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,…

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…

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…

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.