It is now my pleasure to turn today's program over to Mr. Patrick O'Brien, Senior Vice President, Investor Relations. Sir, the floor is yours.

Thank you, and welcome to Ligand's Third Quarter 2020 Financial Results and Business Update Conference Call. Consistent with the recommendations for social distancing, all of our speakers for this 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 together with 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 Ligand's earnings release issued earlier this morning and the slides associated with this call and periodic filings with the SEC. As a reminder, Ligand takes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. With that, I would now like to turn the call over to John Higgins.

Thank you, Patrick. Good morning, and thanks for joining our call. I'm pleased to report that Ligand is doing well and is closing out 2020 in a strong position in terms of financial growth, portfolio expansion, and excellence in our business operations. We have some slides to go with our program today. I'd like to turn to Slide 4 to start out. A simple slide. Ligand is delivering major value. We serve the industry. We serve our partners with our research and technology. There are several ways that we are supporting our partners, but first is helping them discover new medicines; secondly, helping improve the safety of their medicines; and thirdly, helping our partners reduce their cost to make their medicines. We are technologists, we are innovators, and we are proud of what we are doing to help facilitate the care and human health around the world. Let's turn to Slide 5. I'd like to give some comments overall about the business in third quarter specifically. Q3 was an exceptional quarter across the board. M&A and major portfolio news are highlights, but we are also very pleased with our financial performance. Both of our major royalty-bearing assets posted growth, with underlying revenue for products increasing in all major regions, Q3 over Q2 2020. Earlier in the year, as we discussed, we forecasted the pandemic would impact patient visits and starts on some treatments in the short term. But we are very pleased to see growth returning now. And in particular, Amgen noted recently that early indications point to a strong launch of Kyprolis and DARZALEX combined regimen for relapsed multiple myeloma following positive data and label expansion earlier this year. Now in terms of our expanding portfolio, we have completed multiple M&A transactions recently, bringing top-tier partners to Ligand, and we've had a very productive year-to-date with entering into new license contracts, granting technology rights to our partners. Notably, we have 5 partner programs in development now, more than ever before, with 5 drugs where Ligand is entitled to a royalty projected to be up for approval in 2021 alone. As for excellence in our business operations, it's best illustrated by our ability to rapidly scale up production to meet the world's Captisol supply needs for the manufacture of remdesivir. One, remdesivir, it's the Captisol partnership with Gilead we are very proud of. Our Captisol is required to make it. No other company provides the quality, the purity, the quantity, or the safety record for this vital ingredient. Veklury, as it is branded now in the U.S., is the first and only FDA-approved treatment for COVID-19. We know for society to get back to normal, we need treatments and we need vaccines. There will be other treatments eventually approved to add to the armamentarium, but this drug works and is considered today to be a part of the standard of care. As such, all current and future therapeutic clinical trials will be required to use remdesivir in the control arm. Of note, the U.S. Surgeon General said just last Friday that while hospitalizations are starting to go up, the country's COVID-19 mortality rate has decreased, thanks to multiple factors, including the use of remdesivir. On the recent earnings call, Gilead executive remarks that they have repeatedly seen the clinical benefits of Veklury across multiple clinical trials. They said in the past quarter, these benefits have been unequivocally demonstrated in global clinical trials. The definitive results from a fully powered, double-blind, placebo-controlled and randomized trial showed an average reduction in recovery time of 5 days. They see their peer-reviewed data from blinded and controlled trials as being the pinnacle of science and clinical studies today. They also commented that they currently estimate that roughly 40% to 50% of hospitalized patients are getting Veklury right now in the U.S. Gilead also said that the percentages of hospitalized patients receiving Veklury is expected to grow with the FDA approval, recent peer-reviewed publications and now that they have a field team to educate physicians on how best to determine appropriate patient population use of Veklury. Also of note, Gilead reminded people that they are working on outpatient treatment options under additional clinical trials to potentially expand the use of the drug outside the hospital setting. As for Ligand, the need for remdesivir is real, and that could not be more clear to Ligand given our highly interactive work with Gilead to meet their Captisol needs. We are making as much Captisol as we possibly can at this time to supply Gilead in their international generics consortium. This is supply that we had not contemplated at the start of this year, and it's adding about $60 million of revenue this year alone, about one-third of our total revenue forecast for 2020. And we see it adding significantly more revenue contribution next year. As we all know, the pandemic is raging right now worldwide, and hospital rates are again skyrocketing. We think this will not only drive demand for remdesivir, but also will reinforce to major medical markets how much the healthcare system and patients can benefit from this drug right now. Our long-term value proposition is based on our core business and the growth we project. But no doubt, the additional Captisol we are selling to support remdesivir is driving upside, financial and strategic benefit for Ligand and our investors. We are better off in the short term as well, given our success in answering the call to supply this key manufacturing ingredient, as inbound requests for Captisol are now at an all-time high. For the next few quarters, we forecast substantial sales for Captisol, and the surge in business will enable us to support the expanding Captisol business long-term and allow us to invest in other R&D over the next 18 months to drive future growth. Along with my comments about remdesivir as an antiviral treatment for COVID-19, we are also pleased to note that there are 3 different partners developing novel antibodies for treating COVID-19 that came from Ligand's OmniAb platform. Veklury is the first and so far only FDA-approved treatment for COVID-19. Undoubtedly, other treatments will come along to further support the medical needs in the market. And we are pleased to have 3 different partners working on novel antibodies derived from Ligand technology. Now I'd like to switch to Slide 5. And just highlight the 5 main programs that are on deck for potential approval next year. This is an important calendar of news events, while we have significant late-stage regulatory and clinical events as well. This is the largest calendar of potential approvals we've had in our history, tied to some very well-funded high science programs. One is a partner with C-Stone, a Chinese company that's had some major news recently. We have partnerships with Merck and Jazz, another with Gloria and now with Alvogen. Notably, 2 of these are OmniAb-based programs, and 3 of them, the Merck, Jazz, and Alvogen programs, came to us via our acquisition of Pfenex. We are excited about these assets and are pleased to see this calendar develop as it will create potential new royalty streams for us starting next year. Picking up on the basis for these programs. A quick comment about our OmniAb platform. The business is doing very well and continues to perform above our expectations. There are many highlight examples to call out, but one recent development is the major commercial contracts that our partner C-Stone entered into partnering to commercial rights to their OmniAb-derived antibody for a variety of cancers. The leading trial concluded on an early interim readout of data given the outstanding positive results in reducing the death rate for the patients with a rare form of lung cancer. This is C-Stone's number one program and is derived from Ligand technology and we'll get royalties. Investors have taken note and bid the C-Stone stock up to a $2 billion market value. More importantly, 2 major pharma companies, including Pfizer, have recently struck major deals with C-Stone. The Pfizer deal is worth calling out as C-Stone announced the formation of a $480 million strategic collaboration that encompasses a $200 million investment in C-Stone and a major collaboration between the companies for the commercialization of C-Stone's Ligand-based antibody. It's a first-line treatment for Stage IV squamous and non-squamous non-small cell lung cancer. We find this to be a bellwether deal as a signature financial event for C-Stone, a major validation for Ligand-discovered antibody for an important category. Another example of OmniAb's stellar performance is Immunovant, which is also developing an OmniAb-derived antibody. Immunovant announced positive top line results from a multicenter placebo-controlled Phase IIa trial for their antibody. It's an antibody that is being used in a subcutaneous injection form for patients with myasthenia gravis. They're pursuing a registration-enabled Phase III trial in the first half of 2021. This is Immunovant's lead program, and their market cap has grown now to $4 billion, largely due to the success, again, of this Ligand-based antibody. Just a quick comment about our Pfenex acquisition since 3 of these approvals that we're looking at next year are based on acquired assets through the Pfenex deal. Pfenex has proven to be a great deal for Ligand in just a few short weeks since we closed the deal. Matt Foehr is going to provide more color on that acquisition, but we see it as transformative to Ligand. We project that it will add meaningfully to our financial growth, both in revenue and profitability. Our royalty revenue is the main driver for our business, and Pfenex is projected to boost our royalty revenue by about 50% as we look out the next few years. In addition, the proprietary protein expression platform is backed by top-tier existing partners, and we are in discussions right now with multiple other parties for additional licensing in 2021. All right. Now as I wrap up, I'd like to go to Slide 7 and just make some remarks about our growth as we see it going forward. We provided guidance last week at our Analyst Day for 2021, calling for robust adjusted diluted earnings per share growth of more than 50% year-over-year. This outlook assumes funding 2 promising internal programs, PF 810, which we just gained from our Pfenex acquisition, as well as CE-iohexol. Funding these high-value projects over the near-term should not be viewed as changing our long-term R&D spend. And we remain committed to lean operations and strong annual profit growth over the years to come. Overall, we see accelerating growth for Ligand. This year, so far, our revenues and earnings are up sharply over last year. And given the information we have in the business right now, we have forecast over 50% top line and bottom line growth for 2021 over 2020. The growth is coming from big increases in royalty and Captisol revenue. This outlook is supporting our ability to keep having strong cash flows and investing in the business.

Thanks, John. As John mentioned in his comments, the third quarter of 2020 was a very busy period for Ligand. We announced 3 acquisitions on the strategic front, including our largest ever. We announced the sale of our Vernalis business shortly after the quarter ended, and we had a robust top line driven by our Captisol material sales, combined with strong financial results across the business. More specifically, total revenues for the third quarter of 2020 were $41.8 million and included $9 million of royalty revenue, $23.4 million of Captisol material sales, and $9.5 million of contract revenue. With respect to the royalties, Kyprolis revenue at Amgen for Q3 of 2020 was up over Q2 2020, but was down year-over-year as sales continue to be impacted by the pandemic as fewer new patients began treatments for Kyprolis due to COVID-19. Ono in Japan, again, had outstanding sales for Kyprolis, posting $17.3 million in Q3, the largest quarter ever for the product in Japan. EVOMELA revenues in the U.S. and China were higher both year-over-year and sequentially. Our true royalty growth for the quarter was obscured principally by an anomaly in Q3 2019 that included a larger-than-typical true-up from Q2 2019. Adjusting for these true-up items, despite the pandemic, royalty revenue in Q3 2020 would have grown slightly rather than decline slightly versus Q3 2019. Captisol sales of $23.4 million in the quarter compared to $6.8 million a year ago, up over 240% or over 3x the level in 2019, similar to our Q2 trend. Our contract revenue in Q3 2020 was in line with our revised expectations provided at our Analyst Day last week, coming in at $9.5 million as compared to $8.2 million a year ago. Adjusted diluted EPS for Q3 2020 was $1.04 or 112% higher than Q3 of 2019. In addition, we generated $12 million cash flow from operations in the quarter. We finished the quarter with approximately $795 million of cash, cash equivalents and short-term investments. After closing the Pfenex acquisition, the day after the quarter closed on October 1, our adjusted cash balance was approximately $400 million. Turning to guidance on Slide 10. We provided updated guidance last week at our Analyst Day. As a reminder, our top line guidance is now $170 million of total revenue for 2020, up from our previous guidance of $165 million. Royalty revenue is expected to be $33 million for the year, up from $32 million in our most recent guidance. Captisol revenue expectations are now $92 million for the year, up from our previous guidance of $90 million, and contract revenue is expected to be $45 million for the year, up from previous guidance of $43 million. The $170 million annual guidance results in Q4 revenue of just over $53 million, which is consistent with our previous guidance for the second half of 2020 revenue to be more heavily weighted to Q4. Regarding 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%. We expect cash operating expenses for 2020 of $73 million to $75 million. These cash expense estimates incorporate the Taurus, xCella, and Pfenex transactions and also assume that the Vernalis transaction closes in Q4. These revenue and expense components translate to full year 2020 adjusted earnings per diluted share of approximately $3.95, which is up 57% from the 2019 diluted EPS of $2.52, adjusted for the Promacta sale. For the next couple of slides, I'll dive a little deeper into each of the revenue lines. On Slide 12, you can see the royalty revenue trends for the last 4 quarters. Our 2020 guidance of $33 million implies a Q4 royalty number of $10.3 million. We arrive at this estimate assuming that our 2 major products grow in Q4 versus Q3. As John mentioned, both Kyprolis and EVOMELA grew quarter-over-quarter in Q3 in each region around the world. Focusing more now on the Captisol business on Slide 12. You can see from the chart on the right that, for 2020, we were consistently operating at a much higher level than we were for the past few years. We believe that 2021 will again take another step up with quarters averaging over $45 million versus the low 20s million average we saw in 2020. Our estimates for Q1 2021 are supported by binding orders and forecasts from our partners. With the pandemic developments around the world continuing to create a very dynamic situation, the ultimate need for treatments may fluctuate dramatically from month-to-month. However, we continue to believe that the manufacturing demand for Captisol for 2021 will sustain at these higher levels. Related to contract revenue, the chart on the right of Slide 13 shows that Q4 is expected to be the highest quarterly total we've had in the last 2 years. As investors know, contract payments and timing will move up and down as the flow of partner clinical trials and progress with programs ebb and flow. Q4 of this year is lining up to be a quarter where we see many events hitting all at once. In addition to approximately $7 million of service-related revenue in the quarter, we expect a number of OmniAb events, Vernalis events related to contracts that we're retaining in the transaction, and protein expression events to generate significant Q4 revenue. On the last slide that I'll cover today, I'm showing a summary of the 2020 full year expected results versus the 2019 full year. On the left, you can see that 2020 revenue will far exceed the 2019 number with nice contribution from each revenue line. On the EPS chart on the right, you can see that EPS exceeded each quarter in 2019. Obviously, the 2020 bars on these charts include the contribution of Captisol sales related to remdesivir. In 2020, the added demand related to remdesivir contributed about 33% to total revenue. In 2021, we expect the remdesivir-related demand will contribute approximately 55% to our total revenue. The core business, though, remains strong and will grow nicely into 2021, but we'll utilize the extra remdesivir-related revenue in cash flows to reinvest in the business and improve the strength and diversity of the core business. Finally, before I turn the call over to Matt Foehr, I direct listeners to review our Q3 earnings press release and slides issued earlier today and available on our website for a reconciliation of our adjusted financials to GAAP reported items.

Thanks, Matt. Now on Slide 16, our technologies and the license associated with them form the foundation of our portfolio. Our technologies enable new medicines through our licensing partnerships and ultimately help patients by meeting major unmet medical needs. This morning, I'll review each of our core technologies and discuss the integration of Pfenex into Ligand as well as our strategy and plans for our new protein expression business. I'm referring now to Slide 17, which highlights the suite of technologies within our OmniAb platform. We believe OmniAb continues to be the best-in-class of advanced antibody discovery tools. 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. Most recently, we acquired and integrated new technologies and scientists from xCella and Taurus Biosciences. The xCella technology brings in ultra high-resolution and high-speed technology to antibody selections from our animals. Current and prospective partners are already seeing the value of this technology, and we are already deploying it in multiple partnered programs. The Taurus acquisition brings cow-based CDR-H3s humanizing binding domain antibody technologies to the OmniAb suite. And we are branding the technology as OmniTaur. The antibody features some of the longest CDR 3s of any species with unique genetic and structural diversity that can enable binding to challenging targets with applications in therapeutics, diagnostics, and in research. As we go forward, these acquisitions are expected to enable our OmniAb team to secure new licensing agreements and expand economics as a result of the additional tools and IP we can now offer to partners. We carefully looked at multiple public and private platforms to acquire in order to continue our expansion of OmniAb and determined that xCella and Taurus represented the best fit and opportunity. And now I'll move on to Slide 18 and note that multiple partners have leveraged our platform for discovery of antibodies as potential therapeutics to treat COVID-19. The 3 partners are Takeda, Immunoprecise, and Genevac. Our OmniAb partners see advantages to rapid discovery of fully human antibodies with the platform as an antibody approach may be well positioned to neutralize emerging strains of the SARS-CoV-2 virus. And OmniChicken is viewed as a unique system for discovering SARS-related antibodies given the chicken's known ability to mount vigorous antiviral responses. And importantly, our GEM assay can be leveraged to select for rare antibody specificities, including cross-reactivity with other respiratory viruses. We look forward to further updates from our partners as they disclose the details of their progress. And now moving on, I'll provide an update on Captisol and refer you to Slide 19. This year has been a transformational year of growth for the Captisol technology on many levels. With globally recognized programs that use our Captisol technology, we've seen record growth of inbound interest in the technology along with continued and growing business momentum. We've entered into more licensing deals for Captisol this year than any other year. Our partners are expanding their use into new delivery routes and we've expanded our intellectual property estate. And all that happened in parallel to us greatly increasing our manufacturing capacity and global footprint to meet significant increases in demand for clinical and commercial material that Matt Korenberg described. We believe our Captisol technology is positioned very well for years to come. Moving on to Slide 20. The team at Icagen is managing our ion channel technology partnerships, and they've had a very productive year as well. They've managed 3 high-value partnered programs that are progressing rapidly and positioned to contribute meaningfully to the business in the future. There are 2 partnerships with Roche, with more than $500 million in potential milestones associated with them as well as potential tiered royalties; and also a valuable collaboration with the Cystic Fibrosis Foundation. Icagen's stature in the ion channel space and their discovery successes with the current programs are now driving partnering interest from additional big pharma players for multi-year collaborations with potentially valuable back-end economics. We're excited about the future of this technology, which we added to Ligand in April of this year. And now switching to our newly added protein expression business on Slide 22. The acquisition of Pfenex closed 4 weeks ago and the integration of the business has progressed extremely well. We've realized synergies in the business and have also welcomed some fantastic new colleagues to Ligand. We're very excited about this technology and the prospects for future growth of the protein expression business overall. The technology is based around P. fluorescens, which is a highly versatile organism for making therapeutic proteins. In a real simple sense, the technology makes complex drugs possible. Oftentimes, with increasing frequency, traditional systems are just not well suited for the desired structural complexity of therapeutic proteins. And our technology delivers significant competitive advantages to our partners, including speed with which they can enter into clinical production, increased product quality, and lower cost of goods. Our platform has an over 80% success rate in producing proteins that have previously failed in traditional systems like those based on E. coli. Keep in mind that these are proteins that companies have wanted to manufacture to progress into development but simply can't, and our technology enables that. This then leads to valuable partnerships like the 2 that we've highlighted here on Slide 23 with Jazz Pharmaceuticals and with Merck. In the case of Jazz, they sought to develop a recombinant Erwinia asparaginase to provide reliable high-quality supply. Our technology enabled that for a drug that is now positioned for an approval filing and downstream economics to Ligand. Merck sought a high-quality and reliable source for their global needs of CRM 197 as a key carrier protein for the V114 vaccine program. Merck's recently highlighted positive Phase III data and plans to file their BLA later this year. And it's worth noting that this is a substantial program at Merck, with 16 Phase III trials enrolling over 18,000 participants in some 36 countries. This is a global opportunity in a multibillion-dollar existing market. Going forward, we see a growth trajectory for the protein expression business that can drive revenue and yield 3 different types of deals that are shown on Slide 24. And now a month into owning the business, we see clear paths and opportunities for partner development deals, traditional asset out-licensing deals, and what we term as platform pairing deals. This is an important element of our overall strategy with the business. The partner development deals around the platform are the type that yielded the Jazz transaction and partnership. These are where partners come to us to solve their manufacturing issues. These are generally collaborative deals and ones that leverage our team's deep knowledge and expertise. Out-licensing deals are the ones where we license rights to an asset that was developed and enabled by our technology. These can be extremely valuable and have yielded partnerships like the Alvogen teriparatide relationship. And I expect we'll see more deals like this in the near future as we leverage the past investments of Pfenex and the team's knowledge around the programs. We also see significant potential for platform pairing deals where our technology is married to an in-house technology at a partner to meet a key need. That's been the case with the multi-program deals with both Merck and Arcellx and we expect to see more of these types of deals as well. And lastly, on Slide 25, you'll see a summary of our partnered pipeline that our valuable technologies have created. And we continue to expect this pipeline will grow and mature in the months and quarters to come. Before I turn the call back over to the operator for questions, I wanted to remind investors and recommend all to follow Ligand on Twitter. Twitter is a great platform for us to communicate updates on our partner program progress, and it's a great way to keep up to date on our expanding portfolio in real-time. And with that, I will turn the call back over to the operator for questions.

We have our first question from Matt Hewitt at Craig-Hallum Capital.

A couple for me. First up, regarding the contract revenues or the implied contract revenue guidance for the fourth quarter. You mentioned $7 million coming from services. What kind of visibility do you have into the other payments that you're expecting in the fourth quarter, given some of the variability that we're seeing because of the pandemic?

Yes. Matt, thanks for the question. Good question. There are a number of events tied to some things like OmniAb trial advancements, things going from Phase I to Phase II or are going into humans, but those types of things are not publicly available or known in terms of timing precisely. But there's also a number of things that tie to events, where partners have made public statements already around, as an example, starting a Phase III trial in the quarter or filing a BLA, those types of things. So we have pretty good visibility into all of the events that we're counting in this number for the quarter, either publicly or privately.

Great. I have another question, which is probably a bit more challenging. You recently held an analyst event and shared some impressive growth targets for the next 2 to 3 years, emphasizing how the business will shift to achieve more growth in the royalty segment, which could potentially enhance the valuation of your stock. However, the stock didn't respond as expected. I’m curious about your thoughts on that reaction and what you think investors might be overlooking that could explain this disconnect.

Yes, Matt, it's John. I'll comment, and Matt Korenberg can as well. The business this year, there are 2 major drivers that we are working to focus investors on. One, of course, the developments with M&A. And sometimes M&A is not entirely obvious what we acquired in terms of calendar of news events, partner events, but also how products might ramp up with royalties. And Pfenex, of course, is the largest acquisition, but Icagen earlier this year as well, brought us some top-tier partnered assets. So that's one area of, I'll say, development that really has built out very, very nicely. We are an M&A-focused company. We think we're good at sourcing technologies and innovation to acquire, and we know this with Captisol. I mean that has been a home run acquisition. OmniAb as well. But we know with M&A, it takes a while for investors to fully comprehend how our technology acquisitions really drive value. So that's one thing we focused on at Analyst Day. And clearly, when we're looking at 3 out of 5 of our potential approvals next year coming out of Pfenex, this is an area where royalty contribution and growth in the next 2 or 3 years we think will build out very nicely. The second part of the message really comes with our core business, the legacy assets. Every year, we're doing anywhere from 5 to 15 new licensing contracts. We know there's a lead time to development. But we have seen an unprecedented run of good developments, positive developments, advancements with trials, with R&D investments, and movement toward regulatory filings, potential approvals with our legacy pipeline. And one of them, of course, is sparsentan. We're excited about that. Phase III data, we expect here in the next couple of months. And while we did not call this out specifically in our long-term guidance, it's mostly because the more healthy economics to Ligand are very, very substantial. If we see positive data and it is filed, clearly, we're going to give more clarity for investors. But this is an exciting asset. The C-Stone OmniAb-based drug, we've talked a lot about that, but this really was not on people's radar 12 months ago. So that is a second area, focusing investors on our developing portfolio of royalty-bearing assets. And this is coming together. We call this our core business. The legacy assets, coupled with new M&A, these 2 factors are coming together. We do foresee and forecast significant royalty growth. We've had charts. We described the math. And what's important for royalty growth is to understand the margins, they're essentially 100% gross margins. Once we have contracts in that royalty revenue, there's no offsetting cost, and there's very efficient operating costs throughout the rest of the P&L. So we do forecast the revenue growth to be there and do believe it's going to create tremendous leverage with earnings and cash flow over that period. So, Matt, I don't know if you want to add any other color.

Thank you, John. I want to reiterate a point John mentioned. When we provided our long-term outlook, we considered it as long-term guidance, as John referred to it. Some investors may have interpreted that as a lack of confidence in either sparsentan or teriparatide receiving TE approval in the long term. However, we are confident in those outcomes. Instead of outlining a broad range of possibilities, assuming all products receive approval and reach peak sales, we chose to present what we believe is a risk-adjusted or realistic guidance number that we are confident we can achieve under any circumstances, with the potential for additional upside from the other outcomes we did not include.

We have our next question comes from the line of Balaji Prasad from Barclays.

I have a couple of overarching questions aimed at understanding the business and its future. One of the most frequently asked questions concerns the guidance for 2021 and beyond. While you addressed it partially earlier, I would like your thoughts on what potential upside risks might exist for your guidance over the next one to two years.

Yes. Thanks, Balaji. So first on the guidance question and what remains to be upside from the guidance. I think from that standpoint, we give our guidance each year in a way that we think is achievable, of course. We've had a history of the last several years on the contract payment line of making sure that we frame that in a way for investors that that was a number we could live up to, but that the realm of possibility for those numbers significantly exceeds the guidance that we have given. This year, with the pandemic, obviously, the timing of a lot of events was pushed back. To the extent the pandemic continues steady state, let's call it, where in our view the patient access and clinical trial world has returned somewhat closer to normal than it was certainly in Q1 and Q2 of this year. We could see a significant amount of upside, we think, to the contract payment line for 2021. And then separately on the remdesivir topic related to Captisol, obviously, we've outlined for folks what we thought the number was there. To the extent the current trends in hospitalization and infection rate continue to increase, as we've seen over in Europe and in the U.S., I think that could result in significant upside to the Captisol number.

The second part of your question on capital allocation, and it's kind of part of a mixed question tied in with business development, you're still sitting on a significant amount of cash. Do you think you have enough on your plate for business development now? And if so, with the stock now, what, around sub-90s level, what are your thoughts around a buyback at this level? And I have a couple of capital-related questions.

Yes. Thanks, Balaji. So first on the guidance question and what remains to be upside from the guidance. I think from that standpoint, we give our guidance each year in a way that we think is achievable, of course. We've had a history of the last several years on the contract payment line of making sure that we frame that in a way for investors that that was a number we could live up to, but that the realm of possibility for those numbers significantly exceeds the guidance that we have given. This year, with the pandemic, obviously, the timing of a lot of events was pushed back. To the extent the pandemic continues steady state, let's call it, where in our view the patient access and clinical trial world has returned somewhat closer to normal than it was certainly in Q1 and Q2 of this year. We could see a significant amount of upside, we think, to the contract payment line for 2021. And then separately on the remdesivir topic related to Captisol, obviously, we've outlined for folks what we thought the number was there. To the extent the current trends in hospitalization and infection rate continue to increase, as we've seen over in Europe and in the U.S., I think that could result in significant upside to the Captisol number.

Yes. Balaji, this is Matt Foehr. I can comment. And I think John was commenting on the use of remdesivir in clinical trials. And generally, when something is established as standard of care, it is used in clinical trials, and we're seeing that real-time, both in the trials that are being posted on ClinicalTrials and other in terms just clinical use. So that's something we are seeing now and expect to continue to see. Your question about other use settings. We've been obviously very pleased with the work and the dedication of the Gilead team across the board, but they are analyzing all additional settings for use for remdesivir as well as additional forms, right? So they've disclosed that they have an outpatient program, both in nursing homes as well as other outpatient settings where they're looking at Veklury used there. They're also doing work on an inhaled solution form that also uses Captisol in its formulation, and also in a subcutaneous form that also uses Captisol's formulation. So they said they expect data to start coming for some of these other trials and forms next year, early next year. So we'll continue to watch the space. But I've been pleased with the investment and the work that they're obviously putting into that.

I will provide a general update on our production, after which Matt Korenberg will discuss the CapEx. At the beginning of the year, when Gilead reached out to us with an urgent need, we immediately responded and began manufacturing as much as possible. We also maintain extra inventory to support all our customers. In the first few months and quarters, we have delivered as much Captisol as we could, maximizing our manufacturing capabilities. Earlier this year, we announced plans to invest in scaling up, and we are currently producing at increasing levels. This scale-up is ongoing, and we estimate that we will reach our maximum operational capacity in the next two to three months. We are providing revenue outlooks for Q4 and Q1 based on our anticipated maximum production levels. If we can increase our manufacturing speed and deliver more to Gilead, we will do so, as they are experiencing significant demand. Notably, last night, after our Workday, we learned that the U.S. reported its highest daily case load since the pandemic began, with over 87,000 new cases. We expect hospitalization rates to rise in the coming days. Gilead reports that currently, 40% to 50% of hospitalized patients are receiving remdesivir, and they anticipate that this proportion will grow post-approval. Therefore, with both the increasing proportion of treated patients and higher hospitalization numbers, we predict a rise in U.S. demand. Furthermore, disclosures from Gilead indicate that Europe has seen substantially higher cases recently, and allocations of remdesivir have begun. The dynamics of this situation are real and in motion, and we are committed to producing as much Captisol as possible. Matt, would you like to discuss the CapEx and additional investments?

Yes. So Balaji, as you know, we announced a number of $60 million earlier this year for CapEx related to remdesivir and Captisol, specifically. For the benefit of everybody, I think we've said a number of times, but I'll repeat that, let's call it, one-third of that number for simplicity was things like buying machines and expanding space and things like that, about two-thirds of the number was more akin to prepaying for materials and other things like that. So the, call it, $20 million or so number from that is spent and will run through the P&L adding some burden to the cost of goods over the life of the machines. The expected need for additional spend, like the $20 million, there isn't really a significant need to expand beyond that. So that portion is done. The rest of the business doesn't really require a significant amount of CapEx. The new protein expression business is a little more capital-intensive, but we still think CapEx annually will be sub $5 million for sure. And we'll provide more specific numbers as we get into the 2021 budgeting and forecasting process earlier next year.

So 2 questions for the 2 Matts. First, for Matt Korenberg, I guess I'll go off of the CapEx discussion you just had and wanted to focus on the SG&A and the R&D lines. Now obviously, I know you don't break out specific guidance for that, but I wanted to get a sense of any of these cash charges that you've had so far that can be considered sort of one-time based on the acquisitions? Like any spikes, how do we look at normalizing these rates?

Yes. Thanks, Joe. Good question. You'll see on the adjusted tables in the earnings release that there is a transaction expense number. That will cover everything that happened in Q3. And so you'll see again in Q4, a small number associated with that. In Q3, it was about $5 million, a little less. And that's buried all in the G&A line. So that's really the one-time cost that you'll see there. And then the only other sort of G&A and R&D numbers that you'll see, we talked about this at the Analyst Day, but obviously, with the sale of Vernalis, if that completes and closes in this year, next year, we'll reduce cost for that. But then the Pfenex transaction obviously adds some cost to both the G&A and R&D line that will come on board and resulted in our guidance we gave for cash expenses for next year.

Yes. Joe, thanks. Yes, to your point, the inbound interest in Captisol really has never been higher. I mean, one of the best, we often say among the Captisol team, the best advertisement for Captisol are the publications that partners make and the progress that partners have. And we obviously had a lot of high-profile highlights of the value of Captisol, and not only from remdesivir, but other programs as well. Clearly, there are other technologies out there, right, that people can use to solve a solubility issue, but they generally create a more torturous path through development, right? One can tag on a different molecule, but then they've got to go back and repeat a lot of tox data to answer a lot of regulatory questions. So the value proposition for Captisol is very clear, and I think that's why we're seeing so much inbound interest. I think for us, the real key, right, and this is what we spend our time thinking about is execution, right? Being sure that we're consistently there to answer the call. And that's what we're focused on, making sure we continue to do that. This year has been great from an operational perspective, but that's really where we focus our effort, is making sure we're always there to not only answer technical questions of partners, but make sure we're there operationally.

Yes, the business focuses on delivering solutions to our partners. Our success is tied to our partners’ success, as we share in revenues. This is how our model operates. We need to identify good technologies, find the right partners, and set up favorable contracts. Along the way, we generate service revenue and hit various milestones, but the royalty line is crucial for our business's growth and success. Investors should know that we had a valuable royalty asset with Promacta, a remarkable medicine partnered with Novartis, which we divested in early 2019. At that time, it generated about $100 million in royalties. Legacy investors who have been with us for a long time often ask how we're replacing Promacta, while new investors see our current baseline of around $30 million in royalties. Recently, we believe we are starting to show growth in the royalty area after a period of relative stagnation. The trends look promising for our core assets, especially with a strong pipeline, upcoming data releases, and numerous potential approvals that we haven’t seen before in Ligand's history. This year, we anticipate royalties to be around $30 million, with guidance at $33 million, and we project this could triple by 2023, excluding certain leading assets with significant potential. For instance, sparsentan has shown positive data; if approved and launched next year, it could generate royalties similar to Promacta, potentially reaching a $1 billion market in the U.S., resulting in $90 million in royalties. We are enthusiastic about the ongoing growth of core assets and the promise of several high-probability assets that should be approved soon, along with contributions from Pfenex, which is expected to increase their royalties next year. All these elements are coming together more cohesively, and we have more tangible evidence of royalty line growth than we've seen in the last six quarters. A specific asset we are excited about is our partner program with Palvella, which is currently running a pivotal trial for a rare and debilitating skin disorder. They are close to announcing pivotal results, and positive data could lead to an NDA filing, significant financing, or even an IPO. We have disclosed our royalty rates for this program, which range from 5% to 9.88%. This could lead to substantial royalties from a highly significant medical market, with major data events just weeks or months away.

Our next question comes from the line of Scott Henry from ROTH Capital.

First, a couple of just clarifications from Matt Korenberg. Matt, I thought I heard you give Kyprolis in Japan revenues for the quarter and perhaps some color on EVOMELA for the quarter. Could you just walk through those one more time? I think I missed that.

Yes. Kyprolis in Japan generated JPY 1.8 billion, which is roughly $17.3 million, showing a significant increase from the previous quarter's approximately $16 million. This marks a record quarter for them. Additionally, our revenue from EVOMELA indicates growth compared to both last quarter and the same period last year. However, neither company has officially reported yet, so we can't disclose the exact figures.

Okay. And then with regards to teriparatide in the therapeutic equivalents, what should the next data point we get be? I don't know. I think you have to do factors testing. Will you announce that data? Or will you just announce when you file it? Just trying to get a sense of how you can gauge progress on that event.

Matt Foehr can provide more details, but the straightforward answer is that our partner, Alvogen, will be conducting the trial, which is expected to begin soon. They have been in talks with the FDA about the trial's execution. Before our acquisition, Pfenex and Alvogen anticipated the trial would start in the fourth quarter. After completing the trial, they will submit the results to the FDA, and we will receive a response at some point. While the exact timing is uncertain, we have publicly stated our expectation to get an answer from the FDA sometime next year, although Alvogen has not made this public.

In terms of what to look for, I believe it will either be Alvogen or Ligand discussing the start of the trial, the enrollment process, and then the refiling with the FDA.

We have time for one more question from the line of Dana Flanders from Guggenheim.

Great. Two quick questions for me. First, Matt, maybe just some thoughts on how you are thinking about some of the oral antiviral treatments potentially impacting the COVID landscape? Roche, I think, for instance, recently in-licensed an agent with Phase II data in hospitalized patients early next year. So maybe some just comments on what the potential impact could be?

Yes. Thanks, Dana. This is Matt Foehr. Yes, in terms of therapeutic approaches for COVID-19. Obviously, this is the biggest health crisis of our lifetimes. And clearly, there's a lot of investment going on. Not only in the vaccine side, but on the therapeutic side, and we obviously monitor the landscape, clearly, folks developing immune modulators. Obviously, folks looking at antibodies to potentially block cellular uptake of viral particles. I obviously highlighted that we've got 3 partners pursuing in the antibody, and then also antivirals as well, the ones that you mentioned and others. And we continue to monitor the landscape there. I think it's clear, at this point, remdesivir has established itself as standard of care with the first approval. We obviously monitor the landscape. And I think that's also why our partners at Gilead are continuing to look at other ways to treat patients as well in an outpatient setting. So as I mentioned, they're working on a new-tailed form that also uses Captisol in its formulation as well as a subcutaneous form that also uses Captisol's formulation. So they said they expect data to start coming for some of these other trials and forms next year, early next year. So we'll continue to watch the space. But I've been pleased with the investment and the work that they're obviously putting into that.

Yes. And on your comments on longer-term guidance, yes answer both those still apply. The Captisol business outside of remdesivir continues to grow nicely. And I think we continue to see that over the longer term. And then on the contract payment side, we had a slide in our Analyst Day that talked about the total and then the risk-adjusted numbers. That was just some insight into how we're calculating those numbers that I've given over time. But we continue to see the contract line as a $40 million to $60 million. Some years, it's going to be lower. Some years, it's going to be higher. But that math was always driven by that risk-adjusted portion of that chart we showed at Analyst Day that showed over $1 billion of future risk-adjusted payments. And in particular, we had over $400 million over the next 5 years that we saw as potential. So those numbers are where those things are coming from.

Well, thank you. I appreciate the question and turn out on our call today. Just a quick wrap-up remark. Again, we're pleased with the business, the performance for Q3 as we move into next year. The 2 main things that investors are focusing on, one, is financial growth. This year, our numbers suggest we're going to have a better-than-50% growth in both top and bottom line revenue and adjusted earnings per share, and that's our outlook for next year as well. So we're pleased with the trend lines with that performance. The second factor are the quality partnerships. Not only quantity we've got the most ever, but some top-tier partners that are funding really important medical programs. We've got a win screen on some good data and obviously a significant counter of new events coming up. We appreciate investors' time today, and we look forward to giving you more updates as the weeks roll forward. Thank you.

Thanks to all our participants for joining us today. We hope you found this webcast presentation informative. This concludes our webcast and you may now disconnect. Have a great day.