Ligand Pharmaceuticals Incorporated (LGND) Q2 2013 Earnings Report, Transcript and Summary

Greetings, and welcome to the Ligand's Second Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jennifer Capuzelo, Investor Relations for Ligand. Thank you, miss, you may begin.

Thank you, and welcome to Ligand's Second Quarter Financial Results and Business Update Conference Call. Speaking today for Ligand are John Higgins, President and CEO; Matt Foehr, Executive Vice President and COO; and John Sharp, Vice President of Finance and CFO. As a reminder, today's conference call will contain forward-looking statements within the meaning of federal securities laws. These may include, but are not limited to, statements regarding intent, belief or current expectations at the company; its internal and partner programs, including Promacta and Kyprolis; and its management. These statements involve risks and uncertainties, and actual events or results may differ materially from the projections described in today's press release in this conference call. Additional information concerning risk factors and other matters concerning Ligand can be found at Ligand's public periodic filings with the Securities and Exchange Commission, which are available at 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 the company as of today, August 1, 2013, and do not necessarily represent the views of GSK, Onyx or any of our other partners. Ligand undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. At this time, I'll turn the call over to John Higgins.

Welcome to our earnings call and thanks for joining us. I'm very pleased to report Ligand is doing well and we had a strong first half of 2013. Our revenues were up nearly 90% for the first half of 2013 compared to a year ago while expenses were essentially flat. We are now generating recurring profits and cash flow. We increased our cash and investment reserves over the prior quarter even while paying down debt and paying cash to acquire new assets. And we continued to execute well over the past few months with a string of new deals and acquisitions, further increasing the size of our asset portfolio. In many ways, we believe the potential of the Ligand model is just beginning to be realized. The past few months have seen a significant amount of news flow and events that are transforming the company. These spanned a full range of activities with our partners from preclinical, clinical, regulatory and business development. We'll cover some of these points in this call, but first I'd like to share some of our views for what has changed at Ligand recently. The first change to highlight is our strong financial performance. Now more than any time over the past few years, there's tangible evidence of our financial performance. As I mentioned, revenues are up sharply. We are now profitable generating regularly -- regular quarterly earnings. Shareholders' equity has more than doubled over a year ago and we are generating positive cash flow. The second highlight is that we now have 2 potentially highly lucrative long-term royalty assets generating revenue for Ligand: Promacta and Kyprolis. Promacta and Kyprolis are very important medicines marketed by GSK and Onyx and both drugs have enjoyed early success commercially. With Promacta, the drug is now approved in 95 countries worldwide for ITP. And the global rollout of the new HepC indication is in the very early days. On a revenue basis, the product came in at $70 million for Q2. That's up 49% this quarter over a year ago and up 13% over the first quarter of 2013. The use of Promacta in the U.S. for HepC, as reported by GSK, is going well. GSK noted in its Q2 earnings release last week, the growth in U.S. sales reflects the benefits of the new HepC indication. Additional countries will potentially be coming online in HCV given the recent positive CHMP ruling. And the product has future potential in other new oncology-related indications given the ongoing clinical development by GSK and the impressive new data released at EHA last month. Analysts project Promacta is now on a run rate for 2013 to do upwards of $300 million in revenue. We enjoy increasing royalty tiers and, at that level, we will be well into the 8% gross royalty rate for revenue coming in later in 2013. In regard to Kyprolis, it's a new medicine from Onyx approved in the U.S. for advance multiple myeloma. In our view, Onyx has done a superb job managing the product clinically and commercially. Given the product's use of our Captisol technology, we enjoy a royalty on product sales and sell Captisol material to Onyx for clinical and commercial uses. Now a third change to highlight for Ligand over the past several quarters is the significant advancement in the portfolio in term -- in both the size and the quality of assets. We're operating now with the largest portfolio of fully funded programs in the company's history. There's clear evidence our model is working. Not only are we continuing to add to our Shots-on-Goal but our partners are successfully advancing development-stage assets from the clinic to the market. As we often say, we are realistic in acknowledging that not all programs will work. Even with attrition and loss of some programs through terminated deals, we have added more new programs through acquisitions and licensing. Just in the past few months, we acquired a broad portfolio of royalty rights from Selexis and closed new licensing deals with Azure and Ethicor for lasofoxifene, a novel serum program. To put our portfolio expansion into perspective, in 2007, we had 9 fully funded programs and today, we have over 85. And significantly in 2007, we had 1 product paying us a royalty and today, we have 5 recurring royalty-generating assets. As we've discussed in our Investor presentations, the potential number of royalty-bearing assets could double for Ligand in the next few years. Quantity of programs is important and quality is also very important. We believe we are at a unique time where both our main royalty assets are in the early days of commercial potential and we also have a robust calendar of late stage events coming up in the next few quarters. These events include a potential new product approval, expanded label approvals, multiple NDA submissions and Phase III data announcements. These late stage events are for programs ranging from infectious disease, osteoporosis, seizures and cancer agents. Plus the quality of the pipeline is defined by other license agreements we have for programs tied to Alzheimer's and rare kidney disease, among others. Finally, another fairly recent change to highlight is the substantially increased visibility and awareness of the business. There's no doubt more investors and analysts are looking at Ligand now than in any time in recent history. Our sense is that investors increasingly understand the value and leverage of our royalty assets as well as the quality and depth of our portfolio. Now before I turn it over to Matt, I will add that what has not changed at Ligand over the last several years is our business model envisioned for how to build a high-growth company in the biotech industry. Our business is focused on amassing a large portfolio of fully funded pharmaceutical assets, while minimizing the traditional risk that small biotech companies face. The premise of our model is identifying good research targets and technology, good deal-making through acquisitions and licensing, operating with a lean cost structure and broad portfolio diversity. We are proud of what we are building and committed to driving the business. Thanks. Matt?

Thanks, John. There's been a significant amounts to report recently on both on our fully funded partnered programs as well as our internal un-partnered R&D programs. So I'll begin with comments on some of our partner programs and I'll start with Promacta. The global team at GSK continues to put significant effort behind the asset and they're making great progress. They're publishing key data related to the dozens of clinical trials that are running around the world and are also reporting on continued commercial momentum, as John mentioned. We are very pleased to see clinical data presented in MDS/AML as well as aplastic anemia in oral sessions at the European Hematology Association meeting in June. In MDS/AML, the data presented provided further evidence supporting Promacta development and these important indications and also noted trends toward improved overall survival. We view this as a meaningful development and look forward to future data. As John mentioned, GSK announced last week that they received a positive CHMP recommendation for Revolade, which is Promacta's name in some ex-U.S. markets. The positive recommendation was for the use and for the treatment of low platelet count in adult patients with chronic Hepatitis C where the degree of thrombocytopenia is the main factor preventing the initiation or limiting the ability to maintain optimal interferon-based therapy. We are very pleased with this news out of Europe as we view Promacta as an important medicine in this indication even as the clinical landscape evolves with new potential HepC therapies on the horizon. The CHMP recommendation was based on Promacta's safety and efficacy data, including 2 global Phase III studies of more than 1,500 HepC patients. A positive CHMP opinion is generally seen as one of the final steps before marketing authorization is granted in the EU. And typically, that process takes about 70 days from the time of a positive opinion. I'll switch gears now and talk about our partners at Pfizer, who recently presented additional clinical data for the bazedoxifene/conjugated estrogens program at The Endocrine Society's annual meeting. This asset was formerly referred to as Aprela in the U.S. and is referred to as a Duavive in Europe. The drug was highlighted at a very well-attended SERM menopause symposium at the Endo meeting where the large body of data relating to the efficacy and safety profile the drug was reviewed. Pfizer had a PDUFA date coming on October 3, so we're expecting to see regulatory action on this asset only 9 weeks from now. Our partners at Spectrum Pharmaceuticals have continued to execute on the Captisol-enabled melphalan program for stem cell conditioning after assuming the management of that pivotal trial from us in late Q1. This continues to be an exciting late stage partnered asset for us and it's clear that Captisol-enabled melphalan is in the hands of a capable and extremely dedicated partner. As mentioned in our press release today, we've received the rights back from The Medicines Company for MDCO-157, which is a Captisol-enabled IV clopidogrel. MedCo recently ran a pharmacokinetic and pharmacodynamic study of multiple doses of IV clopidogrel versus oral clopidogrel in healthy volunteers. That study generally indicated that there appear to be potential differences in the metabolism between oral and IV routes of administration for that specific active. The results changed the timing and the outlook of the program for MedCo and, as a result, it no longer fit within their pipeline and the rights have returned to Ligand. The Medicines Company has indicated to us that it is not an issue with Captisol but is specifically related to the metabolism for this particular active ingredient, which is a prodrug that goes through a multistep activation process once in the body. This is not the first time we've had the rights to an asset return to us from a partner and we are now beginning to look at what effort we may consider focusing internally on the asset and we will also assess the re-partnering landscape for it as we have with other programs in the past. In May, we announced that our partners at Rib-X Pharmaceuticals initiated the 660-patient multi-center Phase III trial of Captisol-enabled IV delafloxacin for first-line treatment of bacterial skin infections. For that trial start, we earned a $0.5 million milestone payment in Q2. The FDA has designated this product as a qualified infectious disease product, enabling our partners at Rib-X to benefit from a number of incentives including an additional 5 years to market exclusivity, priority review and eligibility for fast-track status. I'll now touch on 3 different programs that we have partnered with Merck. First, we mentioned in our release today some more specifics relating to the Captisol license and supply relationship relating to Merck's IV program for posaconazole known by the brand name NOXAFIL. Posaconazole is currently only available in an oral suspension and Captisol has enabled the development of an IV form of this established drug. We've been very pleased with Merck's progress on this and are happy that we can now provide the investors with a little more color on the active ingredient and the therapy area for this previously partnered Captisol program. The second Merck program is Dinaciclib. Following an internal assessment of the program, Merck's team very recently made the strategic decision to discontinue evaluation of the drug in patients with chronic lymphocytic leukemia or CLL. And the last Merck partnership I'd like to mention is BACE. On our website, we just posted some summary slides related to the BACE program, which is called MK-8931. It's in development for mild to moderate Alzheimer's disease. And with some of Merck's recent updates from presentations on the program, we thought that a simple consolidation of some of the publicly available information on this partnered asset might be useful to Ligand investors and we posted the slides to the Investors Section of ligand.com. Just as a bit of history, this is a partner program that we obtained through the acquisition of Pharmacopeia in 2008, and for those that may not be following MK-8931, it is the first BACE inhibitor that has been demonstrated to lower beta amyloid levels in cerebrospinal fluid of patients with Alzheimer's. Merck presented these findings from a clinical study in patients with mild to moderate Alzheimer's at a conference about 2 weeks ago. And importantly, Merck's got the leading position in the BACE inhibition field. Merck's Phase II/III trial, the EPIC study, is ongoing now in patients with mild to moderate Alzheimer's, and Merck has called 8931 a potentially transformative candidate in their pipeline, and earlier this week referred to it as a candidate that has "the potential to alter the course of medicine." We agree with them and we're very excited about this as well given that Ligand is entitled to royalties on the program. Alzheimer's is obviously a huge global market by any measure with major unmet medical needs, and it's great to have a partner like Merck putting such significant resource behind this high-profile program. They said that they expect an interim safety analysis from EPIC by the end of this year. So that's within 5 months from now. And while our partners continue to invest significantly to advance our partner programs, we continue here at Ligand to make very good progress on our internal currently un-partnered programs. As we announced last week, the FDA has granted orphan designation to our Captisol-enabled topiramate program for the treatment of partial onset or primary generalized tonic-clonic seizures and hospitalized epilepsy patients who are unable to take oral topiramate. This is an important step in a value-creating event for the program. I want to recognize the team that was involved in working with the FDA on this as it's a great outcome for the project. As a reminder, this program was also the subject of 2 clinical publications that were published simultaneously about 12 weeks ago in the journal Epilepsia. Our goal here is to find a committed partner to further advance the clinical development of Captisol-enabled topiramate and then add it to our portfolio of fully funded programs. I'd also like to make mention of our diabetes asset LGD-6971 (sic) [LGD-6972], which is our potent orally viable available small molecule glucagon receptor antagonist for the treatment of Type II diabetes. Glucagon receptor antagonist are a clinically validated new class of molecules for diabetes and our team knows the chemistry and biology in this space quite well. We feel we have an improved next-generation molecule compared to what's currently in development. And in June at the ADA meeting, we also presented pre-clinical data demonstrating potential efficacy and applicability in Type I diabetes. Lilly also has a program in the glucagon space and helped to ripen the landscape with clinical data that was also presented at the recent ADA meeting. Our IND for 6972 is coming together very nicely. It is on track as we previously stated to be submitted this year. We've completed the needed IND enabling studies, have manufactured clinical material and expect to submit our electronic IND shortly. We see 6972 as one of our most promising un-partnered assets. And with that, I'll turn the call over to John Sharp who will review the financials.

Thanks, Matt. I will recap just a few highlights from our earnings release today and also provide updates on a few other items. As you heard from both John and Matt, the business is stronger than ever. Revenues are up and expenses are essentially flat. That is the core message of the Ligand business model. This quarter, we reported net income of $6.1 million or $0.30 per diluted share and non-GAAP income from continuing operations, which is what we guide to and how we monitor the business, of $1.4 million or $0.07 per share. We strive to be transparent with our disclosures and, as a reminder, we furnish non-GAAP numbers to exclude non-cash changes in our contingent liabilities and, this quarter, our write-down of in-process R&D, because we believe these amounts do not speak to the underlying operations of our business. Touching on a few other items. During the quarter, we recorded a $0.5 million write-off of in-process research and development that related to The Medicines Company returning the rights to clopidogrel to us as Matt has discussed. We also recorded $2.4 million of income from discontinued operations resulting from the release of certain contingent liabilities related to the sale of AVINZA back in 2007, which now leaves just over $1 million of contingent liabilities on our books related to discontinued operations. And finally, I wanted to point out that our GAAP income for the quarter includes $2.7 million of income related to decrease in our contingent liabilities as our CyDex CVR liability decreased due to changes in assumptions for the clopidogrel asset partially offset by an increase in our Metabasis CVR liability as the trading price of our glucagon CVR increased during the quarter. On the cash side, we generated nearly $7 million of cash from operations this quarter, which we use to repay $3.2 million of debt and $3.6 million for our Selexis transaction. And as John mentioned, we have seen our stockholders' equity more than double from a year ago as we increased $21.8 million up to $39.3 million from $17.5 million at this time last year. On the tax side. I want to reiterate what we've been saying for the past 6 to 9 months. We have done a comprehensive review of our tax assets, which has allowed us to continually talk about our 3 quarters of $1 billion in tax assets. And with these assets, we expect to pay very little in cash taxes over the next 6 to 8 years, roughly 2%. But as I've always talked about, book expense is a little different. And on a book basis for this year, we project an effective tax rate of approximately 5%. Looking forward, we continue to expect total revenues for the full year to be between $43 million and $46 million with third quarter revenues between $10 million and $11 million. And we expect -- we continue to expect non-GAAP earnings per diluted share for the year to be between $0.47 and $0.51 and for the third quarter between $0.04 and $0.06 per diluted share. Additionally, we continue to expect combined R&D and G&A expenses for the year to not exceed $27 million. As a reminder, our earnings per share guidance for both the full year and the third quarter do not include the effects of any increase or decrease in contingent liabilities. Now I'd like to go into a little bit more detail about our cost of goods sold. As a number of our customers are progressing towards commercialization, we expect our Captisol product mix in the second half of the year to trend significantly towards the commercial side. Specifically, we expect cost of goods sold to be approximately $2.5 million in the third quarter with our top line material sales at a similar proportion to total revenues as we just reported for the second quarter. Due to this product mix, we expect cost of goods sold for the second half of the year to average about 50% of material sales, up from about 34% in the first half. With this, we still project our full year cost of goods sold to be in line with our expected range of 40% to 45% of material sales. And with that, I will turn the call back to the operator and open it up for questions.

[Operator Instructions] Our first question today is coming from Steven Crowley of Craig-Hallum.

I almost was going to congratulate you on the start of your fiscal year because of the lag times phenomenon with royalties and such, but there should be a pretty nice build from here if we understand how your model works.

Steve, that's right. The revenues are building. We've seen that, obviously, with the main underlying assets. But with our products, most of our royalty contracts are tiered. As revenues go up, we enjoy a higher royalty and we book royalties on a 1-quarter lag, which really gives us good transparency, obviously, within the current quarter in terms of what the revenues will be. But also as we move through the year, the proportion of revenue the last couple of years have increased, obviously, as we're hitting these higher royalty tiers. So we're very pleased with the momentum of the products, what we're seeing from the market reports and our overall revenues are growing nicely.

Great. Now in terms of some follow-up questions on the pipeline updates you gave us and partner updates, there seems to be a little bit of a model developing here with your efforts within your program and the use of Captisol. In terms of Captisol, enabling some of the candidates in your portfolio, obtaining orphan drug status and then partnering. We saw that with melphalan, you seem to be executing the same play with topiramate. I mean, is there a model developing that you think you can run that play a bunch of times successfully or is it just a flattering period to see a couple of similar moves?

Well, Steve, I'll say we obviously look at all of our -- we got a number of pipeline opportunities many of which are Captisol-Enabled opportunities, others we've -- are perhaps not related to Captisol that we have from other, either our regional Ligand core business or other acquisitions that we've done. But you're right, the Captisol creates a great opportunity to create differentiated products. And when we think about our R&D investment, we look carefully at ways in which we can create value, creating events through focused development efforts. And I think that the -- achieving the orphan designation for topiramate is a perfect example of that. A great outcome for the asset, I think, increases its value. And as I said, we're looking for a partner to progress it. We've got other assets that also can benefit from Captisol as well and other IP in that arena focused on certain actives. So you're right, Captisol can continue to enable more products.

And to press that, to expand on that, Steve, certainly as you know, but for investors new to the story, we acquired the Captisol business now about 2.5 years ago and it's been a very active period post-acquisition. Obviously, we're excited about the technology when we acquired it. But it's a perfect fit into our business for 2 reasons. One, the market environment, the research needs seemingly are going up for stability and solubility need. And also, given our Rolodex of partner contacts and our licensing team here, we think that we've got a good way to tap into deals. Now there are 3 main ways that we deploy Captisol. One is with partners for novel molecules or programs. And Onyx's program Kyprolis is an example of that. If companies need Captisol, we're finding that there's a fairly rigor outreach to Ligand. Second is to facilitate customers in reformulating existing drugs. And Matt highlighted Merck's program posaconazole is the first-time that we're talking about that program by name. But that's also another exciting channel and there's many drugs already on the market that have may have life cycle needs that's creating a second channel. And then thirdly, of course, is what you're pointing to, the new uses, finding the melphalans, the topiramates. And those require a little more time, a little more investment. But we're going to continue to try to identify those opportunities.

In terms of the opportunity for Captisol to generate more and more opportunities with partners. I'm wondering if there's some feedback you can offer us, even if it's qualitative, on how some of the platform deals you've done with Captisol, like with Lilly and I think SAGE, seem to be gathering momentum or expanding your opportunity set?

Yes, Steve, as John said, we acquired Captisol through the CyDex acquisition couple of years ago. That's a strategic shift that we made with looking at this platform deal concept where we develop predefined royalties and milestones, receive an upfront payment and, in the instance of Lilly, we received $1 million up front. That allows Lilly to add on an unlimited number of Captisol-enabled programs from their proprietary NCE bank, if you will. It's a great way to continue to add on deals. We've seen those deals bear fruit in terms of continuing to add on new assets. It also facilitates a much more streamlined business relationship. So both of those relationships are going well. We've been real pleased with Lilly's continued addition of -- and continued analysis of more ingredients with Captisol. So it's on their formulators shelves and they're using it frequently.

Yes, and anecdotally there's obviously, a whole roster of partners. There's a lot of stuff that we don't talk about. Either it's just partner-confidential or it's just doesn't rise to the level of disclosure. But periodically, we get partners who are working on an active fleet-named program but they come back saying, "You know what, we think we got a real promising lead in another area. We like to order some research-grade and start testing it here. Can we take a look at that perhaps?" -- submitting a contract or adding some other areas of research on. So that is -- as much as we are perpetually trying to seek new deals ourselves, there's also a kind of self-fulfilling -- filling of the bucket, if you will, of other ideas that our partners are generating themselves.

Great, that's very helpful. One more question for me and I'll get out of the way. In light of getting IV Plavix back, a candidate I think you've got back from another partner a while ago, lasofoxifene, you've kind of reconstituted, maybe not physically, but the opportunity set for that product. And maybe you could talk us through how that scenario worked when you got something back and, now, have a couple of new opportunities around that and maybe it's analogous to Plavix, maybe not. But I think it might be useful for us to understand that equation.

Yes. No, absolutely. And it really speaks to the heart of our view of the industry. One, a very honest understanding that most things fail in biotech. This is a tough industry but also a very strong belief that if you have human data, if there's evidence of activity, safety or efficacy, if you have human data, there is always a potential for finding a path forward. In the case of lasofoxifene, this actually was one of our very earliest research programs at Ligand, with Pfizer, as a program that had 15 years of development history and, in the mid-2000s, had some regulatory challenges. The FDA perpetually wanted more data, longer safety trials, et cetera. Pfizer, when they acquired Wyeth, they now had 2 SERMs. Both, in fact, came from Ligand and they chose to stop investing or advancing lasofoxifene. They tried to find a partner, a licensing partner. They tried to find somebody to divest or, rather, acquire the asset. They were not successful. All of the program rights reverted to Ligand. And now, again, with a very robust package of data, we were able to secure 2 new deals. In the case of IV Plavix, it's important to note the -- some programs fail. There's clear safety signals or clear lack of efficacy that kill a program. In this case, we believe that for MedCo, it's a different regulatory path. They ran some studies. They got some data. They perhaps had an expectation for how long it would take and how much money. And given the clinical outcomes, they are looking at a different plan. So they have talked with us. We terminated the program. Rights are coming back to us. As Matt alluded to, it's not because of Captisol. There's no technical failure at that level. But there's now several years of data and human development that we are going to evaluate and look at possibly re-partnering. So it's obviously a change in the status of this program. We wanted to give an update as this is obviously a recent development, but we have a very good history of new deal-making and also relicensing assets as they come back to Ligand.

Our next question is coming from Gene Mack of Brean Capital.

This is actually Sean Macante [ph] in for Gene Mack. I have a question about Promacta. I was wondering what the progress was for treating MDS. Kind of what -- how it's doing?

Yes, great. Thanks for the question. I'll say we've been very pleased. GSK continues to invest heavily in the Promacta asset, dozens of trials running globally. They're presenting data very quickly once they have it, which is great. At the EHA meeting in June, they presented data in MDS, in patients with advanced MDS/AML. There was a 98-patient trial that was presented in an oral session at EHA. The primary endpoints of the trial were looking at safety and change in blast counts but there were also some really interesting secondary endpoints in platelet response and overall survival. That study obviously supported further development of Promacta and those indications in GSK is pushing aggressively on that, which is great. And we were also encouraged to see the effects on overall survival. As I said, that wasn't the primary endpoint of the study. It was primarily a safety study looking at general safety and change of blast counts. But that's the latest data and GSK is continuing to push forward with it.

That's great. I just had one more question.

And just -- if I can add on that, what's interesting about Promacta is the revenue performance. Obviously, we saw a $70 million reported by GSK last week but the -- there's clearly growing interest in this program. There's a prolific amount of clinical data that GSK has been announcing, still about 25, perhaps over 25, ongoing clinical trials. And the analysts who cover GSK, the number of analysts who break out Promacta has doubled the last few years, and the outlook for revenue for the product has gone up significantly. We've seen some numbers that now show peak revenues over $900 million a year out in several years. So we're excited about this. Obviously, that helps fill in the financial picture for Ligand but it also really underscores what we believe to be as a growing understanding that this is an important franchise medicine. It's approved. It's well-established commercially in 95 markets globally. But the first indication with ITP that the other markets, Hepatitis C and this oncology-related indication, aplastic anemia, are very exciting new potential markets.

Great. I just have one other question. When can we expect an update on the identity of the Hospira program?

We obviously aim to get as much details out with -- on all of our programs. We feel strongly investors should know what they own. So we like to get all the details out we can. Hospira, kind of part and parcel with their business, confidentiality of their pipeline is a real key part of their business. And so at this point, we can't give any further details. We continue to work with all of our partners to provide more but don't really have a clear timeline on when we'll be able to give you an exact identity at this point.

Our next question is coming from Joe Pantginis of Roth Capital Partners.

Few follow-up questions, if you don't mind. First, on GSK, obviously, you've been discussing a lot of their oncology initiatives. With regard to how advanced some of these programs are, what do you anticipate the next potential sNDA for Promacta might be?

Yes, Joe, obviously, the HepC indications are -- is already approved in the U.S. and under review in a number of markets. Following that, they've announced they're pursuing labels in aplastic anemia, in MDS/AML. They haven't given defined timing on that but presented more data on aplastic anemia at the EHA meeting a couple -- about a month ago and also published some data in New England Journal of Medicine last summer. So they haven't given precise guidance on what the timing is there. I'd say aplastic anemia may be next, MDS/AML shortly behind that.

Okay and then with regard to the HCV indication, I know this had the potential to be a much longer discussion. But maybe you could just talk briefly as to the -- I guess, the selling dynamic of the drug. Obviously, you're going to potentially look at some competition in U.S. with the direct antivirals but maybe talk more to the ex-U.S. dynamic for the potential of the drug since a lot of ex-U.S. hepatitis C is obviously not genotype 1. They're more genotype 2, 3, et cetera.

Right, right. So you're right. I mean, it's an interesting topic and can involve a longer discussion but in summary, I'll frame it by saying that the drug Promacta, it boost platelets. And with people with severe hepatitis, acute chronic hepatitis, the sickest patients, their liver is so diseased that functionally they have essentially stopped producing platelets. There is a number of new research projects ongoing in advanced stages that are suggesting that the standard of care will change, will move to what's called an all-oral regimen, which will eliminate interferon from the treatment regimen. Interferon has been a standard of care but interferon, not only does it go after the virus but it also goes after platelets. So if you have low platelets to start with, going on a drug that chews up platelets is obviously a problem. Joe, our view of the environment is such that the market potential for HCV is still very meaningful even if these new drugs are approved. We fully understand the landscape will change. There will be less use of interferon. But our view is that the sickest patients, until they have recovery of their liver function, the sickest patients are still cirrhotic. They will still have low platelet kind of count and may benefit by using Promacta. But beyond that, discussion, which is a fair debate about how things will evolve, outside the U.S., as you point out, there are 2 dynamics. The first is, there are 6 broad genotypes of hepatitis. In the U.S., genotype 1 and 2, and other western markets, I'll add, are most common. That is principally where these new drugs are being studied. Outside the U.S. in lesser-developed countries, genotypes 3, 4, 5, 6 are far more prevalent and we have not seen the evidence of activity as strong in those genotypes. So that's one very significant point. The largest hepatitis markets from a population basis are in lesser developed countries and involve genotypes that are different than in western countries. The second fact to keep in mind is that alpha interferon, which has been a standard of care, it comes off-patent soon. It, we believe, will be in a low-cost medicine that will still be used as a common staple of treatment in these lesser-developed countries. And as long as that is the case, we think, commercially, there will be a very good rationale for using a platelet adjuvant like Promacta. So that's hopefully a summary view. It's a new indication. It's just approved in the U.S. and a couple of other markets. We think the CHMP ruling is very significant. We think that could be a watershed event if it translates to an approval in Europe, for other countries around the world. And we're eager to see how the next several quarters play out with that indication.

That's very helpful. And maybe just moving quickly over to the discussion on the clopidogrel. Obviously, the setting you were looking at with Medicines Company was more on the acute setting in the hospital. So with that said, what potential indications -- I know you might look to out-license the drug again, but what potential indications do you think might be applicable at this point since the PK data, at least that Medicines Company saw, might not be necessarily be applicable, unless I'm reading it wrong.

Yes, Joe, we're obviously just in the process of getting the asset back now. I'd say, in general, the target would be -- still be acute MI [ph] patient setting. But perhaps either a slightly modified regulatory pathway or some other experiments would want to do along the way. So -- but it still would be focused in that acute MIA setting.

Okay. And then just moving quickly again to the pipeline, 1 specific and 1 more general. Wanted to see if you have any updates on where the SARM program stands. And then secondly, obviously, you talked about a lot of the programs here. What are you most excited about in your programs that you didn't talk about today?

Yes, so I'll give you some color on SARM. We didn't talk about that today. It's obviously an exciting time in interest for that field. We have our SARM, LGD-4033. It's a non-steroidal selective androgen receptor modulator which is expected to produce the therapeutic benefits of testosterone with better safety, tolerability and patient acceptance due to the tissue-selective mechanism and nature of the compound. The area of palliative care in oncology continues to gain a lot of interest and credibility. Last year, ASCO published an opinion stressing the importance of palliative care in cancer. There's another molecule out there that's being progressed by GTx. We're obviously watching GTx's progress with their SARM molecule. They've said recently they expect to report top line data from a Phase III study they've been running very soon. We feel our molecule may be more potent. We've actually published efficacy trends that show a fairly short duration to efficacy of only 21 days. So with our molecule LGD-4033, we feel like we have an un-partnered Phase II-ready compound that we think is better. And we've continue to invest in a very focused way to further differentiate our molecule in non-clinical studies. So again, we feel like that's a very partner-able molecule and one that we're excited about. One other one I didn't touch on from a pipeline perspective, partnered pipeline perspective is our partnership with Retrophin for RE-021. Retrophin is going after a rare kidney disease called Focal Segmental Glomerulosclerosis. It's defined by diminished glomerular filtration in the kidneys, which leads to progressive scarring and increased levels of proteinuria. The standard of care in FSG, as it's a rare disease, an orphan disease, but the standard of care is to take steroids. 20% to 30% or so of the patients go into remission but others are put on angiotensin, receptor blockers and then the progression to dialysis and transplant is often rapid. And as we understand it, there's currently no FDA-approved treatment for FSGS. And interestingly, recent studies with similar nephropathies have shown that lowering proteinuria levels leads to reduced morbidity of disease. So RE-021 was actually originally developed to treat hypertension, and this is another interesting example of us acquiring an asset and then partnering it in a creative and different way. But those original studies in hypertension were done by Pharmacopeia. They did a lot of work. As I said, we bought Pharmacopeia in 2008. They did 7 Phase I studies and a couple of Phase II studies, showed the drug was safe and very potent and well-tolerated. Retrophin licensed it from us and they're now progressing towards a potential pivotal Phase II trial. They call it the FONT-3 trial. They're planning on starting that this year, in the second half of this year. So here in the next 5 months or so. So as we understand it, they've disclosed the FONT-3 trial to be a 12-week, 72-patient randomized study; the endpoint will be reduced proteinuria. So a real credit to our partners at Retrophin. They're progressing that well. We've got a 9% royalty on the program, some healthy milestones, so we’re very excited about that one. And then the other 2 I'll mention would be the -- I already talked about the partnership with Spectrum for Captisol-enabled melphalan. They've done a great job taking over the trial and are progressing that well. They've shown they're very dedicated to it. They've got a great team who know that space well and know the stem cell transplant space well. And then our partners at Lundbeck who are progressing the IV carbamazepine earlier this year. They said they plan to file the NDA for that program in the second half of the year, so we're keeping an eye out for that and obviously, working with them as they progress.

Again, I wanted to just pick up as a comment. Matt has highlighted a number of programs and, even by your question, he went deeper into another level of other updates. And what I hope is not lost on investors is what is happening at Ligand. We have a massive portfolio of fully funded programs and they're advancing nicely. We're enjoying number of updates and seeing the potential for product approvals, label expansions, NDA filings and the like. And we're reporting out on all this. We enjoy economic rights in all these programs, but we're reporting out on all of this essentially with no additional increase in our investments, in our cost. And that's what really is at the heart of this business. And I just wanted to take a moment to reiterate that message because we're excited about how we're able to monitor the landscape and report out on all these developments and we're doing it, as you will see the last 6 months and the last year or 2, on essentially flat cost. And that I think really underscores the strength of our potential earnings leverage.

Our next question is coming from Irina Rivkind of Cantor Fitzgerald. Irina Rivkind - Cantor Fitzgerald & Co., Research Division: I just wanted to pick up on the pipeline progress. So I just wanted to make sure I understood exactly what's going on with some of the Merck programs. So NOXAFIL, you have probably disclosed in your prior presentations a Merck 505(b)(2) Captisol program. Is that the NOXAFIL program? Is the first question.

Yes. Thanks, Irina. So yes, it is. And just a little more color, this is a global brand Merck is investing in. They're very committed to infectious diseases. They've said that publicly a number of times. Currently, NOXAFIL is only available as an oral suspension. And last fall, they presented some pharmacokinetic and safety data on both the IV NOXAFIL program as well as the tablet format at ITAC [ph], so that was last September. And at that time they announced the then-ongoing Phase III trial for IV formulation. So -- and I know a number of you watch, a number of folks watch ClinicalTrials.gov closely, and some have already mentioned that there's a global 288-patient, 48-center clinical trial listed as complete for posaconazole IV on ClinicalTrials. That's obviously the formulation we're talking about. But we can't give any further details on Merck's precise development status other than what's out there in the public domain. But yes, that's the program. Irina Rivkind - Cantor Fitzgerald & Co., Research Division: Okay, it looks like -- I just ran the data and it looks like it's an $80 million a year product in the U.S. So I was just wondering, what additional expectations you have from the IV form. And then also to follow-up on the Dinaciclib, so the late stage trials for that were primarily in CLL on ClinicalTrials.gov. Should we view this program as terminated pretty much for Ligand, or how should we think about that?

Yes, in terms of your follow-up on NOXAFIL, yes. It did -- globally for Merck, it did a little more than $0.25 billion last year on a global basis. Obviously, this would be in IV form because it'll go after a slightly different market as we understand than the oral. So they're obviously developing it globally and it's a big -- it's an important brand for them. As far as Dinaciclib, really not too much to add there. Merck just let us know they've discontinued clinical development for Dinaciclib and CLL. Basically, they did an internal assessment of the program and made the strategic decision to discontinue its evaluation in that indication. That -- those are the most advanced trials. We obviously see on ClinicalTrials there are number of other trials running for the drug but they obviously still have the asset and there's still clinical work ongoing on it. Irina Rivkind - Cantor Fitzgerald & Co., Research Division: Okay. And would you be able to provide more detail on the breakout of royalties for Promacta and Kyprolis in the quarter?

For this quarter? Irina Rivkind - Cantor Fitzgerald & Co., Research Division: Yes.

Yes, so you can -- based on what they have presented, both Onyx and GSK reported. So for this quarter, Promacta royalties were about $2.9 million and Kyprolis was just under $1 million. Irina Rivkind - Cantor Fitzgerald & Co., Research Division: Okay, and then finally, I just have a quick question on the BACE inhibitor. So you guys put out a nice presentation today, giving us more data on that, and then there was mention in there that there's other companies like Asai [ph] and Roche and Shionogi-Janssen working on other versions of this product or these types of molecules. Could you just help us understand where these compounds are in development relative to Merck and how they're progressing or how they're different from the Merck program?

Yes, I'll say from a progress perspective arena, Merck is in the leading position in this area. They've got the most advanced compound. They're obviously in a Phase II/III trial right now, they've signaled the clients who will get a safety read before the end of this year. It's an adaptive design trial. So it's designed to then roll over to the efficacy portion. So Merck's is in a leadership position. As I said, we're real excited about it. We're cheering them on. They're obviously very committed to the program and very focused on it. Irina Rivkind - Cantor Fitzgerald & Co., Research Division: And then from that BACE program, like you said, there's not going to be really any efficacy read at the end of the year, just to rule out any safety problems, and then they'll roll it over, correct?

At this point, yes. Merck has said they expect to get a safety read and that's all they've said.

Our next question is coming from Ed Arce of MLV & Co. Ed Arce - MLV & Co LLC, Research Division: So a lot of the questions I have, have already been answered. But a couple more, just further on the BACE, I just wanted to be sure I was getting your comments correctly. The EPIC data is what you're referring to as the safety read that we should expect by the end of the year, is that right?

Yes, you're correct. Yes, they've said they expect a safety read from their Phase II/III's trial, the EPIC study, by the end of this year. Ed Arce - MLV & Co LLC, Research Division: Okay, great. And then on Promacta, just because you follow the scrips, I don't know to what degree you feel that they track closely with underlying sales trends. But clearly there was a noticeable jump after -- around the beginning of 2Q, to been 600 to 700 scrips per week and clearly that's, to some degree, the impact of initial sales into the HCV market. I'm wondering if, from your perspective, given that we're only maybe a couple of months out from approval in Europe, that's there could be, we could expect some sort of a similar lag of a month or -- a quarter or so before we start to really see an impact in the underlying trends?

It's hard to know if exactly, obviously, how a launch is going to translate to uptick in prescriptions. But one thing that we know for certain, GSK is highly committed and they're already in 95 countries commercially. So as they roll out the new indication, although they may be targeting different patients and doctor groups, the reimbursement system, the pricing, a lot of the apparatus associated commercially is already in place. So that's one positive and there's just more and more data available. So we are pleased to see these prescription trends. We aren't surprised by them obviously. We think they're just real medical need. What we have seen is U.S.-only. So when we look at a global brand, it's hard to extrapolate U.S. data to global uptake. But the trends are positive and what we're encouraged by is that this product is, we believe, very early in its commercial life. It has many, many years left remaining on its patent and although approved for some indications in some ways, the bulk of the development is still underway for other indications. So we're excited what GSK is doing. We're proud of all of their successes to date and obviously look forward to the next several quarters. Ed Arce - MLV & Co LLC, Research Division: I agree with that perspective. I would just note that with year-over-year growth in the last quarter, it's still above 50% on an annualized basis. And you've got a run rate now of about $280 million annually for Promacta. And with that growth rate and further territories adding on, it clearly will continue to grow quickly. Just one last question, I guess this is probably for John Sharp. I wanted to go over again the issue with the CVR liabilities and which programs are involved and how they kind of play off of each other.

Yes, so there's really 5 CVRs. One is related to CyDex in total and so there's -- it is the CyDex business. As you know, there's a revenue-sharing component to that liability as well as some specific milestone with specific programs. That's one. The other 4 are related to Metabasis. So the CyDex CVR is based on internal projections that we update every quarter. The Metabasis CVR, there's 4 of them. There's a Roche, there's a glucagon, there's a TR Beta and there's a general CVR. Those are actually publicly traded CVRs that we simply go in at the end of each quarter and look at the price, and that our liability is based on that. We have released some data on glucagon during the second quarter and so we saw an uptick in that glucagon CVR trading. Ed Arce - MLV & Co LLC, Research Division: Okay and just one, I guess, bigger, broader question on the business overall, John, is, as I think about the puts and takes in this rather large portfolio, you've got the news out of clopidogrel and Dinaciclib. But given the strong financing and M&A environment that we are currently in for pharma and biotech, I just wanted to get your sense as it relates to these qualitatively, how you -- how ongoing partnering discussions are evolving with -- in terms of the size and the number and the quality of them?

Well, there are 2 types of deals, so to speak, that we can pursue to further increase our portfolio. One, our traditional licensing deals and the other is acquisition. The licensing avenues continue to remain promising for us, to partner through Captisol, again a technology that can support a whole range of opportunities, and also through our internal research, and Matt has identified some of our more exciting programs. So that's one way that we can organically, through our internal efforts, keep driving anew partnerships. And that is -- it will continue to be our top priority. Acquisitions for us, it's always been opportunistic. It's finding quality assets at a good value. The market environment has changed. You're right. Obviously, values for biotech-related assets has gone up. So in some ways, realistically, the values are higher, properties are more expensive. However, this is a tough industry and the timelines are long, costs are high and, in our experience, there's always some proportion of the industry that has financial needs. And so that creates an opportunity to acquire potentially outright companies or to acquire a subset of assets like we did in the Selexis transaction. So the opportunities are there. We're realistic about the environment changing. As far as deal size, we don't comment about deal size or really what our focus is for target acquisitions. But no doubt, given our increased revenues and cash flows and the financial prominence, we believe that we've got an ability to do larger deals if they fit for Ligand. I think you're going to find that we're going to continue to be very disciplined in deal-making. But our opportunity for acquisitions has expanded as well with our financial growth. Thank you. Well, that concludes our call. Really appreciate the questions, the terrific turnout today, very thorough and deep questions. We are again pleased with the business. I believe we're executing well. We do our best to be as transparent as possible with the business and share with investors the company we're running, the plan, as well as the assets we have. So thank you for the interchange and for listening to us. We have a busy second half of the year. And really, just to conclude, I want to reiterate that we believe that we are at a unique time in our company history, both where our main royalty assets are in the early days of their commercial potential. And also we're at a time where we have a robust calendar of late-stage events. And we'll report out on these but we're looking at a potential new product approval, expand the labels, NDA filings and Phase III data announcements. So thanks for joining us and we'll be on the road this fall. We look forward to see staying in touch with all of you.

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