Good afternoon and thank you for standing by. Welcome to the Ligand Pharmaceuticals Quarter One Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker today, Mr. Simon. Sir, the floor is yours.

Thanks, Rachel. Welcome to Ligand's first quarter of 2021 financial results and business update conference call. 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.

Good afternoon and thank you for joining our first quarter 2021 earnings call. This year is off to an excellent start for Ligand, both operationally and financially. It feels great to be well into 2021, as now we’re really beginning to leverage our acquisitions from last year. Typically, the U.S. is advancing into a better phase of the pandemic. As the health environment improves in the U.S., we are now seeing a pick-up in business activity. The Ligand team across the board has done an excellent job managing the business this past year, and now we see increasing interest for licensing our platforms and expanding work with partners, including with new and existing big pharma partners who see the value our technologies bring. Also, I'm very pleased to report that business travel is coming back for the leadership at Ligand. It's invigorating to be able to interact directly with our scientists once again across our multiple laboratories in the U.S., especially since we added many new members to our team through acquisitions during the pandemic. Matt Foehr will give an update on the business, and I know that each of our major tech platforms is performing very well. We have rebranded our protein expression platform from Pfenex to Pelican. The team of scientists we brought on board with that company is outstanding, and we see promising opportunities for new deals later this year and good progress on some early-stage internal programs. Our Icagen ion channel unit is firing on all cylinders. And again, the team driving that platform is a plus. They’re brilliant scientists with great instincts for partner support that fits so well with our business model. Our Icagen team closed a major new deal with GSK a few months ago and continues to deliver superb support to our partner Roche for multiple targets. The outlook for Icagen is very promising as we’ve been investing in an internal program that we believe may be up for licensing in the coming months.

Thanks, John. The first quarter of 2021 provided a strong start to the year for Ligand. Total revenue for the quarter was $55.2 million, up from $33.2 million a year ago. With respect to royalties, royalty revenue increased to $7.1 million from $6.6 million a year ago. The pandemic negatively impacted sales for many pharmaceutical products in Q1, including Amgen's. Amgen reported $251 million of sales for KYPROLIS, our largest royalty-bearing asset. These sales were lower than we expected. Amgen commented on their earnings call last week that they experienced negative pressure specifically on their oncology business due to the impact of the pandemic on patient treatments in Q1. But we've read that Amgen and the industry overall expect oncology sales to ramp back up later this year, with the success of COVID-19 vaccinations and as pandemic trends improve in major commercial markets. Captisol sales were $31.3 million in the quarter, and this is up 48% from $21.1 million a year ago. Our Q1 Captisol revenue came in a bit lower than we expected as the business was impacted by the extreme cold weather in the Southern United States, where one of our new Captisol manufacturing sites is located. As a result of the weather, the site paused manufacturing for an extended period of time in February, pushing out production of approximately $12 million of Captisol finished goods. Our contract revenue in Q1 2021 was $16.8 million compared with $5.5 million a year ago. The 2021 quarter includes strong contract revenue from all our technologies, with approximately $4 million from OmniAb, $3 million from Pelican, $4 million from Icagen, $3 million from Vernalis, and $2 million from various new chemical entity Captisol and other technologies. While Q1 might be higher than the average we expect for the year, it illustrates the diversity and robustness of our contract revenue line. Adjusted diluted EPS for Q1 2021 was $1.41 compared with $0.89 last year, or an increase of 58%. The strong earnings performance this quarter was in part driven by a large volume of contract milestone payments, which are typically a 100% gross margin. We exited the quarter with approximately $339 million of cash, cash equivalents, and short-term investments. This cash balance reflects the repurchase of $104.5 million of convertible bonds during Q1. We now have about $391 million of face value of convertible bonds outstanding.

Thanks, Matt. This afternoon, I'm going to review the status plans in recent developments involving a couple of our core technology platforms starting with OmniAb. I'll then provide updates on certain partner programs with major events expected later this year, and also update plans for our Captisol enabled Iohexol program. OmniAb is our most valuable platform technology, and it continues to offer a powerful combination of advanced antibody discovery tools. Partners who license our OmniAb technologies are supported by our team of respected scientists and a track record of quickly discovering high-quality antibodies. Two OmniAb partners have submitted applications for approval, and we expect both regulatory decisions this year, which if approved, we believe will be the first of many for the platforms. Specifically, CStone Pharmaceuticals announced recently that their investigational OmniAb derived anti-PD-L1 antibody, sugemalimab, has been granted breakthrough therapy designation by the China NMPA for the treatment of patients with relapsed or refractory extranodal natural killer/T-cell lymphoma. Sugemalimab has also been granted orphan drug designation for the treatment of T-cell lymphoma and breakthrough therapy designation by the USFDA back in October of last year. An NDA for sugemalimab is under review at the NMPA for stage four non-small cell lung cancer, and CStone has said they expected determination with respect to this NDA in the second half of this year. As a reminder, CStone and Pfizer formed a strategic alliance around the development and commercialization of sugemalimab in China. The other OmniAb program I'll highlight briefly today is zimberelimab, which is an investigational OmniAb derived anti-PD-L1 monoclonal antibody that was discovered using OmniRat. Gloria Pharmaceuticals filed its NMPA in China for recurrent refractory classical Hodgkin's Lymphoma with approval also expected this year.

Sure. Thank you. Our first question comes from the line of Joe Pantginis from H.C. Wainwright. Sir, your line is open.

Good afternoon, everyone. I appreciate the opportunity to ask a question. First, thank you, Matt, for the updates regarding Captisol and its current developments. With that in mind, I would like to return to the fundamental aspects of the business, as you have been experiencing significant growth even prior to the remdesivir opportunity. How would you characterize your ongoing business development and the new types of deals you are pursuing to sustain this growth?

From a Captisol perspective, the interest in Captisol has never been higher in terms of inbound inquiries, sample requests, and new licensing. The visibility of a product like Veklury and the significant impact of Captisol is crucial. Veklury, which has been a key standard-of-care treatment, reached around 4 million patients in about a year, and that scientific visibility generates considerable interest from the scientific community. We're also seeing many new partners approaching us about Captisol, driven by its global reach, the validation of the science, our extensive intellectual property portfolio developed over the years, and our significantly enhanced drug master files. These improvements have come from both a safety database perspective and a manufacturing perspective, as we now have four manufacturing sites worldwide, including one in the U.S. for the final manufacturing phase. The emphasis on reproducibility, quality, and scale continues to boost the platform's visibility.

Got it. That's helpful. Matt, I'll stay with you. Hopefully I'm not getting too much into the details here. Another one of your partners is starting to gain visibility with their programs, and that's Sermonix. I was curious if you could provide a brief update on that, since lasofoxifene was originally developed for something different but now has a cancer program. Could you update us on the status and briefly explain the mechanism by which efficacy could be seen in a cancer setting?

Yeah. Yeah. Thanks, Joe. You're right to highlight it. Lasofoxifene is a program that really has a rich heritage at Ligand, back to our early discovery days and has a large database of data behind it. We partnered it with Sermonix in a very nice licensing deal largely because of the rich heritage and the data that had been generated over many years. It's a potent selective estrogen receptor modulator or SERM. And the team at Sermonix has been making fantastic progress, progressing that quickly through trials in metastatic breast cancer. They also announced a partnership with Lilly, and so they're progressing some trials with Lilly as well. So, we're continuing to keep an eye on that and cheering them on, and you're right to bring it up because it's a program that our science team is actually very excited about and sees a lot of potential promise, and it looks forward to the pending data.

Appreciate the updates, guys.

Thank you. Our next question comes from the line of Larry Solow from CJS Securities. Sir, your line is open.

Thank you and good afternoon, everyone. There are clearly a lot of moving parts. Could you clarify the outlook? It seems like Captisol might be experiencing some fluctuations. Are you still confident in reaching the $200 million target, or could it potentially be lower or higher than that? There appears to be more volatility in the short term. Would you agree with that?

Larry, I'll add a comment, and then Matt Korenberg can follow up on some of his remarks. The summary is accurate. The last six weeks have seen significant success with the vaccine rollout and its efficacy rate. The increased availability of vaccines is a positive development for controlling this pandemic, particularly in the U.S. and some other major markets, and it is influencing decision-making. We're hearing from experts that this is affecting stockpiling strategies. While stockpiling for any viral infections is a valid approach and has been used in other situations, the high efficacy and abundance of vaccines are shifting the focus more towards treatment. Currently, we are observing a lower stockpiling outlook, but this is counterbalanced by rising demand from our consortium partners in India and other markets where incidence rates are rapidly increasing. These dynamics are occurring simultaneously over the past six weeks since the end of last quarter into April, and we are analyzing the situation. As Matt mentioned, our guidance remains unchanged. We feel optimistic about the business. Q1 royalties came in slightly below expectations, but we believe they will recover, and partnering revenue is significantly higher for Q1, a trend we anticipate will continue. Regarding Captisol, we believe we need more time to accurately assess our outlook for this year, but that is our current perspective.

It appears that there are some challenges with your contract revenue. I understand that timing plays a role, and while you don't provide quarterly guidance, it seems that the revenue may be running ahead of expectations.

Yeah. Matt, do you want to comment on that?

Yes, that's correct, Larry. As we typically mention in these calls, we have a range of contract payments and events occurring simultaneously, and we aim to provide you and our investors with insight into what we anticipate will happen this year, along with a probability-adjusted perspective. So far this year, we have experienced more success than what the averages would suggest. The first quarter performed slightly better than expected, and the outlook for the rest of the year remains positive. Currently, it appears there is potential for increased contract payments, although this is balanced by some of the comments John made regarding other business areas. Overall, the situation looks quite solid.

The main driver for royalties appears to be down by 10%, likely due to fewer starts among multiple myeloma patients. Unfortunately, these patients are still present. It seems like there might be a delay in their return to treatment. Do you believe that we will see an increase in patient visits, especially since many other medical services are resuming? It’s puzzling that this particular group, which is crucial for patient care, isn't bouncing back more quickly. What are your thoughts on this?

The last five days have been very beneficial for us as we closely monitor the situation. A lot of earnings calls and our observations, particularly the royalty report from Amgen, showed that major oncology drugs performed significantly lower than expected, surprising investors. This can be largely attributed to low patient visits in January and February, which were some of the worst days of the pandemic in the U.S. and other major markets. There’s a consistent theme from Amgen and other companies we track that Q1 was soft for this reason. However, the persistence of the disease and the life-threatening nature of cancer mean that patients need their therapies. The markets are beginning to recover, restrictions are lifting, and those markets are coming back. Although there was some disappointment last week, it seems like the market is now recovering well. Stocks are rebounding, and it’s clear that this is just a temporary setback. While we may have lost a bit of revenue in Q1, we are seeing positive trends returning, partly due to the growth of core brands and the potential launch of new products by the end of the year, which we feel optimistic about.

Gotcha. And if I just may slip one more question. Thanks for the update on the Pfenex or Pelican on Merck and Jazz, your two large partners. Any update on Teriparatide and the biosimilar to Forteo? Is that something we might hear some news about during 2021?

Yeah. Larry, so with regard to Teriparatide, so Alvogen generated positive human factors data for the last remaining trial that needed to be run, that was submitted to the FDA in January. We obviously are in close contact with Alvogen and have a very collaborative relationship with them. The FDA has confirmed that the review is in progress, and that they will endeavor to complete the review in a timely manner. Again, there’s no PDUFA date for this, but it’s actively under review at the FDA.

Got it. Fair enough. Great. Thanks, guys. I appreciate it.

Thank you. Our next question comes from the line of Jacob Johnson from Stephens Incorporated. Sir, your line is open.

Hey everyone. This is Mason filling in for Jacob. I have a couple of quick questions. First, regarding Pfenex, we are now Pelican for the $33 million in revenue that was anticipated from this platform in 2023. Could you provide some insight into their top four products? Specifically, if you had to rank these top four products based on their expected contributions, which one would contribute the most and which would contribute the least?

Hey Mason, thanks for the question. We continue to think that the Pelican business is going to be a significant contributor both this year and long-term. The breakdown of that, we didn’t give those numbers specifically. But generally speaking, you can think that the Serum Institute vaccine in India has already launched. So we're already generating royalty revenue from that program. The Jazz program that Matt Foehr talked about on the call already, we've got some milestones coming in from that program through the BLA filing, but also if and when it gets approved. And then, similar on the Merck vaccine program. Both the Jazz and Merck programs, both companies have said they intend to try and launch this year in addition to successful approvals this year. So, we’ll get some royalty contributions there. Lastly, on the Alvogen Teriparatide program, without a TE approval, they’ll continue to ramp their sales and prescriptions there. But with a TE approval, it would accelerate both the pace of revenue on the royalty side but also there are some milestones tied to the approval there. So those are the big four contributors. But there’s a lot of work being done on behalf of partners other than those four as well, that’s generating contract revenue for us. So it’s kind of a mix of all of the above.

Got it. Thanks for that, Matt. Just one more. Understanding that 2020 was a pretty active year for you guys on the M&A front. As we look forward and more of the drug pipeline continues to shift towards biologics. And as we think about long-term capital allocation, would you think we’d continue to see biologics as an area of focus for capital deployment?

Yeah. I think that’s a good way to summarize it. Generally speaking, we’re focused on enhancing the technologies across the Ligand platform. But as I said and Matt Foehr referenced in his comments as well, adding technology to the already kind of industry-leading tech stack of OmniAb will be important for the business as we go forward. And so, there’s certainly a focus on that area, and obviously that’s directly bolstering the antibody space. Generally speaking, I think you’re kind of right in your thinking of a focus.

Got it. All right. Thanks guys.

Thanks.

Thank you. Our next question comes from the line of Balaji Prasad from Barclays. Sir, your line is open.

Good afternoon everyone and thanks for the questions. So, just a couple pending from me. Firstly, on sparsentan. Can you help us think about the long-term value of this program after the Phase 3 data, which came out? And are you still anticipating a potential 2023 royalties of anywhere between $10 million to $20 million? Secondly, on Captisol, a lot of color, but I just want to understand if there are any variations in economics for Ligand based on whether you sell it to Gilead or its licensing partners on Veklury. And the reason I'm asking is to try to understand the upside potential for the $200 million a year of guided to and reaffirm now in light of potential stockpiles, which could crop up based on what’s happening currently. Thanks.

Thanks, Balaji. Regarding sparsentan, our guidance remains unchanged from previous calls. Following an approval, we’ve gathered insights from the research community, and it appears they still anticipate potential royalties of $10 million to $20 million in 2023, with end-user sales estimated to reach around $400 million to $500 million by 2025. This would yield royalties for us in the range of $35 million to $45 million. Ultimately, it's believed that the product may peak between $500 million and $1 billion for one indication. If both indications, FSGS and IgA nephropathy, receive approval, the sales could exceed $1 billion over time, translating to over $100 million in royalties for Ligand at a 9% rate. This makes it a very significant product, and we are eager to see its continued development. Moving to Captisol, we haven't specified the economics for any of our partners, but on average, the economics to Ligand are quite similar across partners purchasing Captisol for remdesivir. The key factor is demand, which has significantly increased from India over the past few weeks, while in the U.S., the demand has decreased. It's quite dynamic, and we are actively monitoring it and will provide updates as needed.

Thanks, Matt. If I could just squeeze in one more question. I saw that recently that Ligand and Lupin settled a patent suit on Evomela. I’m just trying to think of implications there. And see if there are any other major patent challenges that we need to be aware of from Ligand's perspective.

Go ahead, Matt.

Yes, Balaji, you’re correct. The court documents disclose that Ligand and Lupin settled the patent case over Evomela. Terms of that are undisclosed, and generally, we’ll update on those items further when we file our Qs as well. But that’s pretty much the update we provide given the terms of the settlement.

Great. Thank you.

Thank you. Our next question comes from the line of Matt Hewitt from Craig-Hallum Capital. Sir, your line is open.

Good afternoon, gentlemen. Thanks for taking the questions. Maybe the first one, and this might be best for Matt Foehr. Last year was a record year for Captisol inquiries and samples. And I’m just curious, how are those discussions going? The conversations that you started having last year, are you seeing some of those initial trials or samples turning into clinical trials or maybe an update there?

Yes, thanks Matt. Yes, no doubt. The visibility that’s been created around the Captisol technology, as I was describing earlier, continues to bring new potential partners to us and folks who know they’ve got compounds that have solubility or stability issues. They take a lot of different forms, right? Sometimes, sample requests can take a while to translate into progressing through a development program. Sometimes, folks know exactly what they need and can jump right into clinical trials. So, there’s a lot of variety and texture there. Overall, we continue to see very strong inbound interest, a lot of diversity of partners that we’re shipping to, increased diversity in the types of programs they’re pursuing, not only just injectable drugs, but inhaled drugs and intranasal gel caps, topical forms, a whole variety of forms that partners are pursuing, which is also really a testament to the scientific work that our teams put in the safety database and technical database that’s been built up over time.

That's great. Thanks. And then maybe one regarding the Captisol-enabled Iohexol. Thank you so much for the update on that. I'm curious, how long do you anticipate giving these partners to make a decision? Obviously, I think the expectation or the hope would be that if you didn’t get the partnership signed, you could get that through a Phase II and potentially launch and run that program yourself. But obviously, if you’re going to have meaningful dialogue with partners, you give them some time. I’m just curious how long that time might be. Thanks.

Yes. Matt, thanks for the question. Deals are always dynamic and every deal is a little different. But I think generally speaking, we would anticipate a couple of months, at least, to figure out where the partners are going to want to go and if they’re going to want to move forward with a trial similar to how we designed it or different or move forward at all. So, I think on the short end, it’s a couple of months; on the long end, it could drag out, but generally speaking, I think it’s several months.

Understood. Thank you.

Thanks.

Thank you. Our next question comes from the line of Scott Henry from ROTH Capital. Sir, your line is open.

Thank you. And good afternoon. Just a couple of questions. First, on the royalty line, would you expect your second quarter to be an improving quarter or all the way back to normal already? I certainly would expect the second half to be at normal rates. But just curious how you think about the second quarter if you have any comments on that.

Yes, thanks, Scott. Look, it’s hard for us to say exactly, but the commentary that we’re seeing out of many of the large pharma partners that are marketing products that are not necessarily tied to our royalties and also some that are tied to our royalties, it seems that the messages they’re trying to deliver is that patient demand is back or getting back and that they expect that missed patient visits in Q1 and early Q2 should be made up in the back half of the year. So, I think at a minimum we’d expect a trend to increasing quarterly numbers. Some of the comments could certainly be interpreted to anything missed will be made up in the back half of the year, which is why you’ve seen a lot of these larger pharma companies, perhaps missing a bit on Q1 but not changing guidance for the year. So, at the moment, that’s our hope and expectation.

Thank you, that’s helpful. Can you remind me of the amount that this percent milestone represents in Q4?

Yes, it's just shy of $6 million, at $5.99 million. This was disclosed a couple of years ago in a filing by both then Retrophin and us, so it's available specifically down to the dollar.

Okay, great. And then finally, just for clarification. The two approvals in China, I believe the CStone one is expected in the second half of '21. Have you provided any target for the Gloria approvals? Is that also expected in the second half of '21?

Yes, you’re correct, CStone is anticipated to be in the second half of the year. Gloria's NDA was accepted on February 18th, 2020, so that's when the NMPA confirmed acceptance of the NDA. It's difficult to say exactly when the timing will be, but generally, people are expecting it in the second half of the year.

Okay, great. Thank you for taking the question.

Thank you. Our next question comes from the line of Dana Flanders from Guggenheim. Ma'am, your line is so.

Great. Thank you for the questions. My first one was just on the biosimilar opportunity for you guys on Forsteo in Europe, just wondering how competitive of a market is that? I know in the U.S., you have the potential to be exclusive for some time. So just trying to think of the relative contribution of Forsteo, you know, kind of us versus Europe. And then just my second question, can you remind me is the generic consortium, how tied is that to India and wondering if your Captisol and Remdesivir is being used in other kind of emerging markets where we’re seeing a spike in cases and the potential for that?

Yes, I will discuss the consortium, and Matt K. may address Europe and Forsteo. The consortium supplies not only India but also 127 other countries, most of which are low and middle-income countries, including India.

Yes, thanks, Matt. And Dana, on Forsteo or Teriparatide, biosimilar opportunity. It’s a good question; it’s important to point out that the product rights that we hold through Pelican and now Alvogen and others are actually worldwide rights. So, we do have the potential to generate royalty or profit sharing around the world. I think as folks probably know, the environment outside the U.S. is more dynamic. There are many biosimilars already approved in lots of different territories. In Europe specifically, I’d say that’s probably a positive that most of the territories already have approvals in our products are launching. The competition in those markets makes the opportunity for us a lot smaller. Probably the second largest opportunity for us outside the United States is actually probably in China, where the product is partnered there and our partners are moving towards approval. Then, obviously the U.S. will be the largest of the three general regions between the U.S., Europe, and Asia.

Got it. Thank you.

Thank you. There are no further questions at this time. Presenters please continue.

Thank you, operator, appreciate it. Appreciate peoples' turnout today and questions. Excited to be in 2021. We talked about the acquisitions that were foundational in fortifying our OmniAb business and expanding our technology offering. We're really pleased to see the integrations going well. We look forward to updates throughout the year. We are at few virtual conferences coming up. Early June we’ll be at Craig-Hallum and Jefferies and then in July, we’ll be at the CJS Conference. So thank you very much. We appreciate you turning up.

This concludes today's conference call. Thank you for participating. You may now disconnect.