Good day and welcome to the Ligand Second Quarter 2025 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press the star one again. For operator assistance throughout the call, please press star zero. And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Melanie Herman, Executive Director of Investor Relations, to begin the conference. Melanie, over to you.

Good morning, everyone, and welcome to Ligian's second quarter 2025 earnings call. During the call today, we will review the financial results we released earlier today and provide commentary on our partner pipeline and business development activity, followed by a question and answer session. Before we get started, I would like to point out that we will be discussing non-GAAP results, which excludes certain items such as stock-based compensation, amortization of intangible assets, amortization or impairment of financial assets, losses from derivative assets, and expenses incurred to incubate the PELTOS business, amongst others. I encourage you to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP measures, which can be found in today's release available on our website. We believe these adjusted measures provide valuable insight into our core operating performance, both historically and moving forward. Our earnings release and a link to today's webcast can be found in the Investor Relations section of our website at ligand.com. With me on the call today are CEO Todd Davis, Chief Financial Officer Tabo Espinoza, SVP of Investments and Business Development Paul Haddon, and Vice President of Strategic Planning and Investment Analytics Lauren Hay. This call is being recorded and the audio portion will be archived in the investor section of our website. On today's call we will make forward looking statements regarding our financial results and other matters related to our company's business. Please refer to the safe harbor statement related to these forward looking statements which are subject to risks and uncertainties. We remind you that actual events or results may differ materially from those projected or discussed and that all forward looking statements are based upon current available information. Ligand assumes no obligation to update these statements. To better understand the risks and uncertainties that could cause actual results to differ, we refer you to the documents that Ligand files with the Securities and Exchange Commission, or SEC, that can be found on Ligand's website at ligand.com or the SEC's website at sec.gov. With that, I will now turn the call over to Todd.

Thank you, Melanie, and good morning, everyone. Thank you for joining us today. When I took on the role of CEO in the fourth quarter of 2022, we set out a new vision for LIGAN. That vision was ambitious, and it required growth as an organization. Today, I am pleased to confirm that our new strategy at LIGAN is working and producing tangible outcomes. Our second quarter results reflect strong momentum across our expanding royalty portfolio, evidenced by an increase to our 2025 financial guidance, which TABA will cover in detail later on the call. Slide three highlights our financial and portfolio achievements in the second quarter. Royalty revenue grew 57% over the same quarter last year, and adjusted EPS increased 14%, reflecting strong performance across our portfolio. We ended the quarter with a strong balance sheet, including approximately $450 million in deployable capital, factoring in our undrawn credit facility. I am very proud of our team's execution and our continued commitment to disciplined capital investment. During the quarter, we completed the strategic merger of PELTHOS with Channel Therapeutics, which I will go into more detail on in a few slides. As part of a recent $40 million investment commitment, we partnered with Medtronic and Orchestra Biomed to support development of two promising cardiovascular therapies, AVIM therapy, and Virtue SAB therapy. Notably, Orchestra Biomed has received four breakthrough device designations from the FDA across these two programs. Recognition that underscores the potential of these innovations to address significant unmet needs in cardiovascular care. Paul Haddon will provide additional detail on these investments later in the call. Finally, we are very pleased with Merck's recent announcement of its planned $10 billion acquisition of Verona. And we are optimistic that Merck's global scale and commercial capabilities will further accelerate the launch trajectory of O2Bear, where we receive a 3% royalty on worldwide net sales. We would like to congratulate Verona on all that they have accomplished to bring this novel product to market and one of the most important advances in the treatment of COPD in history. Moving to the next slide, I'd like to provide some important updates on Ligand's portfolio. Verona's partner in China, Nuance Pharma, announced positive data and completion of its Phase 3 trial in China. Merck's entry into this arena should further fortify the global commercialization of the asset and continued U.S. launch, which has been the strongest COPD launch in history. Stating the obvious, one of the benefits of royalty investing is as the equity investors in Verona are cashed out in the acquisition, we as royalty investors continue to participate in what we hope will be the outperformance of O2Bare as Merck continues to launch this product globally. Turning to Phil Spari, there are a few upcoming catalysts, including the REMS modification PDUFA date of August 28, which will determine if IgA nephropathy patients can change from monthly to quarterly REMS monitoring. In Filspari's second indication, FSGS, there is an upcoming advisory committee meeting in the second half of 2025 to discuss the application. The FDA has assigned a PDUFA date of January 13, 2026 to the FSGS indication. This approval has the potential to double the sales potential for this product. Record ID reported that sales of Carzeba grew 12% in the first half of 2025, reaching 78.5 million euros. Ligand earns a high teens royalty on CARZEBA sales. In addition, the FDA granted record ID orphan drug designation for CARZEBA in Ewing sarcoma, and a clinical trial was initiated in the second quarter to evaluate safety, dosing, and early signs of efficacy. Thus far, CARZEBA is significantly outperforming our initial underwriting assumptions from when we purchased this just one year ago. In future development stage catalysts, a genus announced that they've aligned with the FDA on their Phase III trial design and have stated publicly that they anticipate they will initiate their Phase III study in the fourth quarter of 2025. They also entered into a partnership with Zytus, raising over $90 million of capital at closing, with the potential for $50 million in contingent payments, a very positive capital raise in what is a tough fundraising market. Palvella completed full trial enrollment ahead of schedule in their Phase 3 trial in microcystic lymphatic malformations in June of 2025, with results anticipated in the first quarter of 2026. Additionally, the Phase 2 trial results in venous malformations are expected in the fourth quarter of 2025. Moving back to commercial stage developments, I would like to talk about two exemplary case studies that demonstrate the power of our business model, Zelsudmi and O2Bare. First, we will discuss Zelsudmi. Our commitment to bringing Zelsudmi to patients has required vision, scale, and commitment. Through our special situation strategy and talented team, we accomplished the following. We acquired the Novan nitric oxide platform out of bankruptcy for $12 million at the end of 2023. This is a broad platform that enables the use of nitric oxide and a breadth of topical therapies. Almost $400 million had been invested in the development of this asset. We also set up a subsidiary to incubate and hold the assets to maximize optionality. Zelsudmi, the lead product, achieved FDA approval at the beginning of 2024 in the indication of molescum contagiosum, a highly contagious, primarily pediatric, skin infection with no other take-home prescription treatments available. We restarted manufacturing, hired a world-class commercial leadership team to focus on the approved asset, and recruited two highly experienced commercial board members. We engaged in market planning to position this important infectious disease product properly in the market and began market launch planning. Finally, we ran a financing process which culminated in a $50 million financing coincident with a reverse merger to form a newly traded public company, PELTHOS Therapeutics. PELTHOS has now launched Zelsuzmi into the market. The result? PELTHOS is now publicly traded on the New York Stock Exchange under the ticker PTHS. The current market value of Ligand's equity stake in Peltos is approximately $100 million. Following the recent commercial launch of Zelsugni, Ligand earned a $5 million milestone payment. After just 18 months, Ligand has public equity today worth substantially more than our invested capital, an attractive 13% royalty on an exciting product. We've retained strategic ownership of a nitric oxide platform, which can produce new products and royalties in the future, and a pipeline of late-stage clinical programs with potential in wound care, on conical mycosis, and atopic dermatitis that offer the potential to generate multiple new royalty streams in the future. Healthless's initial forecast estimates its peak sales of $175 million in revenues. That assumes they capture just under 100,000 patients in a market with 16.7 million patients. At a $175 million peak sales estimate, that would be approximately $23 million per year to us in royalties in the U.S. market alone. We are optimistic. In summary, what our team accomplished in a difficult fundraising environment was nothing short of outstanding, and we're excited about the prospects of Peltos and Zelflugme. Next, we will discuss the O2Vair case history. As Verona's launch of O2Vair gains momentum, I'd like to provide a brief overview of our investment history in this asset. In October of 2018, Ligand acquired Vernalus, a UK-based drug discovery biotechnology company, with a broad portfolio of partnered programs, including Verona's Encefentrine, now marketed as O2Vair. The acquisition cost was $10 million net of cash on the Vernalus balance sheet. After operating a research business for two years, Ligand sold the Vernalus R&D operations to HitGen, a Chinese-based company, for $25 million, while retaining the economic rights to several fully funded and partnered programs, including O2Vair. During 2024 and early 2025, Ligand further strengthened its position by accumulating an additional 1% royalty interest in O2Vair from several of the original inventors, increasing our total royalty to 3%. We expect meaningful long-term revenues from O2Vair, making it one of the most capital-efficient royalty assets in our portfolio. Turning to the next slide, Verona's O2Vair is on track to achieve blockbuster status by 2027. For context, our previous long-term royalty outlook had anticipated reaching this level of sales by 2029. In July, Merck announced its acquisition of Verona for $10 billion. We believe Merck's global scale and commercial strength positions them to further accelerate O2Vair's launch trajectory. Some analysts now project peak sales of $5 to $6 billion for O2Vair, which would be a meaningful upside to our current long-term outlook. Moving to the next slide, I would like to highlight what strategically differentiates LIGAD. The first is focus. Our guiding objective is to deliver profitable, compounding growth. We pursue this by remaining disciplined in our investment approach and identifying underappreciated but high-quality assets that address significant unmet need. Second is our asset base. We manage a diversified and growing portfolio of royalty assets that generate consistent and predictable revenue. Our royalty interests are acquired or originated in late stage development and commercial stage assets where we see a superior risk reward profile. Third is our team. LIGAN's highly experienced team brings decades of expertise across investing, clinical development, operations, regulatory strategy, and deal structuring. Coupled with strong origination networks, this enables us to source and close high-quality royalty investments in areas of significant clinical value with relatively low risk. We are outcome-oriented and remain focused on executing our strategy of acquiring high-growth, high-margin assets that require de minimis operating expense investment. Today, royalty capital still represents a small fraction of the total capital deployed across the life science sector. We believe that our model is highly differentiated, scalable, and positioned to drive significant growth for years to come. In conclusion, the strength of our investment portfolio of over 90 assets has never looked better. Through our disciplined investment approach, we continue to create and unlock shareholder value through innovative strategies, and we are highly optimistic about the future of Ligant. I'll turn it over to Paul Haddon now for an update on our investment pipeline and our recently announced investment in Orchestra Biomed.

Thank you, Todd. In the first half of 2025, we continue to execute on our strategy of partnering with companies, both public and private, to provide creative and non-dilutive capital solutions. in the first half this year we saw record-setting origination activity we remain focused and disciplined deprioritizing investments that lack sufficient return potential or strategic portfolio fit we currently have approximately 25 active investment opportunities under review representing an even balance between accretive and pre-approval transactions since the start of the year we closed four new investments including castle creek the final o2 variant vendor buyout the merger of Pelphos Therapeutics and Channel Therapeutics, and our most recent investment with Orchestra Biomed. I would note that all four investments exemplified our flexible investment strategy, including royalty monetization, project finance, and special situations investments. I'd like to highlight our most recent investment with Orchestra Biomed, a NASDAQ listed company. Last week, we announced a $40 million tranche investment in two of Orchestra's innovative FDA breakthrough designated medical device programs, AVIM Therapy and Virtue Serolimus Antioinfusion Balloon, or SAB for short. Medtronic, Orchestra's development and commercial partner for the AVIM program, also committed $31 million in new capital. Orchestra also raised $40 million in public offering, bringing the total committed capital to $111 million, one of the largest medical device capital raises this year. Our investment helps fund the development of these two breakthrough technologies, which are in late-stage development. The first program, AVIM Therapy, is partnered with cardiac pacemaker leader Medtronic and has already begun its pivotal trial. It was granted FDA breakthrough designation just this past April. AVIM Therapy, a simple firmware upgrade, is designed specifically to leverage the pacemaker's existing capabilities to manage blood pressure without additional hardware changes. As a result, AVIM Therapy occupies a specialized niche in treating hypertension in patients already indicated for a pacemaker. The second program, Virtue SAB, is partnered with Japanese medical technology company Terumo and is nearing pivotal study initiation. As mentioned, it too received FDA breakthrough designation. Virtue is an innovative first-in-class medical device designed for the treatment of arterial diseases, particularly coronary in-stent restenosis. It represents a significant advancement over traditional drug-coated balloons and stents because it does not rely on a surface drug coating. Instead, Virtue uses a proprietary non-coated microporous balloon to deliver the drug. Our $40 million investment consists of a $20 million payment at closing, an additional $15 million to be funded at the nine-month anniversary from closing, and we also invest an additional $5 million to purchase shares of orchestra common stock. In exchange, we will receive a high teens royalty on the first $100 million of ORCESTRA revenues annually from these two licenses, and also a mid-single-digit royalty on ORCESTRA's license revenues greater than $100 million per year. Our strategic collaboration with ORCESTRA reflects our commitment to investing in innovative, de-risk, late-stage therapies. This partnership expands our diversified portfolio of potential royalty-generating assets into the medical device space and moves us closer to our goal of delivering innovative therapies to patients. With that, I'll turn the call over to Tavo.

Thank you, Paul. I'm pleased to report another strong quarter of financial performance. Total revenue for Q225 grew 15% year-over-year to $47.6 million. Adjusted EPS rose 14% to $1.60 per share, reflecting solid execution and continued operating leverage. Royalty revenue was robust, increasing 57% from the prior year to $36.4 million, underscoring the strength and momentum of our partner programs. We ended the quarter with $245 million in cash and investments. When factoring in our undrawn credit facility, we have approximately $450 million in deployable capital to support our growth initiatives. Based on our performance year-to-date and the impact of the PELTO's transaction, we've raised full-year 2025 revenue and adjusted EPS guidance. I'll walk through the details later in the presentation. Moving to the next slide, key drivers of royalty revenue growth include strong performance from Verona's O2Vair, Trevere's Phil Spari, Recordati's Carzeva, and Merck's Capvaxiv Ambex NuVance. Expanding on a few of these programs, we continue to be highly encouraged by the launch of O2Vair for COPD. Verona reported a 45% sequential increase in Q2 2025 sales of $103 million, and we anticipate its strong launch trajectory to continue throughout 2025 and Turning to Filspari, we continue to see strong commercial momentum. Trevea reported Q2 sales just last night in line with our internal estimates and representing robust year-over-year growth. This performance underscores the growing adoption of Filspari and IgA nephropathy. Merck's Catvaxiv and VaxNuvance also grew this quarter, reinforcing Merck's competitiveness in the pneumococcal vaccine space. CAPVAX have generated $129 million in sales, a 21% sequential increase, after more than doubling sequentially in Q1. And VAX-Nuvance generated $229 million in net sales, representing a 20% year-over-year increase, driven by favorable public sector activity in the U.S. and stronger demand in select international markets. jazz reported riley sales of 101 million dollars and amgen reported a kipralis sales of kipralis sales of 378 million dollars representing a seven percent and 17 percent sequential increase respectively on captasol we recorded 8.3 million dollars in material sales this quarter compared to 7.5 million dollars in the second quarter of 2024 the increase was driven primarily by demand from Gilead for Beclery. Turning to operating expenses, R&D and G&A combined expenses increased in the second quarter, primarily due to headcount growth and investments made to incubate the Pelto's business. For the quarter, G&A and R&D expenses were $6.6 million and $20.2 million, respectively, versus $5.4 million and $17.6 million in Q2 2024. We expect GAAP operating expenses to decrease in second half of the year given the deconsolidation of Pelzos effective July 1st. GAP net income for the quarter was $4.8 million or 24 cents per diluted share compared to GAP net loss of $51.9 million or $2.88 per share in the prior year period. On a non-GAAP basis, adjusted net income for Q225 was $32 million, or $1.60 per share, up from $25.8 million, or $1.40 per share in Q224, driven primarily by royalty revenue growth. This next slide reflects the long-term royalty receipts outlook we introduced at our annual estate in December 2024. At that time, we outlined a path to achieving a 22% compound annual growth rate in royalty receipts from 2024 through 2029. That projection is supported by our existing commercial portfolio, which we expect to grow at a 13% CAGR, and our risk-adjusted development pipeline, referred to as the farm team, which adds another 5% CAGR. The model reflects contributions from key programs, including FOSFARI, O2VARE, CARZIVA, and ZELZUVMI, with all inputs grounded in conservative assumptions. The balance of growth is expected to come from future deals and investments which remain a meaningful upside lever. While we continue to view this framework as a solid base case, several recent developments give us increased confidence that upside to this outlook is achievable. Turning to the next slide, I'll highlight a few notable updates, each of which has a potential to meaningfully enhance our long-term royalty projections. First, O2VAR is tracking well ahead of initial expectations. As I mentioned earlier, Verona's Q2 sales grew 45% sequentially, and consensus forecasts now project $2 billion in sales by 2029, up from $1.2 billion previously. As a 3% royalty holder, LIGAN stands to benefit materially from this upside. Second, Filspari continues to perform well commercially, and we're closely watching the upcoming PDUFA decision in IGAN later this month, along with a potential adcom in the fall for FSGS. If approved, the FSGS indication could significantly expand Filspari's market opportunity, potentially north of 1 billion dollars in FSGS alone according to cell site analysts. As we track data readouts, regulatory events, and commercial progress over the coming quarters, we'll evaluate whether updates to our long-term model are warranted and plan to share a refreshed outlook at our 2025 analyst day in December. Before I turn to our financial guidance, I want to touch on the deconsolidation of peltos which became effective on july 1st and informs part of our updated outlook we now own approximately 50 percent of peltos outstanding shares which will be reported on our balance sheet beginning in q3 these shares will remain restricted until the six month lock up period expires as of today the estimated fair value of our stake in peltos is approximately 100 million dollars now turning to guidance in q3 we expect to recognize a gain on the sale of peltos to channel therapeutics, reflecting the difference between the fair value of the consideration received and the net carrying value of PELTOS's net assets. This gain includes the upfront consideration received on the ZELZUMI outlicense component, which we intend to retain in our adjusted earnings. The remainder of the gain, along with prior incubation costs, will continue to be excluded from our non-GAV guidance and results. With that context, here's how our revised full year 2025 guidance is shaping up. Royalty revenue is now expected to be between $140 and $150 million, up from the prior range of $135 to $140 million. Cap this off sales remain unchanged at $35 to $40 million. Contract revenue, which is where we'll capture the value of the upfront fee on the sales zoom out license component, has increased to $25 to 35 million dollars up from 10 to 20 million dollars total core revenue is now expected to be in the range of 200 to 225 million up from 180 to 200 million dollars and we're raising core adjusted dps to 6.70 cents to seven dollars per share compared to the previous range of six dollars to six dollars and 25 cents per share these updates reflect not only the impact of the Peltos transaction, but also strong underlying growth and increased visibility into our royalty streams, particularly from O2Bair, Tospari, Carzeeba, and CapBaxib. That concludes my remarks. I'll now turn the call back to Todd for closing comments.

Thank you, Tavo. Last year, we saw an unprecedented number of new approvals across our portfolio, including Zylsuvme, CapBaxib, O2Vair, and the full approval of Filspari. In 2025, we are pleased with the strong launch trajectories of these therapies and are confident this momentum will continue. We are optimistic that Merck's global scale and commercial expertise will further accelerate the launch of O2Vair, and we couldn't be more encouraged by the progress the Pelthos team has made with SellSoodMe. Our investment platform continues to provide us with the ability to meaningfully expand our portfolio. With a diversified foundation of commercial royalty generating programs and a robust late-stage pipeline, we are well positioned to execute on our strategic objectives and deliver sustained growth and long-term value for our shareholders. Thank you, everyone, for joining us for today's earnings call. I will now pass it back to the operator and open it up for questions.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you were called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, that is star one to join the queue, and your first question comes from the line of Trevor Allred of Oppenheimer. Please go ahead.

Hey, good morning, guys. Thanks for taking the question, and congrats on the great quarter. What can you tell us about your expectations for the Peltos launch? Are these most severe kids seen at pediatric dermatologists? Can you say anything about your prior market research that might suggest initial market demand?

Yeah, thanks for the question, Trevor. We're very optimistic about the launch here around Zelsubmi. First of all, and kind of core to our strategy, is we've partnered with a very strong team here. Commercially, this is a very experienced team. It's done multiple product launches in their career, and we have a lot of confidence in their ability to navigate the product launch with payers, promotional activities, et cetera. Our research over the last year and a half has really shown high demand for this product. There are current treatments that are executed as in office procedures. They work, but they are inconvenient and sometimes painful. And the Zelsuvme product is a take-home prescription product, which is much more convenient. You have a very motivated patient group here in the form of the parents, often of the kids, with this highly contagious skin infection, which is disruptive to their lives and ability to participate in activities at school and things like that so we are pretty optimistic and then finally I would just say also I think the the forecast expectations here are very reasonable and and in fact conservative because at 175 and peak sales which is what the what they're currently targeting. That captures fewer than 100,000 patients in a market with approximately 16.7 million patients and a dearth of current solutions. So, I mean, we're just very optimistic about the potential for this product.

Got it. Yeah, it's helpful. And can you also share some expectations for what you think the Phil Safari RIMS removal might do to improve uptake? Have you guys done any internal diligence there to see what the potential step up in revenue could be? Yeah.

Hi, Trevor. This is Lauren. Thanks for the question. I think it's a very timely one. So Trevere has not shared a quantitative estimate for their expectations for increased uptake, but I can give you sort of a directional sense for where we see this headed. You know, as we know, Filspari is really expanding its usage in earlier stage patients. As a reminder, when Filspari was under accelerated approval, the treatment could only be used in 30% of IGAN patients due to label restrictions. that limited its use to patients with proteinuria over 1.5 grams per gram. And with full approval, Filspari is now kind of moving into the full spectrum of IGAN patient severity and kind of moving into earlier lines of treatment. So Trevere has recently shared that over half of patients who are now starting Filspari have proteinuria in the less than 1.5 grams per gram segment. So it is moving earlier in the treatment paradigm. And with that, what we see is that the REMS modification should help to remove a barrier to utilization in that kind of earlier stage patient segment. The quarterly monitoring aligns pretty well with the kind of routine monitoring frequency of visits to the office anyway. So, we're optimistic about the opportunity in this earlier stage segment that sort of aligns with the natural progression of usage of Phil Spari with the full approval.

Got it. Thanks for taking our questions.

And your next question comes from the line of Doug Mame from ABC Capital Markets.

Please go ahead. Thank you, and good quarter. Tavo, when you think about the guidance that you provided where it looks like at the middle of the range, we're up both around 12% for revenue in EPS. Can you tell us why we're not seeing perhaps maybe a little bit more operating leverage in the model? The products are doing better than anticipated, and I'm just curious why this isn't following more down to the bottom line and to cash flow.

Yeah, thanks, Doug. I appreciate the question. A couple of factors driving that dynamic, if you will. One on the operating expense side, we're just being a bit cautious as we spin off the PELTOS operation. On top of that we are looking to make some investments in our business development function given the richness of the funnel there if you will. Separately and probably more impactful here are the tax rate. We're getting more revenue coming in from foreign operations in the UK for O2Vair that's the UK legal entity that we have to pay taxes into that country And then also for the Pyron acquisition, which is an Austrian company, the tax rate that we pay into Austria is also a little bit higher than our statutory rate. And the mix of revenue there is a little bit higher, given the outperformance of those two products. And then separately, the share count, as our stock price goes up, the dilution, our forecasted dilution as a result has moved up, and so that's also causing a little bit of a drag towards the bottom line. Okay, that's really helpful.

And then Todd, the O2VARE situation is very attractive, obviously, but we have seen some cases in this market of royalty ownership where we've seen an acquisition by a big pharma company that the big pharma company has also approached the royalty holder. Have you been approached by Merck to buy back the royalty on this asset?

Yeah, the asset is no. And we, you know, we tend to be long-term royalty holders here. We don't really have an intention of selling any of our royalties at this point. So it's just not core to our strategy.

Yeah, no, that's great to hear. Thank you very much.

And your next question comes from the line of Matt Hewitt of Craig Hallam. Please go ahead.

Good morning. Congratulations on the strong quarter. Maybe first up a little more higher level, but given all of the changes and nuances coming out of Washington, how is that impacting your pipeline? How are you looking at opportunities given the constant news flow regarding various products and markets?

Well, I think our view on that, Matt, is very macro in that there's been descending price pressure on the pharmaceutical industry that's been pretty heavy for the last 15 years, and we expect that to continue. And maybe over the next 10 years, we'll even get to kind of pricing parity with Europe and other markets here in the U.S. market. And that's just our long-term view. That's what we put in our models. And the best position to be in, in that kind of environment, regardless of how it comes down specifically, is to be investing in drugs that really deliver very high clinical value and solve big problems, because ultimately that puts you in the best position to negotiate with payers. And so that's one of the reasons we're very focused on investing in things like Pelvella's products, the Pelto's product. Both of those are zero to one, zero treatments, first treatments in categories. We really like those kinds of opportunities. and that's really the best position you can be in in what will be a challenging payer market for the entire industry going forward.

Got it. And then maybe a question for Tavo, but with the increase in contract guidance here for the rest of the year, roughly $15 million, how should we be thinking about the cadence? It sounds like the bulk of that will hit in Q3 with the PELFOS transaction, but how should we split up that $15 million of incremental revenues there.

Yeah, Matt, what you can expect in Q3 is that outlicense component, that's the main driver of the increase to that category or that line item, if you will, in the guidance. We also earned a $5 million milestone on the commercial launch of Zilzumi. And so that's also going to be coming through in Q3. And then the balance you'll see in Q4. Got it.

All right, thank you. and your next question comes from the line of larry salt of cjs securities your line is open great uh thanks joined a little late just curious on the on the just to follow up on the guidance question the um in terms of the the revenue increase uh in terms of the bottom line increase are you you're changing anything in terms of operating expenses i know you guys have been investing more in the business development team um but it looks like just if i do the math actually the revenue increase, if I kind of flow that through the normalized tax rate, it should be about 75 cents. So it looks like maybe, you know, that's all pretty much flown to the bottom line, right? Doesn't look like there's much change on the expense assumption. Is that fair?

Some incremental increase in operating expenses, but yeah, it's just incremental. And then there's also some movement, as I mentioned earlier, some movement on the shares outstanding that impacts the EPS. But in terms of just net income, it's going to be the operating expenses and the tax rate that's moving up a little bit.

Gotcha. And on the Zell Suvame, is that, I know you talked about a $175 million kind of target, ultimate sales goal. I imagine that's like a three to five year maybe even a little maybe five-year target or something like that um just curious are you actually building much into the back half this year i imagine it takes a little while to to gain traction or just anything anecdotally um you could provide yeah no i think launches are hard uh even though we're very confident in this team so we have pretty small expectations for this year They're just getting out of the blocks, but view it as a very good long-term contributor, Larry, as you pointed out. And just lastly, just on M&A business development, obviously, you guys have been super active in the last couple of years, and kudos to you on that, and an interesting little recent deal as well. Just how's the pipeline looking? Obviously, your balance sheet remains really strong. I'm just curious if lots of opportunities in front of you. Any thoughts on that?

Yes, thanks for the question, Larry. Pipeline looks strong. I think we've been pretty consistent this entire year. That's been robust, the mix of both accretive and pre-approval opportunities, and the team remains hard at work. So thanks for the compliment, but we definitely are working through that pipeline, looking to bring in attractive assets to balance the year.

Excellent. Thank you. I appreciate it. And your next question comes from the line of John Vander Mosten of Zax SDR. please go ahead.

Great. Thank you. And I appreciate all the detail on the movement there and the income statement coming up in the future. I want to ask a question about Merck's ownership of Verona and how it will add to Otavir's potential. And specifically, what can they do to expand the market given their dominance is one of the largest farmers?

Well, I think what we're really seeing there is kind of their global capabilities. Obviously, Verona was a smaller company. I think, in general, the expectations around a smaller company's ability to execute globally is obviously a slower rollout. And in the hands of Merck, I think, as well as Verona did, by the way, we think they did an amazing slash outstanding job. Globally, Merck is very strong, and so we expect the rollout globally to accelerate in their hands.

Okay. And question on orchestra biomed. Is it, I guess, assumed that Medtronic's going to provide the commercialization pathway for their pipeline therapies?

So, yes, correct. Medtronic is the commercial partner on the AVIM technology, and then Terumo is commercial partner on the Virtue SAB Blue. So, there's two partners involved there.

Okay. Thank you.

And this does conclude our question and answer session. I would like to thank our speakers for today's presentation and thank you all for joining us. This now concludes today's conference call. You may now disconnect.