Good evening. My name is Rob and I will be your conference operator today. At this time, I would like to welcome everyone to the Ligand Pharmaceuticals Fourth Quarter 2022 Earnings Webcast. Thank you. Simon Latimer, Head of Investor Relations, you may begin your conference.

Thanks, Rob. Welcome to Ligand's fourth quarter 2022 financial results and business update conference call. Speaking today for Ligand will be Todd Davis, CEO; Tavo Espinoza, CFO; and Matt Korenberg, President and COO. We will use non-GAAP financial measures, and some of our statements will be forward-looking, including those related to our financial condition, results of operations, financial guidance and the impact of the COVID-19 pandemic. Additional information concerning risk factors and other matters concerning Ligand can be found in our earnings press release and our periodic filings with the SEC. We undertake no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. A reconciliation between the non-GAAP financial measures we discuss and the closest GAAP financial measure can be found in our earnings release issued earlier today. I'd now like to turn the call over to Todd Davis.

Thank you, Simon, and good afternoon everyone, and thanks for joining our fourth quarter 2022 earnings call. For those who didn't get a chance to listen to our recent Analyst Day event in December, or meet at the JPMorgan Conference, I am Todd Davis, the CEO of Ligand. I'm delighted to have the opportunity to address you all today and share some of my thoughts on the company's performance and our future prospects. Now, I have been on the Board for many years, over the past 2 months, I've been getting up to speed on the internal workings of the company, and meeting with the team working with the Board of Directors and spending time with a number of our shareholders. I'm confident that the future of Ligand is a bright one. Our initial and primary goal for the company is to maintain a laser-like focus on financial performance. To that end, in 2022, we've had a strong finish to the year. Key components to highlight. Royalty revenue grew by nearly 50% to $72.5 million, compared to $48.9 million in 2021. Profitability in 2022 of $2.44 in adjusted diluted EPS from our core continuing operations, compared to $2.35 in adjusted diluted EPS in 2021, including sales of Captisol for COVID, the adjusted diluted EPS of $4.79 in 2022. Our balance sheet ended the year with over $200 million of cash and liquid investments. We successfully completed the spin-out of OmniAb, enabling Ligand to refocus on its core strengths and original value proposition. And last week's approval of Sparsentan in partnership with Travere Therapeutics adds to our royalty generating asset portfolio and positions us for strong continued growth. Tavo, our CFO, will provide more 2022 financial results, as well as our increased '23 financial guidance. The following framework may be useful to share in explaining why Ligand is situated in a unique and advantageous segment in our ecosystem, and how we might think about further building the business. This involves two tactical approaches in general; one is licensing our existing platforms and portfolio assets to generate as many non-accretive product royalty opportunities as possible; and two, investing capital directly into clinical stage development assets with superior risk-reward profiles. For framework today, number one, I would say is the capital markets dynamic enable this opportunity. There is a significant imbalance between the demand for alternative capital and the supply of alternative capital like project finance. This capital can be invested in specific programs and assets versus companies. This offers partners more flexibility in how they finance their business. Companies are increasingly looking for alternative forms of financing. And market inefficiencies allow us to be highly selective and pick programs with the highest return characteristics. Under project finance, we can provide capital for clinical development projects and rather than receiving debt or equity securities in return for our capital, we draft customized royalty contracts that accommodate our partner's needs but offer us as an investor unique advantages as well. Number two, we are focused on execution. We will be partnering with clinical development companies to accumulate mid to late-stage clinical royalty assets. Our goal is to accumulate royalty interests. And we can do that in multiple ways. One, we can partner existing technology platforms. Two, we can implement project finance. Three, we can identify acquisition opportunities of existing royalty contracts or companies with attractive royalty assets. And in terms of new platform acquisitions, we might do that, but we'll only look at operating light models with high operating margins that is likely to be sporadic and infrequent but can be very accretive when found and achieved. Also, we will target superior risk-adjusted returns on assets that address high unmet clinical needs and we will leverage our 100 plus partnerships and the experienced pharmaceutical and scientific management team that we have to originate diligence and execute on deals and investments around these high-value clinical development programs. Number three, our internal focus will be on near-term financial performance and late-stage clinical pipeline growth, which equals future financial growth, as well as adding talented people. We will be refocusing R&D making the company leaner overall while adding selective talent that can execute on deal origination diligence negotiations, etc. And we will expand our external focus in networks by working more closely with the Board and adding scientific regulatory and other talented advisors. We will also be institutionalizing our deal process and origination, diligence, prosecution, and portfolio management with special emphasis on proactive origination. This will add more high-quality assets to our mid to late-stage clinical pipeline, which again we believe equals future sustained growth. In terms of number four portfolio management, we want to maximize our existing rich asset base. Sparsentan will be our seventh large royalty that was acquired via M&A, outlicensed to Travere, and became a development success. That was a result of M&A, followed by strategic portfolio management. In 2023, we expect 10 major catalysts on Ligand's existing late-stage pipeline, and we will also be leveraging our existing relationships within the portfolio to originate new opportunities and even attract follow-on investments with existing partners. So to summarize, 2022 was another strong year of financial performance. Under my leadership, we will continue to focus on measures to make the company leaner while adding select talent to focus on the origination and execution of new deals. These deals are intended to grow our late-stage clinical development pipeline of royalty assets, which in turn will create sustainable future growth. Next, our financial performance will be reviewed by our CFO, Tavo, and that will be followed by a review of the portfolio operations by our President, Matt Korenberg.

Thanks, Todd. The fourth quarter of 2022 was transformative and financially strong, with notable growth in royalty revenue. My review will cover Ligand's financial results now that the OmniAb spin-out is complete. Total revenues from continuing operations for the quarter were $50.4 million. Royalty revenue rose 25% to $22 million from $17.6 million a year prior, driven by strong performances from Amgen's KYPROLIS, which posted record quarterly net sales, along with contributions from Merck's VAXNEUVANCE and Jazz Pharmaceuticals' Rylaze, both exceeding expectations. Regarding Captisol, we saw significant sales growth related to COVID-19 since 2020. Over the last three years, we've sold more than $300 million of Captisol for COVID, peaking in 2021. In 2022, we sold approximately $88 million, a decrease from about $141 million the previous year. While these sales provide substantial cash flow, they do not reflect the core performance of Ligand's business. We have not received any Captisol for COVID orders this year. Total Captisol sales were $26.9 million this quarter, down from $35.4 million last year. Core Captisol sales were $3.3 million this quarter, compared to $7.1 million last year, with the variance due to timing of customer orders. Captisol sales related to COVID-19 reached $23.5 million this quarter, down from $28.3 million a year ago. Contract revenue in Q4 2022 totaled $1.5 million, compared to $3.5 million in the prior year's fourth quarter, typically influenced by the timing of partner events and milestone payments. GAAP net loss from continuing operations was $14.5 million or $0.86 per share, up from a loss of $3.2 million or $0.19 per share a year earlier. This increased loss primarily stems from a $24.8 million tax expense related to our deferred tax assets in California following the OmniAb F spin-out, a $9.8 million accelerated depreciation on manufacturing equipment due to decreased production post-COVID, and a one-time non-cash stock compensation expense of $13.8 million associated with the retirement of our former CEO, partially offset by a $44.2 million unrealized gain from our Viking Therapeutics stock holdings. Adjusted diluted EPS for the fourth quarter of 2022 was $1.36, compared to $1.47 in the fourth quarter of 2021. Excluding COVID-related Captisol sales, adjusted diluted EPS for Q4 2022 was $0.75, up from $0.62 in Q4 2021. For the year, total revenues from continuing operations were $196.2 million, with royalty revenue growing 48% to $72.5 million from $48.9 million in 2021. This growth was driven by strong performances from Alvogen's teriparatide, Jazz's Rylaze, and Amgen's KYPROLIS. We recorded $15.8 million in teriparatide royalty revenue, representing a 200% increase over the prior year. Rylaze's royalty revenue increased to $8.8 million from $2.4 million, and KYPROLIS saw a 10% growth to $30.1 million. Total Captisol sales for the year were $104.5 million, down from $164.3 million in the previous year. Core Captisol sales were $16.4 million in 2022, down from $23.4 million last year, affected by prioritization of COVID-19 shipments and timing of customer orders. COVID-19 related Captisol sales totaled $88.1 million in 2022, compared to $140.8 million the previous year. Contract revenue for 2022 was $19.2 million, down from $28.4 million the prior year, again due to timing of partner events and milestone payments. GAAP net loss for the year was $5.2 million or $0.31 per share, compared to a GAAP net income of $76.4 million or $4.43 per diluted share in the prior year. The annual GAAP net loss reflects the items mentioned in Q4. Adjusted diluted EPS for 2022 was $4.79, compared to $6.27 in the prior year. Excluding COVID-related Captisol sales, the adjusted diluted EPS for 2022 was $2.44, up from $2.35 the previous year. On the balance sheet, including 6.7 million shares of Viking Therapeutics stock as of December 31, 2022, Ligand had cash and investments totaling $212 million and approximately $77 million in outstanding convertible debt that we plan to repay in cash upon maturity in May this year. As for guidance, we're raising our 2023 revenue and earnings outlook. Following strong royalty revenue growth in 2022, we expect 2023 royalty revenue to be between $74 million and $78 million, primarily due to upside from Rylaze and VAXNEUVANCE, along with significant contributions from KYPROLIS. We anticipate Captisol material sales in 2023 to be around $21 million and contract revenue to be $25 million, bolstered by revenue from the approval of Travere's Sparsentan. These components lead to an expected core revenue growth of 11% to 15%, or $120 million to $124 million. We are also working on reducing expenses, including some R&D cuts and allocating additional resources to the business development team, forecasting cash operating expenses of $43 million. With increased revenue and reduced expense expectations, our adjusted diluted EPS projection is now $3.30 to $3.45. For modeling, we are assuming Captisol gross margins around 65%, a tax rate of 22%, and approximately 17.3 million shares outstanding. For more details, please refer to our fourth quarter earnings press release, available on our website, which provides a reconciliation of adjusted financial results to the GAAP results discussed today. Now I’ll turn the call over to Matt for an update on the business.

Thanks, Tavo. 2022 was a year of significant change for Ligand with strong underlying business performance through it all. Financially, we exceeded our expectations for our core business and sold significantly more Captisol for COVID than we expected. Operationally, we successfully completed the spin-off of our OmniAb antibody discovery platform and strategically, our partners posted continued strong sales growth with commercial programs, while clinical stage assets made excellent progress, including positive results for many key programs. Obviously, the biggest news of note recently with the Sparsentan approval late last week. Our partner Travere received approval for Sparsentan in IgA nephropathy. Travere will market Sparsentan as the brand name FILSPARI when they launch the drug next week. Sparsentan is a key pipeline asset for Ligand. We will earn a 9% royalty on sales, and we expect that this will be a significant driver of long-term growth for our royalties. Travere expects a decision from the EMA for the conditional marketing authorization for Sparsentan for IgA nephropathy in Europe in the second half of 2023. IgA nephropathy affects an estimated 150,000 patients in the U.S. and a similar number in Europe. Approximately 30,000 to 50,000 of the U.S. patients are expected to be addressable under the indication approved via the accelerated approval. Sparsentan is the first non-immunosuppressive treatment approved for this indication. In our view, the initial label is consistent with the expectations going into the PDUFA date and does not change the outlook for the drug in the short term or the long term. Consensus sell-side estimates for Sparsentan show peak sales exceeding $1 billion, which, if achieved, would make Sparsentan Ligand's most significant royalty by a factor of 2. For 2023, Travere pointed to the existing consensus estimates from the research community, which currently range from about $10 million to $45 million for the year. Travere indicated that the initial ramp will be gradual and that the full IgA nephropathy PROTECT trial data in Q4 should be a catalyst for a change in the label and a ramp in the sales. We look forward to tracking the launch of Sparsentan, the additional progress on FSGS and the potential approval for both indications in additional geographies. Turning quickly to our 2022 financial performance. I just wanted to reiterate the themes that Tavo has described; with all the movement, it might be difficult to evaluate our performance for the year. However, if investors evaluate the performance of the core business, excluding OmniAb from both periods and excluding the transitory COVID-19-related Captisol material sales, you'll see that the current core Ligand business grew nicely over 2021, driven by particularly strong growth on the royalty line. Turning now to some details on the rest of the partner programs. Our portfolio now has about 25 programs in the commercial stage, of which 15 are royalty-bearing assets. Of those, we expect 6 royalty streams to contribute the vast majority of our 2023 royalty revenue. And those are KYPROLIS, EVOMELA, Rylaze, Teriparatide, Pneumosil, and VAXNEUVANCE. I'll cover a few key points on these before turning to the remaining development stage portfolio. KYPROLIS is marketed by Amgen in the majority of the countries around the world, by Ono in Japan and by BeiGene in China. It is an important drug for treating multiple myeloma and reported over $1.3 billion in global sales in 2022 with over $30 million of royalties to Ligand. KYPROLIS is our largest royalty contributor in 2022, and we forecast the same to be true for 2023. Rylaze marketed by Jazz is a recombinant Erwinia asparaginase used for a component of a multi-agent chemotherapeutic regimen for the treatment of children and adults with ALL or LBL. This product continues to do well in the market that was historically constrained by supply issues for the previous standard of care product. In Q3 of 2022, Rylaze reached $73.5 million in sales, and we look forward to Jazz's Q4 commercial report later this quarter. VAXNEUVANCE is a $15 billion pneumococcal vaccine utilizing Ligand's CRM197 vaccine carrier protein produced using the Pelican expression technology platform. Merck recently launched VAXNEUVANCE in the pediatric population, which is the largest portion of the market. In the recently reported Q4 earnings, Merck announced $138 million in VAXNEUVANCE sales. While Merck noted that a large portion of the sales were due to stocking orders in the U.S., we view that these sales are an encouraging sign of the expected demand for this vaccine. Turning to the development stage programs. In 2022, Verona announced positive top-line results from both of its Phase 3 ENHANCE trials evaluating ensifentrine for the treatment of COPD. The trial successfully met primary and secondary endpoints evaluating lung function, symptoms, and quality of life measures. Ligand earns a low-single-digit royalty on sales should the drug be approved and commercialized. COPD is a multibillion-dollar category, and ensifentrine represents the first new mechanism of action in many years. Verona plans to submit an NDA to the FDA in the first half of 2023. Also, Novan submitted an NDA to the FDA in January for Berdazimer Gel for the topical treatment of molluscum. Ligand receives a 7% to 10% royalty on the program as well as approval and commercial milestones. Novan expects a PDUFA date for some time in early 2024. Other upcoming key events include data from Viking on its Phase 2b NASH program, which is expected in the next few months as well as data from Palvella in three separate rare disease indications on their drug QTORIN. Phase 3 data in pachyonychia congenita is expected midyear. Phase 2 data in Gorlin syndrome is expected in Q2 this year, and Phase 2 data in microcystic lymphatic malformations is expected in March. That concludes my comments on the portfolio. And with that, I will turn the call back over to the operator and open the line for questions.

Your first question comes from Joe Pages from HC Wainwright. Your line is open.

Hey, guys. Good afternoon. Thanks for taking the question and thanks for all the updates. So I have two things I want to focus on. So first, Todd, you talked about making the company leaner and Tavo, you talked about R&D line reductions. So I'm curious, since you've taken over, where do you feel you stand in the continuum of not necessarily cutting costs but optimizing Ligand's P&L and personnel?

Yes, we are continuously reviewing that. We are focusing on aspects that directly impact our mid to near-term financial profile, which requires constant scrutiny. I can't disclose any specific plans at this moment, but we will continue to manage expenses very diligently. As Tavo mentioned, we have already made some progress in that area.

Got it. No, that's helpful. Thanks. And then the second question is regarding the Captisol franchise. I have two parts: first, what is your overall commitment to the program, excluding remdesivir, and second, how has the mix of inbound research requests versus growing commercial use been evolving lately?

Thank you, Joe. We are very committed to the Captisol platform and technology, which has been a vital part of Ligand for the past 12 years and will continue to be essential for the foreseeable future. Regarding the Captisol platform and its application for remdesivir, we are providing our earnings separately from it, and we are excluding the COVID-related sales and earnings from our adjusted figures and guidance. However, we remain prepared to fulfill any demand. As many may recall, we made a significant capital investment in 2020, and the equipment and capacity we established for that are still fully operational. The key components necessary to respond to any potential spike in pandemic needs for Captisol are in place. Additionally, the other 70 to 100 customers who order Captisol annually are also benefiting from our improvements, which have led to quicker turnaround times and more efficient manufacturing. We are truly excited about the future of this business.

Perfect. Appreciate all the comments guys. Looking forward to an exciting 2023.

Thanks, Joe.

Your next question comes from the line of Larry Solow from CJS Securities. Your line is open.

Congratulations on an impressive year with 40% royalty growth or in the high 40s. The royalty outlook for 2023 seems flat, particularly if we consider adding a few million dollars from Sparsentan, assuming it meets analyst estimates. Captisol had a strong performance in 2022, with 14% growth. It seems that a significant portion of your numbers for Pelican relates to teriparatide and Rylaze, which are expected to be key in future performances. Are any of these projected to decline slightly? What are the factors contributing to a flat outlook for 2023?

Thank you, Larry. Several factors are influencing your observation. Firstly, Q4 concluded on a high note for a few products, making the year-over-year comparison seem less impactful than it might have appeared compared to our original guidance from a month or three months ago. Secondly, the product that currently aligns with your inquiry is teriparatide. Teriparatide had a strong year in 2022. As we indicated last year, we anticipated competition around midyear. Currently, Alvogen's version of teriparatide, developed under the Pelican expression technology, is the only alternative to Eli Lilly's Forteo available in the market. There are two other competitors with pending ANDAs or similar submissions for their teriparatide versions, which have been with the FDA for an extended period. Competition could emerge from these companies at any time, potentially altering the market dynamics. Various scenarios could unfold. One or any of the products could receive a therapeutically equivalent rating, positioning one as the preferred generic, or all three could have equal standing, or only one other competitor might succeed, or none might be approved. If none receive approval, we would expect an upside in our royalty expectations for teriparatide. However, if competition arises, it could modify our royalty expectations, whether that means an increase, remaining stable within our range, or otherwise.

Can you provide more details on what the teriparatide royalties were this year, or give a rough estimate, along with your assumptions for 2023?

You'll see in the filing next week that for the first three months of the year, we had about $12 million in teriparatide royalty, and there was another $3 million, a bit more, that we recorded this quarter. This brings us to just over 15% in teriparatide royalties for this year. We expect the royalties to remain relatively stable, with perhaps a slight decline next year, annualizing the fourth quarter number at around 3.5%.

Thank you for the information. I have a quick question regarding FILSPARI or Sparsentan. Perhaps Travere can address this. I'm interested in the box warning and the restrictions mentioned. You referred to the need for more confirmatory data and the potential for progress to be shown in the data released in Q4. With a possible change in the label, will that also involve a modification of the box warning, or will it remain in place for a while longer? Additionally, although I believe this was anticipated, could it pose a challenge for initial sales? Any insights on this would be appreciated. Thank you.

Yes, thank you. As everyone is aware, the approval for Sparsentan, or FILSPARI, came with a Risk Evaluation and Mitigation Strategy (REMS) program and specific monitoring requirements. The label requires monthly monitoring of liver enzymes for the first year, followed by quarterly checks. It also specifies certain creatinine levels of $1.5 million, compared to trial data that indicated levels closer to 1. To clarify, we don’t have any insights beyond what is publicly available. Based on comments from Travere during their call and the label data, it seems likely that creatinine levels may be adjusted after the comprehensive data readout. Additionally, if the safety monitoring indicates favorable outcomes, long-term monitoring may be reduced or shortened. This was generally anticipated for the accelerated approval. As we have previously mentioned, we do not have high expectations for Sparsentan in its first year, anticipating only a few million in our royalty income despite the planned launch next week, which we initially expected in Q3. We will need to observe how the market evolves in response to the forthcoming data and the safety monitoring associated with the REMS program.

Got it. Thanks, Matt. I appreciate it.

Thanks, Larry.

Your next question comes from the line of Matt Hewitt from Craig-Hallum Capital Group. Your line is open.

Good afternoon. Thank you for taking the questions. Maybe the first one up on Sparsentan. With a potential EMA approval, would that trigger another milestone?

Yes. Thanks, Matt. Yes, there is another milestone. It's almost $1 million, yes.

Got it. Okay, great. And then as we look at the Captisol gross margin. Obviously, utilization of that capacity is a key driver. But are there any other steps that you could take to either help boost that gross margin or maybe contract out some of that capacity? Anything that could raise that number?

Yes, that's a great question, Matt. When considering our Captisol gross margins, it's important to remember that a few years ago, before the pandemic, our margins were in the 70s range. Since then, a few factors have influenced these margins. The most significant one is the expansion I mentioned; the associated costs are being amortized through the inventory created with the new machines and processes. So, while the margins seem lower, part of this is non-cash, as the cash was spent in 2020, and we're gradually spreading that expense linked to the inventory as it is sold. From a cash perspective, the margins are more in the mid-60s that we've discussed. Additionally, the mix of products does shift from year to year, which we've noted before—the margins on Captisol can vary widely. This variability depends on factors such as the specific product the partner is purchasing, as we offer different versions of Captisol, and the purpose for which they are buying it, whether for research, commercial, or clinical uses. Currently, we are experiencing a situation where lower-margin Captisol is being sold in higher volumes compared to some of the higher-margin options. These two factors—the non-cash component and the mix of products—are contributing to maintaining margins in the mid-60s range for the time being.

Got it. I have one last question about optimizing the workforce. Is there a risk that as you optimize your people, you might gain a few approvals or partner programs that move faster than expected, leaving you short-staffed to manage the organization? Or do you believe you have the right number of people in place while also planning ahead for the next 6 to 12 months to ensure you're staying ahead? Thanks.

Yes, it's the latter. I think we are very focused on what we need, being able to execute with the partners on the technology platforms. And it's just about being as lean and mean as possible and make sure that we have what we need and no more. So we are being pretty careful about that and trying to draw all the lines in the right places.

Understood. Thank you.

And this concludes our question-and-answer session. I will turn the call back over to Mr. Todd Davis for some final closing remarks.

Thank you, everyone, for tuning into Ligand's fourth quarter earnings call. We will be attending investor conferences in the coming weeks, including the ROTH Conference in Dana Point and Barclays in Miami. We hope to meet you in person at these events. Thanks again, and have a nice afternoon.

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