both those could happen of course the data would come first. Generally in order they aren't ranked by importance or value of the program. These six events in the next five months plus three next year, this is the largest most substantial late-stage calendar new events we've ever had. Investors who have followed us know that we have had different ways of presenting our calendar of news events coming up. Frankly, it's been a much longer list, a lot more details. Now the portfolio is so large and substantial that we're really trying to focus on the largest items. Matt Foehr, do you want to comment on the next one or two most likely near-term events?

Yeah. As you characterized it, that's exactly right. They are somewhat in order, Scott. I'd say the Palvella pivotal data is probably the nearest term of those. And just creating bookends on that group there this year, Kyprolis' sNDA date is November 15. So I'd put that as kind of the other book end. The nearest I'd say is the Palvella. But as John characterized it they are what we call somewhat in order, but that gives you kind of a range.

Well good. We appreciate people's attendance and turnout. Good questions. Obviously, a very busy time for Ligand, I kind of want to acknowledge the team's work outstanding execution through a very busy period. We appreciate the interest. We are going to be on the road virtually. A number of conferences this fall will be attending the HCW conference, in September. We have a few other conference invites that we're finalizing now. As we indicated, we anticipate we'll be hosting a virtual Analyst Day in the next few months to give a fuller update on our business and outlook. Thank you for your time. We will stay in touch.

Thank you again for joining today's conference call. This does conclude the call. You may now disconnect.