Ligand Pharmaceuticals Incorporated (LGND) Q1 2012 Earnings Report, Transcript and Summary

Greetings, and welcome to the Ligand First Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Erika Luib, Investor Relations for Ligand. Thank you. Ms. Luib, you may now begin.

Thanks, Chad. Welcome to Ligand's First Quarter Financial Results and Business Update Conference Call. Speaking today for Ligand are John Higgins, President and CEO; Matt Foehr, Executive VP and COO; and John Sharp, VP of Finance and CFO. Just a reminder to everyone that today's call will contain forward-looking statements within the meaning of federal securities laws. These may include, but are not limited to, statements regarding intents, beliefs or current expectations of the company, its internal and partner programs, including PROMACTA and its management. These statements involve risks and uncertainties, and actual events or results may differ materially from the projections described in the press release and this conference call. Additional information concerning risk factors and other matters concerning Ligand can be found in Ligand's public periodic filings with the sec.gov. The information in this conference call related to projections or other forward-looking statements represents the company's best judgment based on information available and reviewed by it, as of today, May 2, 2012, and do not necessarily represent the views of GSK or any of our other partners. Ligand undertakes no obligation to revise or update any statement to reflect events or circumstances after the date of this conference call. At this time, I'll turn the call over to John.

Erika, thank you. Thanks for joining us and welcome for call. With our shareholders, we talk about our business model, our model is simple. We run an efficient business with a large diverse portfolio of assets focused on maximizing profits and cash flow. At the core of our model is what we call shots on goal, a simple concept. It's all about building into the business a significant amount of programs with a significant amount of potential upside. If you're on this call, you know we've done that. We have over 50 fully funded partnerships, and we continue to build the portfolio. What I'd like to do is walk through several slides to help highlight the recent developments and some key events coming up in the near-term. On Slide 3, I'd like to focus on a sound bite we call '12 in 2012.' Now for those who've seen our slide show, we've been on the road, you have seen this slide. But I want to reiterate a few points and focus our shareholders and listeners on some key, key messages. As I have said, we have over 50 fully funded partnerships. All right. Now these come from drugs that we discovered, technology we've licensed, drug delivery technologies, et cetera, 50 fully funded partnerships. They're quality partnerships, it's a late stage portfolio, very large indications are being addressed in many regards. What is meaningful is that just in the last 2 quarters, since we now have moved into 2012, 1 dozen of these programs, 12 programs are in Phase III stage development. What we are calling Phase III stage. Here is the list of the 12. At the top of the list, we have carfilzomib, a drug with Onyx that is under FDA review. I'm going to talk more about this, there's a panel meeting coming up next month and a potential PDUFA approval, a PDUFA date in July and the timing for potential approval. We have NDA filings going in for 2 drugs, PROMACTA and APRELA. We have a phase 3 readout with a drug that Lundbeck has, carbamazepine, they have capsule-enabled Carbamazepine Phase III data later this year. And then another 8 programs, 8 programs that are starting Phase III trials this year. It's a range of indications, a range of high-quality partners, all funded with the exception of one, which is our internally developed melphalan program. What is significant about this, I'm going to go into a little bit deeper dive into a few of these programs, but this is our portfolio. It's quality, it's late stage, clearly, there is a potential for very significant growth as we look out in the future. But this is built upon a business that is already generating significant revenue from current royalty-bearing products, from a technology we sell, Captisol, where we get quarterly revenues off the sale of Captisol, as well as a vast portfolio of deals that are already done, that comprise hundreds and hundreds of millions of potential license and milestone payments. That's the core of the revenue side. We have this late-stage, high-quality partnered portfolio. And again, many, many programs beyond that. When we go to the next slide, this is just a list of 9 or 10 programs or events that are coming up in the next couple of quarters. Notably, PROMACTA -- GSK will have data for PROMACTA for a new area of research, a CIT chemotherapy-induced thrombocytopenia that's coming out of ASCO in June. Also we'll be announcing data on our glucagon program for diabetes at ADA also in June. Matt's going to go through glucagon in more detail. This is a significant diabetes is a huge indication. And of note, Lily is also going to be announcing Phase II data, which could really help define the potential of this category. The next items, I'm going to drill deeper on carfilzomib, the Merck's CDK program PROMACTA and APRELA, but some nice events coming up the next couple of months and quarters there for those programs. Later on this summer, we're looking at having data for our HepDirect, our liver-targeted technology that we acquired from Metabasis. We expect to start our pivotal trial for melphalan and also the medicines company, we expect will start their Phase III trial for Captisol-enabled Clopidogrel. These are important events. These are just really at the tip of the spear, some of the key events coming up the next several months. What I want to focus on, on Slide 5, are some substantive developments that have come by way of announcements and disclosures from our partners that are teeing up in our view, in Ligand's view, what could be a very momentous next several quarters. First of all, PROMACTA. We're going to talk about PROMACTA from a revenue perspective as it relates to Q1 financials in a couple of slides. But we do expect over the next several quarters continued, consistent revenue growth off of the initial indication. The product is approved, it's doing well, it's enjoying good growth. We expect that to continue with market expansion for the existing indication. And as you know, GSK is investing millions, hundreds of millions of dollars in their development campaign to advance this drug for other indications. There are over 20 different trials ongoing, notably hepatitis, a variety of oncology-related thrombocytopenias. What is significant is that the sNDA for hepatitis C will go in, we expect, shortly. That is our outlook. We believe it could go in shortly, if it does, we can see an approval and a launch in the first half of 2013. This is Ligand's outlook, but it's important for investors to focus on this because hepatitis, anyway you look at it, we believe, will be multiple, the size of the market opportunity that ITP currently is. And again, this could be a commercial event to could really start to impact our business starting the first half of 2013. And I've already said there's a whole battery of other studies ongoing. We're looking for data in other trials starting later on in 2012. The second thing I want to focus on is carfilzomib. If you're listening to this call, you know the relationship we have with Onyx and this important drug. Their data are tremendously exciting. We were pleased to hear that they were granted a panel meeting just 2 weeks ago, an ODAC panel meeting that's coming up June 20th, all right? That's 6 weeks away. About a month after that, there is a PDUFA date. So it is prime time for carfilzomib this quarter. We are eager to see, as every investor is, to hear what the panel is going to come out, how the FDA is going to readout on this filing. But if the drug is approved, we're looking at a launch in -- potentially late 2012. If it's not approved right on schedule, we think there could still be a launch in 2013. APRELA is another program I want to highlight. Pfizer has had a public commentary, Matt is going to elaborate on that, but we're looking at an NDA submission in the near-term. If so, this could be approved and launched in the 2013 timeframe. And finally, Dinaciclib, this is a drug that we have partnered with Merck. It is -- just updated on clinicaltrials.gov that Merck is starting a Phase III study next month. What's significant, I think this has largely been below the radar for investors, we'll get $1 million milestone payment and it's a very large robust study. Matt is going to, again, elaborate on that. But I want to focus investors on these 4 programs because what you're looking at here are near-term regulatory events, NDA filings, NDA action dates, panel meetings, we're looking at events that could lead to product approvals and launches in 2013. We already have a good base of revenue but to be able to add on quality partners, new drugs, and new indications in 2013 could be very significant for Ligand. As we go on to the next slide, Slide 6, just a quick commentary on our financials, a remark about guidance, and then John will elaborate on some more highlights. But the business is doing well. Our first quarter came right in line with our expectations. Our guidance for 2012 is intact. We're looking at $30 million in total revenue, about $25 million in operating expense. Of note, there are $6 million of non-cash, all right, we've got to book it for accounting reasons, but we believe our total cash expense will be $20 million or less. So the business on that basis is clearly profitable and cash flow positive from an operating perspective. We have a pie chart showing the composition of revenue, I'm going to talk a bit more about that on the next slide but we're pleased that half of the revenue, we expect to come in from royalties. That's a very high quality source of revenue and it's a growing source of revenue. And as we look at the business that the takeaways from our financial outlook this year is that, first of all, we're on track for another very solid year and the financial performance is getting stronger with higher-quality recurring revenue and our consistent lean cost structure. The second takeaway, as you see on the bullet point with our NOLs in excess of $450 million, is that as we turn profitable, as we are profitable and cash flow positive, we're going to be in a very, very low tax environment. This is significant because we are now in a situation where we can start to use these tax benefits, the NOL carry forwards, as well as the tax credits, and that leads to the third point, which is we have fewer than 20 million shares outstanding. Think of it this way, $20 million in royalty revenue, $20 million in royalty revenue, there's no associated costs with that, is essentially equal to $1 in earnings per share. A tremendous leverage, will have a very lean tax effect on our pretax income, and with fewer than 20 million shares outstanding, $20 million in incremental royalty revenue is equal to $1 a share in earnings per share. So significant leverage on this business model. Now turning to the next slide, on Slide 7. Here's the theme we're talking about more of the last several months and I'm sure you'll hear more about it going forward. It's what we call RQR, recurring quarterly revenue. Recurring quarterly revenue. It's a simple concept, the Ligand revenue model is focused on RQR. This is the revenue sharing from licensee product revenue. It's royalties. It's a simple concept. But this is a 100% gross margin revenue. There's no associated costs. There's no cost of goods, there's no operating costs. Its 100% gross margin and it's a percent of the dollar sold. It's not a profit share, it's not a percent of profit, it's not a percent of operating profit, et cetera. It is a percent of revenue. And beyond this, of course, we also get other revenue, we get license fee and Captisol sales and so on. The RQR, it's coming in every quarter, it's projected to increase by over 50% in 2012. We do expect PROMACTA to be a major growth driver this year. And we have several potential new sources of RQR coming in online within the next several years based on potential other licensees. This goes back to my '12 in 2012' slide. Again, as I have talked about, 3 products, 3 products are in a regulatory phase where they could be approved for new indications or new markets in 2013. Three new sources of RQR in 2013. On top of that, 9 other products in our '12 in 2012', this year are either going to readout with Phase III data or they will start Phase III trials. This is a very impressive pipeline and it sets us up, I think, very favorably for continued revenue growth and financial expansion in the years going forward. As we go to the next slide, Slide 8, investors should really focus on PROMACTA for 2 reasons: One, the quality and the extent of the new clinical data that's coming out for hepatitis, HCV, as well as what we expect will be the oncology-related thrombocytopenia data later this year. The second reason why investors should very seriously focus on this product is, given the financial impact and importance it has to Ligand. This is a simple chart, it plots the quarterly revenue growth since essentially at launch. First quarter sales, we booked -- first quarter 2009, we booked $20,000 in royalty 3 years ago. All right, today, we're booking just over about $2.1 million. The chart speaks for itself but what's key to keep in mind is that the products is in its in infancy. We have patents through 2025. So here you've got about 13 bars of data. We've got another over 50 quarterly bars of data that we'll be reporting out on this. Over 50, all right? There's only 13 bars here so far. With higher sales, we get higher royalties, all right? These royalty rates are essentially at just the first year royalty, the 5% tier, we start to move up to a 7% and 8% tier on sales over $400 million annually, we get a 10% royalty. And also, with new indications, we've got a chance for further expansion beyond the existing market. What I want to point out is that while in '09 we did $20,000 royalty, this quarter we did over $2 million. The $2 million, I'll grant you, it's not a huge number in the absolute sense. But it's significant for 2 reasons: First of all, the $2.1 million in quarterly revenue, as a matter of fact, that represents over 40% of our actual operating cash expenses for the first quarter. This one royalty line, comprises over 40% of our actual cash operating expense for the first quarter. The second reason why this is significant is the profound growth trajectory this is on. The royalty from PROMACTA has tripled in the last 4 quarters. So the fact that one royalty line and we have multiple other products paying us royalties in a vast array of other portfolio of assets, the fact that this one product with significant growth already comprises such a significant portion of our total quarterly operating costs, and it's on this growth trend with new indications, is a very, very compelling story. So with that, I'd like to turn to slide, just to tee up my last set of comments, and then I'm going to turn it over to Matt to delve deeper into PROMACTA as well as give some other business updates. A couple of weeks ago, GSK's data for their ENABLE 2 trial was featured at the EASL program in Barcelona. And there were 3 main takeaways from that presentation. The first is that the risk-benefit and the safety events for the ENABLE trials are well understood by experts and treating physicians. All right, that's point 1. The risk-benefits and the safety events are well understood by the experts. And this candidly is not a surprise, it's also the premise of why GSK is going to be filing their NDA. The second takeaway is that the medical need is real, it's global and significant. And this is important, Matt is going to get deeper into this, but when you look at the sickest patients, when you look at the range of genotypes across developing -- the developed and the developing world, this is a very meaningful market. And finally, really at the crust of all this, is that the data overall were very well-received. Matt Foehr was there in person and I'd like to turn it over to Matt to walk you through some of these anecdotes that he learned in person but also to delve deeper into some of the data.

Great. Thanks, John. And as John said, for partner programs, I'll start off with PROMACTA in Hep C and provide a bit of additional first-hand perspective to the presentations and data that had been publicly presented and publicly discussed by experts over the last couple of weeks. So on Slide 9, as John mentioned the week before last, the full data for PROMACTA ENABLE 2 Phase III trial were presented by Dr. Geoffrey Dusheiko at the EASL meeting. This was obviously the much anticipated data set and the second of 2 large, complex and very well-run Phase III trials designed to examine PROMACTA's ability to enable therapy in patients with Hep C. So you see anecdotes and quotes on the next couple of slides that describe public perspectives from recent weeks both during and following the EASL meeting. And I'd like to review these in detail because I think they underscore the medical significance and the opportunity of PROMACTA in Hep C. It's important to note going into this, that the clinical bar that was set in both ENABLE studies was an extremely high one. Statistically and from the perspective of the disease profile of the patients that were being treated. You see Dr. Dusheiko's comment from the presentation at EASL, calling this a "high bar". And perhaps even more telling are the comments made by Dr. Afdhal at a physician expert call that was hosted by MLV & Co earlier this week. Dr. Afdhal said, "Before ENABLE 1 and 2, none of these patients ever received treatment, not a single one of these patients were included in a clinical trial." So the ENABLE 2 data represent of one of the largest and late-stage programs presented at this year's EASL meeting and we saw no other study presented of that size, showing treatment of Hep C patients who are sick as these patients were at the start of the study. From a results perspective, in ENABLE 2, as is in Enable 1 before it, the percentage of patients that were able to go on antiviral therapy, as a result of receiving PROMACTA was in the mid-90% range, specifically 94%. Keep in mind that these are patients that currently have essentially no treatment options. So without PROMACTA, virtually, 0% of these patients would be able to receive therapy. This rate of therapy enablement was described at EASL as, "strikingly high" by Dr. Dusheiko. These were powerful words related to converts for someone who struggles with the way to treat these types of patients on a daily basis. It's also important to note that as reported earlier, the PROMACTA group in ENABLE 2 showed statistically significant and clinically meaningful improvement in sustained viral response or SVR with a P value of 0.0202. I also note that ENABLE 1, as reported at the Liver Conference last year in San Francisco, was also highly statistically significant with a P value of 0.0064. So now on to Slide 10. The experts that we spoke to at and following EASL uniformly see PROMACTA as an important breakthrough for patients with advanced Hep C and even with that significant fanfare related to earlier-stage direct-acting antivirals, it's clear to us that specialists around the world remains very interested in Promacta's ability to enable treatment of advanced and cirrhotic Hep C patients. On Monday's MLV call, MLV & Co call that I referenced earlier, Dr. Afdhal described the risk benefit of PROMACTA as favorable in Hep C and reiterated that this is a patient population that is simply not getting treated today. You'll also see other perspectives stated on Slide 10, relating to the risk-benefit's, calculus, and the clear medical need that PROMACTA can fill. At EASL, when referencing the risk benefit, Dr. Dusheiko said, during his presentation, that obtaining SVR in patients with cirrhosis would be modifying the "natural history" of the disease. And similarly, Dr. Afdhal, when discussing the achievement of SVR and the benefits of reducing the annualized risk of decompensation in these sick patients stated that, "improvements in outcome becomes enormous". And continues on to reference a "potential tenfold relative risk reduction of decompensation". These are extremely important elements. It's also clear to us that the safety events noted and discussed are well understood by experts and treating physicians. Dr. Afdhal stated that the safety events in the trial are within the range of what you see in this population and specifically, that the thromboembolic events seen are "eminently treatable". Experts at and following EASL see PROMACTA's important potential near-term breakthrough for patients with advanced Hep C with a near-term opportunity in the Western markets and potential longer-term opportunity in the emerging markets. And Dr. Afdhal said he thinks this will enable a lot of patients who are not being treated today to get treated. From an ongoing development perspective, as John generally mentioned GSK confirmed, yet again, during their Q1 earnings announcement last week, that they have sufficient data to file sNDA for PROMACTA in Hep C and that they are currently preparing the filing. GSK also continues significant efforts in investment to pursue indications for PROMACTA in critical oncology-related thrombocytopenia or ORT indications. And as John mentioned in the upcoming events, the calendars and presentations for June's ASCO meeting were published publicly last week and the clinical data for PROMACTA in chemotherapy-induced thrombocytopenia in solid tumors will be presented at that meeting. So I'm going to switch gears now for a few moments to some of our other key partnered assets. As John mentioned in detail, our partners at Onyx Pharmaceuticals continue to report their progress of the NDA for carfilzomib, which is a product that utilizes our Captisol-enabling technology and could yield Ligand royalties, milestone payments and already yields Captisol material sales to us. Last week, Onyx announced that the FDA's Oncologic Drugs Advisory Committee or ODAC will review the company's NDA for carfilzomib for multiple myeloma and June 20, and as many of you know, the PDUFA date for completion of review by the FDA is July 27. Separately, and switching to another program, Pfizer has announced that they are on track for an NDA filing for APRELA. We expect it to be filed in both the U.S. and Europe at about the same time and APRELA is a drug that combines bazedoxifene, which is a synthetic estrogen with PREMARIN. Pfizer has said that the drug has the potential to reduce menopausal symptoms such as hot flashes and to prevent bone thinning osteoporosis, but with a better safety and tolerability profile than the older hormone replacement therapies. Pfizer executive has remarked publicly that, "We think this is a market which is unsatisfied and if you can bring a hormone therapy, which doesn't have the traditional side effects, we actually think we can lead this marketplace." We view this as a potentially huge opportunity and to be able to lead the market place for this area of women's health and are really pleased that Pfizer continues the advancement and investment in this drug. Merck's plans for Dinaciclib have also been updated publicly and indicates that they intend to initiate a 466-patient Phase III study in refractory chronic lymphocytic leukemia next month. This is a program and a partnership that we have not talked a lot about previously, but is one that will start to gain a higher profile in the business and you'll start to hear more about. Just as a bit of history, Ligand gained rights to this program through our acquisition of Pharmacopeia in 2008. Merck has studied Dinaciclib in multiple Phase II studies and they're making a significant commitment to increase their oncology presence. For those of you unfamiliar with the program or the target, CDK are a family of kinases that are critical regulators of cell cycle progression. Cell cycle dysregulation is obviously a hallmark of cancer, and inhibiting CDK is thought to block cell cycle progression and promote apoptosis or program cell death. Dinaciclib inhibits CDK 1, 2, 5 and 9, and Merck completed Phase IIs in ALL, AML, CLL, CML lymphoma, advanced breast and lung cancer, mantle cell lymphoma and B-cell CLL. We see novel kinase inhibitors as a potential next wave of therapies in the oncology space and we're very pleased to see a great partner like Merck showing significant dedication and commitment to this area with a novel chemical entity that has a strong patent position. So I'm going to switch gears for a bit on the partnered program side and talk about some of our newer partnerships. We've now owned the Captisol technology for a full year and it continues to add shots on goal to our business, just as we anticipated that it would when we purchased CyDex last year. Just yesterday, we signed a clinical-stage Captisol agreement with Vertex Pharmaceuticals for a Captisol-enabled product that is gearing up to enter Phase I. We're very pleased to add Vertex to our stable of partners. They have a strong technical team, proven development and commercialization prowess, and Vertex has a great understanding of the value that Captisol brings to an asset. And we think Vertex has been proven as very successful in a number of important and growing therapeutic areas. Also in Q1 we had 2 big pharma partners, each add new clinical-stage Captisol-enabled programs to their development pipelines. These 2 programs and their deal terms are currently undisclosed but we hope to share more details with you on them in the future. We remain keenly focused on supporting our current Captisol partners and also are pleased that we are adding new customers every month. Our partners buying our R&D grade of Captisol are balanced between big pharma, big biotech, specialty pharma and start ups and are using Captisol in a diverse range of therapeutic areas, which creates a nice balanced platform for future growth. So in relation to our unpartnered pipeline assets, we're looking forward to presenting a broad set of preclinical data on our glucagon preceptor antagonist program at the American Diabetes Association meeting in June, and expect to be talking more about that program in the future. We've been investing in glucagon in a very focused manner since the time we acquired it from Metabasis in 2009. And this is a target with a large -- within the large and growing diabetes space. And while we know from public disclosures that Lily is running clinical trials in this general area and target, we feel like the space, in the science, is really ripening in this area. Our glucagon program, which we call LGD-6972 is a novel, highly potent, orally bioavailable, small molecule glucagon receptor antagonist. We're pleased with the data we're seeing from our program thus far and we're very pleased with the progress that our R&D team has made. We look forward to sharing our data set in June. Obviously, diabetes is a huge unmet need and we see glucagon as a promising and novel target. As we progress our programs, we continue to maintain a lean and disciplined R&D budget, but we are investing in a number of programs this year with the primary goal of partnering in those cases. We are doing all of this with the goal of continuing to feed our shots on goal model and the vision that we've set out for ourselves. So with that, I'm going to turn it over to John Sharp, who is going to review the Q1 numbers in more detail.

Thanks, Matt. I am going to keep my remarks focused more on the -- some of the more important highlights and trends from the first quarter. Before I get to those, I want to echo what John said earlier, which is the business is performing well. And the first quarter financial results were right in line with our expectations. Now for some of the highlights. First, I want to focus on the continuing strength of our royalty revenue, which we consider high-quality revenue, as there are no costs associated with it and it is reliable, consistent quarterly revenue. We reported $3.1 million of royalty revenue for the quarter, that is 53% increase over the first quarter of last year and a 16% increase from the fourth quarter of 2011. Now I want to discuss license and milestone revenues. The precise timing of these revenues is difficult to predict on a quarterly basis. On a comparative basis, although we are down from our big fourth quarter of 2011, we are up just over $1 million from the first quarter of 2011. And what we find encouraging is that we continue to enter into new agreements each quarter, which not only bring in immediate revenue, but in most cases, also adds to our pipeline of partnered assets. My last comment on revenue relates to Captisol material sales. While we are down slightly from the first quarter of last year, I will remind everyone that much like the license and milestone revenue, Captisol shipments can be lumpy with large orders coming in times with clinical development or product launches. And I will say it one more time, this quarter was in line with our expectations as we did not expect any significant shipments to go out during the quarter. Next, I have a few comments about our operating expenses. We have said many times that we can run this business with $25 million of gross, combined R&D and G&A expenses or about $20 million of annual cash expenses after backing out non-cash depreciation, amortization and stock compensation. Today, we reported combined R&D and G&A expenses of $6.3 million for the quarter, of which, $1.3 million were non-cash expenses, which annualizes out to just under $20 million of cash expenses projected for the year. We have worked successfully over the past several years to reduce our operating expenses, and this quarter's results are further confirmation of our ability to run a successful business on a lean cost structure. Finally, I wanted to point out that we continued to strengthen our balance sheet. Our debt balance is $1 million lower than year-end. Our accounts payable and accrued liabilities have decreased by over $9 million, a significant amount, as we resolved and paid down legacy contingencies from our prior deals. And our stockholders' equity has nearly doubled as in the first quarter, a tranche of temporary equity was reclassified to permanent equity. To wrap things up, as you heard from John and saw in the accompanying slides, we are reiterating our previous financial guidance for the full year. We continue to expect total revenues of approximately $30 million, broken down as coming 1/2 from royalties, 1/4 from material sales and 1/4 from license and milestone payments. As far expenses, we expect cost of goods sold to be between 30% and 35% of material sales. And we continue to expect combined R&D and G&A expenses of $25 million per year, including approximately $6 million of non-cash expenses. And as we have consistently said, we do expect the continuing business to be profitable and cash flow positive for the full year. And with that, I'll turn the call back to John.

Thank you. Well, operator, let's open the queue up for questions.

[Operator Instructions] Our first question comes from the line of Keith Markey from Griffin Securities.

Just a couple of housekeeping things, if I could, at the beginning. Could you break out income expense and income -- interest income or other income? And also accounts payable versus accrued expenses?

Yes. So interest expense runs at about $600,000 per quarter. And then the rest of the other income is made up of the change in the contingent value rights liability. And then for AP, our current balance is about $7.9 million and then the rest will be accrued liabilities.

And then I was wondering, John, you mentioned or showed in the slide presentation about $15 million from RQR and you've kind of touched upon a little bit contributing to the remainder. The remainder is including Captisol sales plus the milestones and other collaborative revenues?

I'm sorry, I missed the last part of that, Keith.

Does the remainder -- it would look like at about, based upon your estimates for this year about -- of $30 million in overall revenue, that about $15 million is going to be coming from milestones, and I would think, milestones and Captisol. And that was the remainder that was discussed or mentioned in addition to the RQR?

Yes, that's correct. So about half, roughly, $15 million of the $30 million is RQR, and then, 1/4 would be licensed milestone payments and the balance, material sales of Captisol sales.

And then I was wondering, in looking at the -- I know that you are expecting a decline in Captisol sales for the first quarter because you had such a strong fourth quarter or at least partly because of that. As we look forward, I was wondering if averaging out the 2 quarters would make sense to consider that as a reasonable run rate? Or -- and should we be looking at perhaps an increase in Captisol sales in anticipation of a launch of carfilzomib or do you think that Onyx already has sufficient inventory of Captisol on hand?

Yes. So the general outlook, the second quarter revenues, we expect to be higher than first quarter, but maybe 10%, 15% higher, not significantly higher. When we look at the full year, carfilzomib or Onyx is one important customer, but as Matt has mentioned, we have a couple of other Big Pharma customers with undisclosed programs for competitive reasons, all very understandable, logical commercial factors. Our partners don't want their programs disclosed. When we look at total Captisol orders, we actually see fairly meaningful purchases in Q3 and Q4 for Captisol. So it's the nature of the business. Every year may be different. But to be clear, this is not really fully dependent or dependent on carfilzomib. There are other factors, and I expect the second half revenue will be higher than first half revenues.

And then I was just wondering, last question, if you could highlight some of the work that you're doing in your own R&D program?

Yes, you bet. I'll turn it over to Matt to hit a few highlights there.

Yes. We obviously have a few programs that we're investing in, some of which you see data in. We continue to invest in HepDirect, which was a technology that we brought in from Metabasis. We feel like that's a technology, in many ways, that was ahead of its time. So we continue to invest in that. We talked a bit about glucagon and we're excited to be providing more data on glucagon at the ADA meeting this summer. That's, again, another asset that we brought in from Metabasis. We also are doing some work and continued work on our SARM program, and we completed the Phase 1 study, obviously, last year. Some of that data has come out this year. There had been some publications as well. We continue to do some follow-on work on that. We also see that area as an area of science that continues to ripen and will be one that we continue to want to invest in. GTx obviously is in this space as well. They have a compound that should be reading out early next year, and I think that will continue to help that space ripen even further. So we continue to be excited about that. We've got some earlier stage work on an Alzheimer's program we haven't talked much about, but you'll be hearing more about that in the future. And then, of course, melphalan, which we didn't cover in our prepared remarks but we -- is very much part of our plan and we're pursuing and gearing up for the pivotal trials. So we had a lot of work going on internally right now and are gearing up for that pivotal this year.

So with melphalan -- based upon the status of not having a partner yet for melphalan, are you working or planning on working on that entirely on your own at this point?

At this stage, we plan to initiate the study and conduct it. We believe that we could have an NDA filed by the end of 2013, a potential approval in 2014. There are interested parties in the program, and as we've talked about, we find this to be a very compelling Captisol-enabled program for multiple myeloma. We've talked a lot about this on the road, it's got a great medical story, a very, very interesting Orphan Designation story and a potentially very exciting commercial play as well. We believe that we can very capably manage the clinical work and that's the path we're on. We've not committed fully as to whether or not we'll launch it ourselves or partner it out. But we remain very excited about the program and it's only reinforced, frankly, by some of the overtures we've had by prospective partners as well. So stay tuned on that path forward there.

Our next question comes from the line of Carol Werther from Summer Street Research.

I first wanted to ask you about cash usage for the year and if you have in your minds what you think you might end the year with, what amount of cash?

So we haven't given specific guidance but you can see we ended the first quarter about $11.3 million. I would expect that to be sort of flat in the middle of the year, and then start to build up in the second half of the year as the Captisol shipments come online and the royalties continue to grow. It's fairly hard to predict the year-end balance much like last year, we expect some of these Captisol shipments to be at the very end of the year. So we could see another growth in our AR balance. But I would say a few million dollars -- flat middle of the year, a few million dollars growth into the end of the year.

And I believe Glaxo stopped the indication with PROMACTA for chronic liver disease, is that true?

Yes. They recently announced that they are discontinuing development for that indication, and at the same time, of course, the ENABLE 2 data was coming out and they also were announcing that their CIT, the oncology-related thrombocytopenia data was coming out. So there's still a very, very significant investment across other indications. Candidly, we were surprised to hear that publicly from GSK. We continue to hear, from thought leaders, independent of GSK, a very strong belief that these drugs that boost platelets, like PROMACTA or Nplate, could be very important therapies in chronic liver disease. So that is the official word from GSK today. I will tell all of our shareholders that I think it's very important for GSK to revisit this at some point. And maybe after sNDA submission or potential Hep C approval, they've got a great drug, and at least what we have seen in the data and what we have heard from thought leaders, this could be a very, very important indication. The key is that there's 13 years from any patent life, GSK, again, we got a lot of respect for what they're doing, we're going to trust that they're making the right decisions in the short-term, but long-term, I think there's a lot of opportunities there, and we aren't ruling out that CLD could be an indication that is somehow pursued in the future.

And then with the chemotherapy-induced thrombocytopenia, that's Phase I, II data that we'll be seeing?

I believe so. The data that -- summaries came out from ASCO last week, and I believe it's summarized as a Phase I, II, yes.

When we saw the data at AASLD, we got to see the slides for the first trial. The second trial that was at EASL, do you think we'll see that slide deck at any time soon or do I have to wait for the publication?

Yes. Carol, good question, and Matt -- I think he was going to mention in his prepared remarks, but the conference call that MLV hosted on Monday by Dr. Afdhal included a slide deck and that, again, was facilitated by this independent research firm, but they hosted the call and there were slides made available at that time. And I believe that they are sharing those slides or Dr. Afdhal is sharing those slides. So EASL did not publish them directly but there are slides that have been used in these public forums.

Our next question comes from the line of Ed Arce from MLV & Co.

I just had a few follow-on questions. Some of the questions I had have already been answered. But on the CDK inhibitor, Dinaciclib, I was just wondering that $1 million milestone payment, is that for the initiation of that drug?

Correct, the initiation of that Phase III study.

I haven't quite had the chance yet to look at the clinicaltrials.gov site yet, but you said that that was going to be in lymphocytic leukemia, is that correct?

Yes, correct. So it's 466-patient trial, they have it listed as a start date of May.

And given that we've just recently received news of the ODAC panel set for Carfilzomib, I was just wondering, I know you've talked about it already, but just your general thoughts on having this panel about 1 month before the actual PDUFA date?

Well, I think it's great. I mean, that's -- if you want our perspective, I think it's not uncommon to have a panel meeting 4 weeks, 5 weeks before, so I think the timing is fairly standard. We do not know what to expect or rather, we do not know what Onyx's expectations were for whether or not they're going to have a panel meeting. But I think it's going to be great for the public market. There's going to be an open betting, we're going to hear from thought leaders. Our sense is that there's a strong consensus that this is a very good drug. It's just a question of timing as to when the FDA might approve it. So the good news is that it is scheduled, we all know about it and we're essentially 5, 6 weeks away from that event, which is going to pull forward, I think, some perspective on whether or not the FDA might act an approval in late July.

And then just one last housekeeping question. The income that you reported for discontinued operations, what exactly was that?

That was just a resolution of certain old liabilities. It goes back to the old commercial business where we have some contingent liabilities on our books and as those get resolved, it runs through discontinued ops.

Our next question comes from the line of Chris Richard from Merlin Nexus.

Just a couple of quick questions, one housekeeping. I know we've discussed this in the past, but just wanted to get a sense. How much of that $450 million in NOL is usable going forward?

Well, technically it's all usable. The issue would be that there is an annual limitation to it. And so that number is reported based on that annual limitation, though.

But it's all usable going forward?

Correct. They could, if unused, they do expire at certain periods.

And a follow-up on one of Carol's questions about the GSK, the discontinuation of the ELEVATE indication. There was a presentation at EASL of Nplate versus eltrombopag versus, I guess, nothing, yes, it was actually a placebo, for percutaneous liver biopsy. And we didn't see in that study, although there's only 24 patients per arm, we didn't see any of the thromboembolic events that were worrisome in the ELEVATE study. Has Glaxo's tone changed since that presentation? Were they aware of that data previously?

Yes. Chris, I don't know that tone has changed, et cetera. They continue to be very committed to the program. And the CLD, the chronic liver disease announcement, I don't think was linked to that in any way.

And I guess lastly, we're seeing sort of, if you look at the numbers for Nplate, as well as PROMACTA. I mean, PROMACTA continues to grow but it seems like Nplate is sort of their growth has kind of reenergized in the last quarter or so. Is that because of some off-label use? Do you have any indication of that for HCV since the ENABLE studies have been presented? And they're 2 big studies recently, so...

Yes, Chris, I mean, great question. We're certainly interested in Nplate and I'm sure GSK is following that as well. We do not have any insight as to off-label use, really, for either product, particularly Nplate. Generally, what I'll say, though, is I think if we have a big picture perspective, both drugs are doing well. Nplate is outselling PROMACTA, but if you look at the trends over the last 4 to 6 quarters, PROMACTA is gaining a much bigger share of market. I believe 1.5 years ago, PROMACTA only accounted for about 17% to 20% of total market sales. Today, current period, the last 1 or 2 quarters, they account for about 32%, 33%, fully 1/3 of total market sales. So both products are growing nicely. On a percent basis, they're growing about the same level quarter-over-quarter, but in fact, GSK is gaining in total -- in terms of total market share. And right now, when you look at -- PROMACTA just reported $43 million for quarter sales, Nplate about $90 million, you've got 2 products combined that are on track to do close to $600 million this year. Label for ITP, there may be some off-label sales, but I tell you, this is really validating our belief all along that ITP alone could be $0.5 billion to $1 billion market, and we've already seen that. Now it's a question of how big can ITP be, can it approach that $1 billion level? And these other markets, oncology-related thrombocytopenia and thrombocytopenia in hepatitis, are much, much bigger markets for sure.

Our next question comes from the line of Van Brady from Presidio Management.

The first one relates to the undisclosed products that Merck really and Hospira are -- appear on your '12 in 2012'. You mentioned earlier that Merck is now working on CDK, is that one of the disclosed ones or is that what was previously Merck undisclosed?

No, those are 2 different programs. The Merck undisclosed is the Captisol-enabled program. And the Dinaciclib was -- the one you we're talking about in further depth today, that's one that we acquired through the Pharmacopeia acquisition, so they're 2 different assets.

I think you said there are 2 new undisclosed programs added this quarter?

And those are, yet again, 2 other ones. Different from both the ones we're talking about or all the ones we're talking about, those are our 2 new Captisol-enabled programs that are entering into Phase Is, both with big pharma partners, both of which are undisclosed currently.

Well, this -- so you have a total of 5 undisclosed products at this point, is that correct? Merck has one?

Actually, there's more than that. I think, just to break it down. The '12 in 2012', we're taking about the late-stage assets and that's addressed to that point. Matt, in his commentary, we're excited the fact the existing contracts, we have platform agreements with some big pharma partners, they're already doing some great work, advancing products to market. They're calling us saying, "You know what, we've got another product that would be perfect for Captisol." And they're either looking to make a new and improved version or they're looking at life cycle management but they want to get Captisol. And so the beauty of this is that it's already validated, the partner knows us, they know the technology, and it's a chance to just further expand our supply relationship and possibly accrue future royalties so...

Is there a possibility of adding these 3 undisclosed products on the '12 in 2012' slide will be disclosed this year?

Yes, there is a chance, at least one of the 3, possibly 2. And in fairness to you, Van, or others listening, we aren't in any way trying to be cryptic here. Again, this is big pharma, they're highly competitive commercial markets and for them to tip their cards and tell the world that they've got a new and improved or best-in-class drug for these purposes doesn't make sense. So just as soon as there's clinical data or some other event that's public, we'll make sure that we update our disclosures.

Just one other question, that regards a comment you made about ITP being a $500 million or $1 billion market, was that just for PROMACTA alone or is that including the Nplate which already is up to, if you add PROMACTA, was up to about $600 million?

Yes. So our view on the mark for ITP was that it was range for the category. Now there's really only 2 therapies in the space, but that was our analysis. And this really goes back 3 to 4 years when PROMACTA and Nplate were just launching. Yes, ITP is a small indication. They got approved off a small and relatively short studies. But our view is that this category alone could approach about $1 billion. Amgen, they got first-to-market, they got a bit higher-priced drug, they've got a better commercial platform building upon their EPOGEN franchise. But having said all that, if you aggregate the run rates for both drugs, it's rolling to about $600 million total this year, $400 million in Nplate, $200 million to PROMACTA. So it's a great story and GSK, specially, is investing significantly in other indications. So I think they believe, and we certainly do, that there is growth well beyond this existing market.

Now when you go on PROMACTA for ITP, do you stay on it forever? How long is the treatment generally?

Yes. ITP is a chronic disease, unexplained low platelet count. But the platelet levels can wax and wane so they're monitored regularly, and it's hard to know what an average course is. But by our estimates we would say that an ITP patient is probably on therapy about 6 months, 1 year, that's our estimate, knowing that they go off and on. But it's a disease that is chronic, which may require treatment for years.

We have time for one last question. Our last question comes from the line of Nick Farwell from Arbor Group.

Just a few follow-ups, if I may. John, the slide you have, #8, if I recall correctly, do you not reflect both the quarter lag with the aggregate or gross PROMACTA sales are?

That is correct. So the chart here shows quarterly royalty revenue that we have reported and it is on a lag. So that's first quarter royalty that we have booked, actually, is based upon fourth quarter revenue in 2011.

So if we looked at first quarter gross PROMACTA sales versus fourth quarter gross PROMACTA sales i.e. that's what will be reported in the second quarter, is the slope still upward?

Yes. But, I mean, you're asking a good question. A bit of a technicality by way of our accounting, the sales, for instance, last fourth quarter were $39 million and this quarter they're up $43 million, about 11% increase quarter-over-quarter. So consistent nice growth for the core brand. In the fourth quarter of last year, when we break $100 million in annual revenues for PROMACTA, we go from a 5% to 7% royalty. So that stub, total year sales last year were $121 million, that $21 million stub was at that higher royalty rate. So it's -- mathematically, the sales are higher, the royalty applied against higher sales will be a bit lower. We're not doing the math on this call so I -- but I think what we'll see is a quarterly contribution that is flat to up slightly, but what's significant is that we're on a much higher total revenue base for 2012. By our outlook, we think 2012 revenues for PROMACTA could approach $200 million, which means that the first $100 million is at the 5% rate and the second $100 million would be fully at that 7% rate. So there's real nice momentum. We're getting a little granular quarter-over-quarter but that, hopefully, gives a little more color there.

Also, it resets annually then?

It does.

I was also curious, in other income, you have $600,000 roughly of interest expense, you have roughly $200,000 for CVRs, so there's another $150,000, is that income from discontinued operations that nets out to the $243,000?

So there is -- it's around $600,000 of interest expense, if there's about $800,000 of the change in Contingent Value Rights, and then there's just some various other little things.

And then what is your total debt at the end of the first quarter relative to the fourth?

So we were at $30 million at year-end and we're at $29 million now.

And then, if I may, there was a -- at the end of April, there was a license for an anti-inflammatory research program with Merck, are there any residuals associated with this transaction?

Yes, Nick, there are. Admittedly, it was fairly circumspect disclosure that was more or less a requirement by Merck Toronto. This is an important area of research, we're very proud of the deal, but the disclosure, again, out of respect for a pretty competitive research space, we were fairly circumspect. This was not a put-it-in-a-box, an out-license. There are milestones and other terms associated with the deal, but we have not gone into those details. I expect that with further developments that may come in the next 9 to 12 months, we'll be able to give more details around, not only the target, but also the other economic features of the program.

Obviously, that's a second quarter event then?

Correct. All right. Well, that wraps up the call. Appreciate the interest and great turnout by investors today. Just in summary, we have a couple of investor events coming up. We'll be at the Bank of America Conference, Las Vegas, 3rd week of May. And then the Jefferies conference, 1st week of June. So we've got an exciting story. We're very pleased with our internal execution. I think we have good plans. The team is performing very well. In the quarter, we are delighted to be able to welcome Sean da Silva to our team, came from Warburg Pincus, but just another superstar that we've added to our team and he's going to help us drive our business development and strategy efforts. And beyond that, we're delighted with the developments from our partners. We've got a robust portfolio, we're very pleased. There's quality data and news flow coming out of our partners and we're very pleased with the business. Thanks for your time and interest, look forward to talking with you in the future.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time. And have a wonderful day.