Greetings, and welcome to the Ligand Pharmaceuticals Second Quarter 2015 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Todd Pettingill, Senior Manager of Corporate Development for Ligand Pharmaceuticals. Thank you, Mr. Pettingill. You may begin.

Welcome to Ligand second quarter financial results for 2015 and business update conference call. Speaking today for Ligand are John Higgins, CEO, and Matt Foehr, President and COO, and Melanie Herman, Interim 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 intent, belief, or current expectations of 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 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 Securities and Exchange Commission, which are available at www.sec.gov. The information in this conference call related to projections or other forward-looking statements represents the company's best judgment based on the information available and reviewed by the company as of today, August 04, 2015, and do not necessarily represent the views of Novartis, 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 will turn the call over to John Higgins.

Thank you, Todd. Good afternoon. Welcome and thanks for joining us for our second quarter 2015 earnings call. I will open up by saying simply Ligand is firing on all cylinders. Our financial performance is very strong as shown by our robust top-line revenue growth, our increased operating margins and positive cash flow. The core of Ligand's financial strength is our growing royalties and lean expense structured clearly display the past several quarters and continuing to fuel bottom-line earnings growth and cash flow. Our portfolio of programs and operations are equally strong. Our two lead partner programs for Promacta and Kyprolis continue to produce important new data; both received expanded marketing approvals in the past couple of months and the products generated record Q2 sales with both products enjoying significant quarter-over-quarter increases. We have seen very active the past few months in terms of positive news events from our partner portfolio. In additional, Viking closed its IPO in Q2, we acquired more royalty-bearing assets and we announced clinical, safety and efficacy data for our lead development program our GRA drug for diabetes. Now, first, some comments about Promacta. Promacta is now well situated in Novartis's hands following the product acquisition from GSK in March of this year, Q2 sales were an impressive $116 million for the second quarter, up from $99 million for total sales in Q1, 2015. Notably, the three months of the second quarter were the three highest months ever for total U.S. prescriptions for Promacta. In June, the product received U.S. approval for use in a pediatric ITP population which opens a new usage for the drop. Importantly, underscores the continued safety profile being established for the product. The product is pending approval for the same indication in Europe and numerous other trials are ongoing for other…

Thanks John. I am going to start off this afternoon by briefly highlighting progress at some partners, for our pipeline programs reported over the last few months. Late last year, we profiled six assets for investors that we called the basics and that was really in an effort to focus attention on some of the assets in our portfolio that differentiate themselves given the potential impacts that they can have. Since that time, all six of them have made significant progress, but I will briefly highlight recent events for a few of them. Our partners at SAGE Therapeutics recently initiated a Phase III trial of Captisol-enabled SAGE-547 in super-refractory status epilepticus or SRSE. This Phase III trial start followed their announcement positive Phase I/II data that showed that SAGE-547 had achieved an impressive 77% response rate in patients with SRSE. For those that are not familiar with SRSE, it is a critical condition in which the brain is in a state of persistent seizure, where patients are placed into a medically induced coma in an attempt to stabilize them and where conventional and approved therapies fail to awaken the patients. Currently, there are no therapies approved for SRSE and I will say that we are impressed with the work that the team at SAGE is doing and continue to see SAGE-547 as an asset that has the potential to meet significant and global unmet needs and gotten a major attention in the medical community. Our scientists at Ligand in partnership with the team at TG Therapeutics recently presented data relating to the IRAK4 inhibitors program and we partnered TG last year. The data we generated with TG demonstrated clear anti-cancer activity and synergy with other actives for our partnered IRAK4 inhibitors and TG is quickly moving this novel program toward…

Thanks Matt. I will recap just a few of the highlights from our earnings release issued earlier today. Total revenues for the quarter were $18.4 million and included royalty revenue of $6.6 million, which is an increase of 26% versus the year ago period and largely reflected higher Promacta and Kyprolis royalties. Captisol material sales for the second quarter were $10.7 million, a significant increase versus the year ago period, primarily due to timing of customer purchases for clinical use. Collaborative R&D revenues were in line with expectations given the roster of potential milestones and events in the portfolio that were expected for Q2. Now, on the expense side, our cash R&D and G&A expenses increased approximately 10% compared to the year ago period, primarily due to business development activities and economic activity and our Glucagon program. A quick comment about cost of goods, in the first half of the year Captisol sales increased meaningfully from $9.2 million to $14.4 million and our cost of goods were essentially flat. We are pleased to see an improvement in our margins for two reasons. The clinical versus commercial mix of sales and a better cost overall. For the quarter, we reported adjusted earnings of $38.5 million or a $1.81 per diluted share compared to $5.2 million or $0.24 per diluted share for the same period last year. The primary driver of the increase was due to the impact of the Viking Therapeutics IPO. As previously summarized in an earlier release, we recognize the gain on deconsolidation of $28.2 million, primarily related to the equity milestone received from Viking upon the close of its IPO. We now own approximately 48% of Viking's outstanding common stock. Following consolidation, we recorded our proportionate share of Viking's losses on our statement of operations. As this is…

Thank you. We will now be conducting question and answer session. [Operator Instructions] Our first question comes from the line of Matt Tiampo with Craig Hallum. Please proceed with your question.

Good afternoon gentlemen. Congratulations on another exceptional quarter. I want to drill down a little bit more on Captisol and the outperformance this quarter and also the dynamics for the rest of the year. It seems like maybe you pulled a little bit forward from at least what the streets is set up for Q3, which I know it does not mean a whole month, but it sounds like maybe a couple of others came forward. Just wondering sort of what drove that and if it was clinically related or more commercial. Then, second, it seems like you have managed to sustainably move the margin higher for that business and I am wondering what we should think about as a real good level for gross margin going forward for the Captisol business given that we were sort of costing around 50% to 60% previously.

Yes. This is Matt. Thanks for the questions. Yes. As far as the orders go, it basically was timing as you generally described. We had line of sight on some commercial committed orders as well as some clinical orders and came in a little early, but basically products are doing better than partners might anticipate and trials running better and those sorts of things, so we had a couple of orders that we had visibility on. It just came in early, so it was a timing thing.

On the mortgage side, this is John. The business the overall quantity demand as we look at the next few years. Is clearly coming up we have more products approved commercial use as Matt has been describing, we are licensing more partners for accessing Captisol, so we are basically building scale. As we are building scale, we are building efficiency in our cost structure, so as we described in the past is difficult to predict quarter to quarter what the blended margin will be because a big variable is the mix between the price we sell Captisol for commercial use, which is also royalty bearing versus for clinical use. Over the annual period and going forward, we do see efficiencies, a lowering of our costs for the actual costs of goods, which is helping to at least right now slightly improve our gross margin. The other comment just maybe back to your initial question. Specifically, we saw in Q2 Amgen ordering volumes frankly that we would have expected later in the second half of 2015 and it was our beginning of the year estimate that that ENDEAVOR data, which will really would be a catalyst for clinical and commercial planning. It would have happened later in the year. Ligand and frankly we think much of the market was pleased that come out in March, which was a couple if not a few months earlier than expected that that was a factor driving we think some of the order activities specifically in the second quarter.

Great. Thanks very much.

Thank you, Matt.

Thank you our next question comes from line of Greg Gilbert with Deutsche Bank. Please with your question. Mr. Gilbert, your line is live.

Sorry guys. You hear me all right?

Yes, Greg.

First question is about whether you could provide any help on the material sales of $25 million to $35 million in the collaborative and other revenues 10 to 20 those are still relevant?

Yes. The general mix for the revenue composition is fundamentally the same as we been looking at the year. As you know, but for other investors there are three main components royalties, sale of Captisol and in license and milestone payments. The second quarter wind up being very strong quarter for us financially, we came in a bit higher than our outlook. Again, it is really principally driven by Captisol-based orders, but the composition of total revenues is still driven by those three components and the outlook for the full-year is consistent with our original guidance for the year.

John, can you talk a little bit about commercial assets beyond the big two, and how they are doing, maybe calling out some outperformers versus underperformers? I know the big two are clicking on all cylinders, but perhaps some color on the others.

Yes. I will give some remarks and Matt can jump in as well. Again, in terms of royalties Promacta and Kyprolis are the main drivers. We also enjoy royalties also would be women's health product that Pfizer sells, Nexterone, a product that Baxter is selling. We enjoyed Captisol commercial revenue of Noxafil, a drug by Merck. These are smaller products. Mostly today in terms of their recent launch timing, but in the last two quarters, three quarters all three of them have shown very impressive gain. What we have seen with DUAVEE. It launched about 15 months ago, direct-to-consumer campaign hit in the fall in September. Just in June, RXs broke 15,000.

Yes. Really approach 16,000 for the first time, Greg, this is Matt. We wind that back to June of last year, there were under 2,000 so we are seeing real prescription growth for DUAVEE and that is just in the U.S. Obviously, Pfizer is pursuing launching in Europe as well - approval in Europe and are pursuing premium pricing for DUAVEE in Europe as well, so that is another one that is unlocked. That is the product in women's health big category, PREMARIN is a component of that combination therapy PREMARIN at peak sold $2 billion a year, but this is a novel mechanism. It is very promising drug profile in one that we know Pfizer is it committed to or eager to see the activity in the potential European launch by the end of this year. With Nexterone, it is a product that Baxter has had and it launched about two-and-a-half years ago, early quarters. It was frankly a small if not a sleepy product, but the last two or three quarters Baxter seems to have really caught grove with sales. Given outlook last quarter that we believe that we are on a trend to do $1 million year in quarterly revenue of that royalty that trend absolutely holds. Again, this is essentially U.S.-only sales right now. Baxter is signaling that they expect to launch the product elsewhere, so those are just some comments about some of these other products, but the quality of partner as well as the revenue contribution is meaningful to Ligand.

Yes. I will make one brief comment about Noxafil IV with Merck as well. Greg that is one that it is Captisol-enabled program. Originally we struck the partnership we are looking for a way to further grow the Noxafil, the posaconazole oral Noxafil brand with a new IV form in that was launched a couple of years ago in the U.S. and then they have added on Europe and other markets. We have continued to see growth in that is really exactly what Merck's original vision was that the IV could grow that franchise globally and we are seeing that happen real time now.

Okay. One last question guys on the GRA, Lilly killed this, I believe, based on hypertension risk. You know whether that was the case and if so how closely did you look at that in your program and how would you characterize the interest in your program now that ADA is well behind this? Thanks.

Yes. Greg. Thanks for the question. I will say the interest in program and the target has never been higher. Obviously, our data was very well received post the ADA meeting, we were excited to see the data, nice dose response, very high potency and the side effects of that profile that really leads us to believe that we have the best-in-class molecule. We did see that Lilly discontinued their program I do not think they have made any statements as to why, but I will say in our program we have done a considerable amount of looking not only at the efficacy features of the of the drug, but also the safety and feel very good about the data that we have. We are excited. We have got a lot of work ongoing now leading up to Phase II trial that we plan to initiate next year.

Thank you. Thank you. Our next question comes from line of Larry Solow with CJS Securities. Please proceed with your question.

Hi, great. Thanks. Good afternoon guys. Just on Captisol, notwithstanding obviously there were some timing benefits this quarter, but as you look out over the next, say, couple of years I know you have put sort of a $25 million to $35 million number on it for this year and maybe I think into '17, and to publish your guidance. Fair to say would sort of the growth in samples and clinical and commercial use that maybe this number proves conservative as you look out or there is growth above and beyond that. Then same question on the developments on manufacturing efficiencies, margin and I think you had in your slide deck you have like a 55% to 60%, gross margin fair to say that maybe as you look out over the long-term there is upside to this?

Yes, Larry. Thanks for the question and you are asking good questions and really focusing on some of the key moving parts of this important franchise for us. The business Captisol business is doing extremely well, Matt alluded to some recent patent developments were strengthening the IP, the intellectual property and alike around the asset. We continue to do new licensing deals. The question is specifically about the revenue potential and margin. I think now we are really seven months into 2015. Our sense is that we have got a pretty good handle on how 2015 looks. You are right a good leading indicator, the sample requests are going up. They are at an all-time high, the number of research contract, all those to us are leading indicators that this could predict new contracts and new customers in the future, but the way we build our outlook it may be conservative, but we do not have those orders now and we cannot predict with any real accuracy for guidance as to what the mix will be. It depends on the size of trials, how large of a quantity user a particular customer is for clinical use. There are a number of variables despite sampling in research contracting that are unknown right now. Having said that, as we move into 2016 and beyond, every successive quarter in year, we get more information and on balance, we feel very good about the health and the potential Captisol, we probably need another couple of quarters before we give longer-term outlook on what the margins in revenue expectation will be for that franchise.

Okay. Fair enough. Promacta, can you just help us frame the size of the pediatric ITP market compared to the sort of the adult market that it has been approved for. Was there any off label use already or that you are aware off?

Yes. Larry, thanks good question, we sanction and our general view is that the product is used really almost entirely to the label that that has been the case with the drug like Promacta for really essentially all of its like. As far as your comment about pediatric, about half of the new diagnoses of ITP per year are in peds, so there is a substantial opportunity there and I think that is what Novartis was focused on and we are pleased to see them with that approval and rolling it out.

Okay. That is essentially, and at least in the near-terms sort of doubles the addressable market?

Yes. It is hard.

Addressable, not reachable or per se.

We are on the front lines on the product so a lot of this is really just our observation. The patient market, the population the demographics in pediacs [ph] are significant and on a pure numbers basis it would be a meaningful increased. However, I think we are realistic to know that children are known to recover from the thrombocytopenia or perhaps more quickly than adults, so there need for longer-term therapy perhaps is less, also realistically physicians are likely to be more conservative in dosing in pediatric, so that is why I made a comment in my remarks, the expanded label important, but the expansion to the body of safety data is really important. The way we look at the products' commercial potential is how the sell side, the third-party analyst they covered Promacta; it is not our business to give guidance. If Novartis gives guidance, we will follow that, but one thing I will say is that Novartis just closed our acquisition four months ago. They saw a very, very impressive jump in dollar and percent growth in their first quarter owning the product, very impressive U.S. prescriptions and now we are pulling Wall Street sell side analyst, there are more analysts who are breaking out Promacta. Notably, some of the larger banks that covered Novartis showed a very significant increase in their peak Promacta sale coming off in Novartis's second quarter call. We monitor all of this closely and I think the qualitative developments and the recent regulatory developments support our belief and confidence in asset, but it clearly the third-party analyst we really do not have a dialogue what they feel the same way as well.

Okay. Just in terms of obviously you do not exactly know what Wall Street analyst were thinking, but in terms of Kyprolis, in terms of the Amgen's statement that over time therapy or the amount of therapeutic or the duration of therapy will double. If you think that some of that expectation is somewhat built in or I do not know if anybody gauged that.

Well, just a couple of observations or facts. I mean right now it came off from second quarter doing $119 million. Most of that is U.S. Maybe $7million, $8 million was outside of U.S. markets, but if you annualize that number, you are at roughly about $475 million, all right? That is principally U.S.-only sales for third line use. It is important to note. This expanded indications was approved two weeks ago and it was only launched one week ago and we believe that much of that usage has been unlabeled, so this is a quantitative answer, but if you take U.S. and approve it for a much larger market and you have the potential to double instead of four to five months of treatment duration 9 to 10 months, you can imagine in the U.S. alone a significant chance to expand that underlying revenue. Europe is pending approval. It is our expectation given U.S. activity and all the data we have seen that Europe should come on line and of course we know that Amgen has partner in Japan as well. The Street right now, we are seeing estimates at the low of about $1 billion in peak sales and the high estimates show over $3 billion in peak estimates, which frankly is the high end. That is not a surprised that ducktails right in right in line with what VELCADE did last year $3.1 billion in 2014 dollars. Given the substantial body of data that is coming out and we would like to direct investors and analysts to the narrative from Amgen. The last six to eight weeks that the narrative coming out of Amgen there is much more information and much better color in terms of how they are positioning and what their expectations are for this product. I do believe in the summer of 2015, we are really at a turning point kind of a catalyst for how people will view this asset and what the long-term potential might be. We are eager to see really how the European regulatory process shakes out. Really again like Promacta, we inform our thinking about the potential based on what the third-party sell side analysts view as in will be monitoring and pulling those out reports over the next two quarters.

Okay. Got you. Just a more 50,000 for equation, somewhat new to the name just I think there are many reasons why people like the story and obviously I think one of them is that the amount of Shots-on-Goal you would like to comment the partnerships and fully funded in that and the greater than 120 is clearly offers a lot of different opportunities, but I think another people like is that the projection of growth from 85 last year and very much small if you go back few years. Does just the sheer amount of partnerships, is there still legs to that story and/or might you need another round of acquisitions or would you have - I think just some talk, some people whispering that maybe you can't keep the operating expenses at such a low-level and might that have to increase over time?

Well, Larry good questions. There is one thing that is certainly the case. Not all programs are of equal value. Frankly, some drug market are smaller, the royalty rate may be lower or higher. I mean, while we do not have the liberty to disclose the details on every a program, we give as much information as partners allow and we understand that some programs are bigger than others. Having said that and this case study that we talk about one-on-one with investors and analysts. Three, four years ago, when we bought CyDex people gave very little attention to Kyprolis. We have a very good sense of what Captisol was doing to enable Kyprolis and there is also at the time some pretty good data out there, but the market frankly was not focusing on it. Matt might be a little elaborate, but just the last week or two, we announced a deal with Sanofi for their MET kinase drug. It is a cancer drug going for solid tumors. It is just an illustration of another recently announced deal, but what we have shared with investors is that there may well be 5, 10 and other 20 Kyprolis-type programs in our existing stable of assets. Important cancer or non-cancer based medicine comparable if not maybe higher royalties targeting similar sized markets. Again, we understand we can't bury investors with all the details of every program, but this is a part of our story. Now, to your model or your question about the sustainability of our model, we are at a point where we continue to fund three to five research projects a year. Diabetes is obviously our lead program that we are funding right now, but we are investing in novel research projects that could be the basis of new…

Got it. Okay. Great. Thank you.

Thank you, Larry.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Mr. Higgins for closing comment.

Good. Thank you, Devin. I appreciate your time for [ph] the call. We appreciate everybody dialing, great attendance here for early August in the last afternoon call. Again, we are pleased with the business and our performance. We will be on the road, of course, later this fall at some conferences and also expect to have an Analyst Day sometime in the next three to six months. We will tie that to very smarter events once we have a little more clarity on the corporate calendar. Again, thank you for your time and interest in the Company, and we will keep you posted as the business develops.

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