Greetings, and welcome to the Ligand's First Quarter 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Erika, Investor Relations for Ligand. Thank you, Erika. You may begin.

Thank you, Devin. Welcome to Ligand's First Quarter Financial Results for 2014 and Business Update Conference Call. Speaking today for Ligand are John Higgins, President and CEO; Matt Foehr, Executive Vice President and COO; and Nishan DeSilva, Vice President of Finance and Strategy and CFO. As a reminder, 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, belief or current expectations of the company, its internal and partner programs, including PROMACTA, Kyprolis and Duavee 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 and this conference call. Additional information concerning risk factors and other matters concerning Ligand can be found on Ligand's public periodic filings with the SEC, 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, May 7, 2014, and do not necessarily represent the views of GSK, Pfizer, Onyx, Amgen 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. John?

Thanks for joining us for our Q1 earnings call. Matt Nishan and I are in Boston today, participating in the Deutsche Bank conference, and we invite you to join us for the webcast presentation later today as well. We're on at 4:10 this afternoon. The first quarter of 2014 was very strong financially and operationally. Financially, we enjoyed impressive growth in revenues over the same period last year, driven by increases in royalties and Captisol sales. We also saw a meaningful increase in cash and investments over the past year while paying down debt and more than doubling shareholders' equity. Beyond the financial performance, the late-stage clinical and regulatory achievements by our partners this past quarter were especially impressive and clearly defined for investors the strength of our portfolio and business. During the past few months, we saw numerous positive events, notably 2 new products launched from Merck and Pfizer, increasing our commercial partner programs from 5 to 7 revenue-generating assets. GSK filed yet another SNDA for PROMACTA, Lundbeck filed an NDA for Carbella, and Spectrum announced pivotal data for its Melphalan program, and anticipates an NDA filing later this year. Beyond that, we saw many of our other partners announce data start trial and raise money in private and IPO financings. Overall, the biotech and pharmaceutical industries continue to enjoy a favorable regulatory environment and strong operating performance. Through our rich portfolio of partnered assets, we are participating in this positive business environment in many ways. In addition to our partners' achievements, Ligand's R&D activities had been very productive. Now we'll talk through some of our recent works and investments, but our team is now generating clinical data on a lead diabetes program, its advancing novel research for a couple of promising new drug targets, strengthening the Captisol platform…

Thanks, John. I'm going to make some additional comments about our partnered and internal unpartnered pipeline assets, as well as the platform technologies that we are investing in to fuel future shots-on-goal. John touched on the commercial, clinical and regulatory progress by some of our Captisol partners who are in late-stage development or who are now commercial. These programs illustrate that the role of Captisol can play in creating novel differentiated products with existing active ingredients and creating what one could consider higher-probability shots-on-goal as you compare it to published industry average success rates for products in development. I want to point out that beyond the validation from these established Captisol programs, the inbound interest in Captisol has increased significantly in our time with the technology. We continue to see more potential partners requesting samples of Captisol and the commercial and regulatory success of Captisol-enabled programs continues to create positive visibility for the technology. Recently, a few of our early-stage Captisol partners in private or recently public companies have really been on the move, moving ahead our partnered programs and successfully building out their teams and structures. Our partners at Sage Therapeutics have been reporting significant progress on SAGE-547. It's now in the clinic for super-refractory status epilepticus, and they also reported the receipt of orphan designation last week. Sage has also succeeded in a couple of large financings with some Blue Chip investors and are quickly moving the program ahead. Also Curex, which is a private company based near Ligand and San Diego, is moving ahead with plans for a Phase II for Captisol-enabled Topiramate, which we licensed to them last year. Another company have also had recent progress in developments, and that's Aldeyra Therapeutics. Friday of last week, they completed their IPO to raise funds to support the…

Thanks, Matt. I'll recap just a few of the highlights from our earnings release issued earlier today. Total revenue for the quarter was $16 million, up $4.4 million compared to the same quarter last year, driven primarily by an increase in Captisol material sales by $4.2 million and an increase in royalty revenues by $2.1 million, which largely reflected higher PROMACTA royalties. These increases were partially offset by $1.9 million lower license and milestone revenue. Last year's quarter had a $3 million upfront payment for the Captisol-enabled Melphalan licensing deal that we executed with Spectrum Pharmaceuticals, leads the higher license and milestone revenue in the year-ago period. Our cost of good sold for the quarter was $2.5 million, resulting in gross margin on material sales of 56%, similar to the year-ago period. In addition, our cash, G&A and R&D expenses were virtually flat compared to the same quarter last year. For the quarter, we reported non-GAAP income from continuing operations of $7.3 million, or $0.35 per diluted share, compared to $4.4 million or $0.22 per diluted share for the same period last year. On the cash side, we ended the quarter with $26.6 million of cash, short-term investments and restricted cash, which is ahead of our plan and higher than last year while continuing to pay down debt. We have a small debt balance of $5.8 million remaining that is scheduled to be paid off over the next 3 months. Now as we look forward, one change for revenue outlook that we just became aware of relates to AVINZA. Pfizer recently notified us that a generic product entered the market for AVINZA in February. While we are entitled to continue to earn royalties until 2017, with the generic on the market, we expect our royalties will decrease. As background, AVINZA…

[Operator Instructions] Our first question comes from the line of Graig Suvannavejh with MLV & Co. Graig C. Suvannavejh - MLV & Co LLC, Research Division: You know I think all of us are impressed by the results you just posted. But clearly, where you are on the second quarter in terms of guidance is below where we were. And while we understand that AVINZA is part of that, can you just give us a sense maybe of how comfortable you are right now with your thoughts around the Captisol business? And where -- I guess, where might there be sources of upside relative to your guidance for the second quarter?

Graig, thanks for the question and participating on the call. We're now 5 weeks into the quarter, so we've got some visibility on the Captisol orders and so on. As you know, we book on a one-quarter lag for royalties so we know essentially what the royalty numbers are. So in terms of upside, there is a potential for licensing that may be done ahead of schedule. As we saw with the Merck milestone, there could be some small milestone event that might happen ahead of schedule. The Captisol orders, we do the best jobs to predict. We get long-term forecast for commercial orders. The clinical orders are not as predictable. But generally, although there's a lot of variables in our business, and we're very pleased with the financial performance and outlook, this outlook for Q2 seems reasonable and in line. As Nishan just mentioned at the end of his call, it's completely in line with our expectation except for the Merck milestone. That $1 million, instead of Q2, it was a pull forward to Q1. So aside from those timing events, the outlook for the full year is unchanged. Graig C. Suvannavejh - MLV & Co LLC, Research Division: Okay. Maybe there's 2 more questions before I jump back in the queue. In terms of your R&D, it sounds like you're very productive in terms of the early stage compound. How are you prioritizing where you spend your R&D? And maybe give us a sense of -- given your current R&D budget, where kind of the percentages are on certain projects and/or platforms? You highlighted some interesting platforms as well.

Yes, Graig, thanks for the question. This is Matt. We have probably 20 programs we could invest in and we look at a number of factors when we select programs to invest in. One is we look where we can answer key questions that are going to significantly increase the partnerability of an asset, also where maybe external science is starting to ripen and also where licensing landscape or were there's a demand for certain assets. So we take all those and some other things into account as we look at them. I'll say, a couple of years ago, we made the decision to start investing in the glucagon receptor antagonist program, knowing that there was a significant need for novel therapies in diabetes. We've continued that investment. We feel very good about that investment. And now we're at a point where we'll be presenting new human data next month at the ADA. Also, program like IRAK4, where we've got a commanding position, an early position from an IP and discovery perspective, that's another type of program where we see a high -- an opportunity to answer key questions to then drive partnerability. So it's a mixture effect.

And I'll just add, we're at a unique place with our business model where we can be very objective on what we choose to fund. This is significant. A lot of biotech companies, they're therapeutically focused or they have a real infrastructure in, let's say, in the commercial or manufacturing area. And those factors often drive the prioritization of programming. At Ligand, we look carefully at the competitive environment, the market potential. We look at the IP of our respective programs, and as Matt alluded to, the general market demand. So we're focusing on answering those are the questions, but we're funding what we think are the priority programs, and periodically, we're able to pull other programs into our R&D investments. Graig C. Suvannavejh - MLV & Co LLC, Research Division: And then my last question, just with respect to Duavee, we're all pleased to hear Pfizer's comments around its support of that product launch. My question is at what point do you think, given product launches tend to be slow, at least most of them are, we've seen some examples of one being very fast, but at what sense do you -- at what point do you think we'll get a better sense of how that revenue trajectory of this particular product might look like?

Yes, great question. Pfizer, as you can imagine, a very big company, well-established women's health commercial organization. We are spending more time trying to build that relationship and get information about their commercial planning and outlook. We don't have much information right now, frankly. Our expectation, though, is that once Europe comes online, approval targeted for next quarter, over the next 6 to 12 months is where your going to see global planning and really more, I think, tangible evidence of what the trend lines are. It's early days. But the category, it's a multi-billion dollar existing category. It's our opinion that this is the best-in-class molecule, and Pfizer genuinely seems committed to it. So we're at a bit of a changing environment for the women's health category. It's not going to be a flip-the-switch commercial response, but I think the environment is very positive. And our view is that it's going to take 6 to 12 months before we really start to see the evidence of trend.

Yes, and Graig, just a couple of factors, obviously, on the segment itself. Obviously, the number of women in the U.S. with post-menopausal symptoms is expected to be over 50 million by 2020. It's a big category, as John was saying. 70% of those women are not being treated at all for their post-menopausal symptoms and a large portion of those, about 60-plus percent, haven't even pursued treatment for the symptoms. So there's a big potential there.

Yes. And it's calling on the doctors, getting them familiar with the medicine, but also, frankly, changing the patient's knowledge and expectation for potential new therapies. So that takes some time. But we're -- again, we're pleased to see the public commentary out of Pfizer's executives around the brand.

Our next version comes from the line of Joe Pantginis with Roth Capital Partners.

Let me start on PROMACTA, a couple of little points there. I was just wondering if you have any color regarding how the market is splitting up in HepC with regard to U.S. and the, as you mentioned, additional territories, and also Europe.

Yes, thanks, Joe. Obviously, the HepC landscape is a dynamic one. And everybody knows PROMACTA has always been designed to treat that sickest subset of patients whose livers are failing or have failed, and to get them to a point where their platelets can be boosted. GSK has reported contribution, growing contribution from HepC in the U.S. and Europe. Now they've expanded into close to 50 markets for HepC, so that global expansion and rollout is still occurring. We expect that they'll continue expanding until they reach the 94, 95 markets that PROMACTA is in for ITP. So still in its expansion phase, still rolling out, but still a significant contributor.

Yes. And there's no specific quantification by GSK in terms of ITP or HepC. Qualitatively, the recent development in the HepC space is perhaps not helping the analytics. At one hand, it is absolutely bringing more patients into the doctors office and creating more awareness. On the other hand, as you can imagine, there's been a real preoccupation with the new therapy. So on balance, this is an important medicine for a subset of the sickest patients, but one that is one of a kind. I mean, it is unique in what it does, in how it supports those patients, and to our knowledge, there's no other competition out there. So the HepC story is in its very early days, still.

So actually, I don't want to overstate because you just mentioned, obviously, some of the issues regarding the direct antivirals in the U.S. and what have you. So would you anticipate some encouraging support for the PROMACTA franchise x-U.S. because interferon will still sort of remain a mainstay of therapy because they are non-genotype 1 viruses primarily?

Yes, absolutely, Joe. And I think that's part of the rationale for the aggressive global expansion for the indication is that the expectation is that those interferon therapies will be around for a long time in those markets.

And somewhat related, we made comments in my remarks about the Novartis acquisition. Novartis is acquiring GSK's oncology division. PROMACTA is a part of that. We have been very pleased with GSK's management of the asset and frankly, everything they've done with it. It's still 9 months out before that deal closes, but we think that this drug in Novartis' hands commercially, we view as a positive. We're pleased with what GSK is doing, whatever GSK's rationale was for divesting their business unit is there call. But the Novartis commercial infrastructure, we view as going to be a net incremental positive for all of the indications, the ITP, the hepatitis and potentially, the future oncology indications.

No, sure. And then just to wrap up on PROMACTA. You did mention, I believe, that you're looking for a supplemental NDA filing in 2015 for NDF MAL and I was just curious, is that more of a supportive care study at this point?

Yes, at this point. They've got a number of studies ongoing, but -- and they haven't disclose that -- the exact -- how the indication will be defined in NDF MAL, just that they plan a filing in 2015.

Okay. And do you expect that will see additional data that will support sort of the anecdotes today with regard to the disease-modifying potential of the drug?

I would, Joe. I -- GSK has been very prolific in publishing at all of the relevant global and regional hematology meetings, and we expect that to continue. They're generating a lot of data. Obviously, over 25 active clinical trials, far more that when you include the investigator work. So there -- we would expect to see a continued flow on that data.

Great. And my last quick question, if you don't mind. Just regard to 6972, can you characterize sort of the discussions you've had to date, or the level of maturity of these discussions? Could one assume that you have potential partners for 6972 sort of waiting in the wings for these data to be presented at ADA?

Yes, Joe. I'll say we're just at the point now. The data is coming in. We're preparing it and reviewing it. We're excited about our presentation in mid-June at ADA. We, of course, get inbound calls from the folks you'd expect, but no real kind of detailed update on maturity of those discussions, Joe.

And generally, though, diabetes, huge category. We have, we believe, strong IP. We're pleased with the data we have so far. Lilly continues to conduct late-stage studies. Some other companies are indicating that they're working in the field. So we do believe this is a very solid area to be participating in on the research side.

Our next question comes from the line of Matt Hewitt with Craig-Hallum Capital Group.

A couple of questions for me. First, regarding Merck and the NOXAFIL opportunity. How is that progressing since they've received FDA approval? How should we be thinking about the ramp, I guess, as this year progresses and going forward into '15?

Yes, thanks, Matt. This is Matt Foehr. They, very quickly -- as we said, they got approval earlier than expected. We're very pleased to see that shortly thereafter they made the product available. It was a very quick launch. It's still probably too early to comment on it, but it's clear that it's a high-priority program for them. We've been very impressed with the resource they're putting behind it and the team they've got on it. Obviously, they have a global footprint for the oral form for NOXAFIL already and so we feel very good about this drug in their hands.

Okay, great. And then as far as SARM is concerned, are there -- how have the partnering opportunities evolved so far this year?

So the interesting developments around SARM, and just a little history for those who may not be as familiar as with it, it's a selective androgen receptor modulator. It's an area of research that Ligand really was the pioneer in about 15 to 18 years ago. We conducted some early studies a couple of years ago. Got encouraging data not only safety, but also in healthy volunteers, some real activity of drug efficacy. The interest is coming from the perspective of partners, some international companies, as well as investigators, and even, there's been some inquiries from government sources that wants to advance research in this area. So we are pleased of, one, with our are package. The market is evolving. There's another company that has a SARM that completed some Phase III studies and they're advancing their discussions with the regulatory agencies in Europe and in U.S. We believe that we're drafting in some of their progress. They may still have some clinical work left, but also the area muscle weight thing, muscle help, is a big field, and we're just in the process of working with various partners to navigate our path forward for getting that drug back into the clinic.

Okay, great. And maybe one last one for me. As far as PROMACTA is concerned, any update on the potential for a pediatric indication?

Yes, Matt. So we expect -- GSK completed a Phase III in pediatric ITP in the last few months. We expect that data will be presented fairly soon. So that was a large Phase III study. It's important to note half or over half of the new diagnoses of ITP annually are in pediatric patients. So a big opportunity for growth for PROMACTA. So we expect to see that data in the coming months.

Our next question comes from the line of Christopher James with Brinson Patrick Securities.

My first question is regarding the upcoming data at ADA with your glucagon receptor antagonist. How should we think about -- as you sort of saw through the data, how should we think about procuring in advance to interpret some of these data relative to other glucagon antagonists? I'm assuming we're going to see data on fasting blood glucose and PK-PD. But how should we think about sort of these data with respect to other compounds in development?

Yes, Chris, thanks. We specifically designed this first-in-man study to answer as many questions as possible, and included both healthy volunteers, as well as Type 2 diabetics in the trial. So obviously, we'll get a full suite of PK-PD data, also some indications of efficacy as well. So we really felt very good about the design. And I was very pleased the team did a great job working with the FDA to design and define a trial that will answer a lot of questions and provide some insights into our molecule. We feel we have a more potent molecule than what's currently in development. And have what could be a best-in-class in this mechanism of action. So that's kind of the general summary, obviously. We'll present the data in the middle of June, and we're looking forward to getting it out there.

Okay, great. Speaking of the FDA, is there a plan to meet with FDA after completion of the study, or will you wait for partnership?

Yes. So we've had -- like in any IND, obviously, we had ongoing interaction with the FDA, leading up to our IND and afterwards. We feel like we understand the plan based on those discussions. There'd be really no need to have too much further dialogue. Obviously, we submit protocols for future studies, et cetera, as one normally does with an IND.

Great. And I think we were -- just moving on to the base inhibitor. We were, I think, expecting an update from Merck. I personally did not see a whole lot that from the Analyst Day regarding that program. Have you had a chance to meet with them or discuss this program with Merck?

Yes, I'm pretty sure -- you're probably referring to the Merck's R&D day, which was yesterday. I think they -- in their plan that they have mapped out in advance, were covering other programs. They did discuss the base inhibitor briefly and reiterated their commitment around the program. Obviously, they got 2 large Phase III trials running now. Those won't read out for a little while. But we continue to see them as being very committed and excited about those programs.

Great, thanks. And then a quick PROMACTA question before I wrap up. I think we have -- so now we have a good sense of timing around approval in aplastic anemia. Do you have a better sense of the size of the opportunities there? I think you mentioned last time, there are about 10,000 U.S. patients. Do you have a sense of sort of what the size and scope of this could be?

Yes. That's about right, Chris. It's obviously a niche indication. It's one that these patients really have very limited-to-no-treatment options, the data that was presented at E-Hall last year was really very exciting, not only for the patient population, of course, but also scientifically, suggesting, as was said in the title of the presentation, potential curative effects of PROMACTA in aplastic anemia. I think that's why it has moved so quickly through the regulatory process so far. So -- but yes, you're generally in the right range, I think, in terms of the opportunity. We're excited to see that progress and hopefully get rolled out.

Our next question comes from the line of Keith Markey with Griffin Securities.

Just a quick question for you about the Captisol-enabled drug program. How many clinical trials are currently ongoing with those drugs and how would you expect that number to change in 2015?

Yes. Keith, it's growing all the time. The only reason I -- it's hard to give you an exact number is we've -- we get more and more requests for IND cross-reference letters. We got more partners starting more and more trials and more indications. It's grown significantly over the last years.

Yes. There's probably, right now, this year, 24 to maybe over 50 trials ongoing for Captisol.

Yes, yes. I think that's about right, and it's growing.

It could be double from where it was 3 or 4 years ago.

Yes.

Okay. And what does that equate to in terms of the number of drugs, do you think?

Well, the way we look at this, as you know, we quote our portfolio of shots-on-goal, our fully funded partnerships or programs, and we have over 90. And a rough estimate, probably 2/3 are Captisol-related. And so some of those are the same program for 2 or 3 indications, but they're probably over 50 distinct programs and/or molecules and over 60 different indications. So a very significant element of our portfolio. And one that, Matt -- he referenced the customer service, but we're getting real-time feedback not only on the utilization, but the quality of the service and what the technology does to make drugs possible.

Okay, well, thank you. But a part of my question had to deal with perhaps the outlook for Captisol-enabled -- well, Captisol sales for 2015? Do you see that going up since some of the clinical trials might be coming to fruition in the near future? Or do you see it as going up because more drugs will be in clinical trials?

Well, so generally -- I mean, we gave our outlook for 2015 revenue several months ago. Our outlook hasn't change. It was north of $80 million. The 2 factors that are driving Captisol demand is, one, to your point, the number of clinical trials. We've got more partners, drugs in development, and as those programs are successful, they're moving into larger studies. Frankly, early studies, pre-clinical, Phase I, they're using Captisol, but their requirements may be small. As they move into Phase II or III trials, that's where we're seeing orders in customers. Also as products go commercial. We know Kyprolis. We now have NOXAFIL. We may have Carbella Lundbeck's drug approved at year end. That's another factor, but the outlook, yes, we get -- outlook from customers on a 3- to 12-month basis, obviously, we account for that in our current-year guidance, but we're not getting any more granular on 2015. But generally, the trends, the demand for Captisol, the interest, I'll say the success of that technology is clear and growing.

There are no further questions at this time. I'd like to turn the floor over to Mr. Higgins for closing comments.

Thank you. Well, appreciate everybody's interest and time on the call this morning. We're pleased with the start of 2014, not only financially. We are heartened, particularly by the improvement in our balance sheet, stronger cash position, significant increase in shareholders' equity. Debt is going down. It's real evidence that this business model is successful. We've always said, "you haven't created real value until you have created or generated sustainable cash flows." And now a few quarters into generating profits and cash flows, there's more clarity and evidence of the momentum of our business model than ever before. Also, while we highlighted several of our programs today, the late-stage royalty assets, as well as some of the earlier programs, our portfolio has never been larger. And frankly, we've never had a calendar with more significant news events coming up in the next 6 to 12 months. So on balance, we are very pleased with the business. Today, we are at the Deutsche Bank conference. We'll be presenting at 4:10. We'll have some slides in our corporate investor deck. And later this month, we'll be participating in the Bank of America conference. And at the end of May, at the Craig-Hallum Investor Conference. So we look forward to being in the road and meeting with investors and giving you more updates to our story. Thanks for joining us.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.