Greetings and welcome to the Ligand Quarterly Earnings Conference Call. At this time, all participants are in listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Todd Pettingill, Associate Director of Corporate Development and IR for Ligand. Please go ahead.

Thanks, Jerry. Welcome to Ligand’s second quarter of 2016 financial results and business update conference call. Speaking today for Ligand are John Higgins, CEO, Matt Foehr, President and COO and Matt Korenberg, 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 and its management regarding its internal and partnered programs. 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 information available and are viewed by the company as of today, August 4, 2016 and do not necessarily represent the views of any other party. 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.

Thank you. Good morning, investors and analysts. Thanks for joining our second quarter earnings call. At the start of 2016, we outlined an ambitious year of growth, investment and expansion of our portfolio and half way through the year now, I’m very pleased to report the business is doing great and in several ways, it’s even ahead of where we expected it to be. Recently approved products will earn royalties from are just beginning to generate new revenue for Ligand. We have completed two acquisitions so far this year, we’re investing in an important novel diabetes program, we help create a China-focused R&D venture for liver related health and we’ve completed five other new license agreements. The business has grown meaningfully over the past couple of quarters. Our core focus continues to be on strong growth in profits and cash flow per share. For 2016, total annual revenue is projected to grow by more than 60% over 2015. We project company gross margins will exceed 90% in 2016 and by managing with low operating expenses, we estimate we’ll generate over $0.60 of pre-tax cash for every $1 of revenue we generate this year. That is over a 60% cash margin on our revenue. There are several major items I’d like you to take away from our recent developments with Ligand. Promacta, let’s talk about that first. Novartis posted 158 million in quarterly revenues for Q2, that’s a big number and a biggest quarter-over-quarter dollar increase. Last quarter’s sales were 131 million. Not only is this the biggest quarter-over-quarter dollar increase, but it’s also one of the biggest percentages increases as well, which says a lot as the product has been on the market for over 7 years. I will also note this is the first quarter in the product’s history…

Thanks, John. I’m going to start off this morning with a discussion of some additional developments with partner programs. I’ll also provide updates on our business and licensing progress with the OmniAb technology and with Captisol and I’ll also touch on recently announced deals, centered around the Ligand invented LTP or liver targeted Prodrug technology. Let me begin with some recent partnered program developments. Our partners at Melinta, highlighted their delafloxacin or Baxdela program at the ASM Microbe meeting in June. This followed their announcement of confirmatory Phase III clinical data for the program in May and their plans to file an NDA for Baxdela in the second half of this year. Sage Therapeutics continues to announce data and events related to Captisol-enabled SAGE-547. This is an asset getting significant attention, given its known and growing clinical dataset. At the recent American Academy and Neurology meeting, data from an open label Phase I/II trial in super refractory status epilepticus or SRSE demonstrated that the previously reported 77% key efficacy endpoint response rate was not related to age, gender, ethnicity, comorbid medical condition or to underline anti-epileptic or third line agents. Additional data presented at the meeting also illustrated that SRSE has a high burden of illness with significant morbidity, lengthy hospitalizations and significant utilization of ICU and overall hospital resources. Merrimack presented an expanded analysis of its Phase II trial with MM-121 in combination with other agents in HER2-negative hormone receptor-positive metastatic breast cancer at the recent AACR meeting. This was in addition to announcing the initiation of a Phase I study with MM-151 in colorectal cancer as well as a study combining both MM-151 and MM-121 in a variety of cancers, utilizing specific biomarkers, analyzing the study to match patients to treatment approaches. I also want to briefly highlight…

Thanks, Matt. I’ll start my remarks with some financial highlights from our earnings release issued earlier today. Total revenues for the second quarter of 2016 were 19.5 million and included royalty revenue of 9.8 million. The royalty revenue increase of 48% versus the year ago period largely reflected higher Promacta and Kyprolis royalties. Captisol materials sales for Q2 were 3.9 million, which was in line with our expectations and license fees and milestones for Q2 were 5.9 million, which includes the addition of revenue from OMT and its OmniAb platform. With respect to gross margins, as John mentioned, our corporate gross margins are expected to exceed 90% for the year. Our royalty revenue and our license and milestone fees have limited costs associated with them and are reported net on the income statement at 100% gross margin. The only revenue item associated with cost of goods sold is our material sales for which we continue to see higher gross margins driven by both mix and volume. On the expense side, our cash R&D and G&A expenses were in line with our expectations and we continue to be on track for 26 million to 28 million of cash expenses for the year. For the second half of 2016, we therefore expect a little more than 14 million of cash operating expenses. In addition to the recurring non-cash expenses such as stock-based comp, we had a large non-cash expense for the quarter related to our Viking equity holdings. As a result of the financing Viking completed during the second quarter, under GAAP, we recorded a $10 million or $0.48 per share non-cash write down to our existing holdings to account for the dilution from the Viking financing. Currently, we require the value of Viking using the equity method, which requires us to…

Thank you. [Operator Instructions] We have a question from Mr. Matt Tiampo, Craig Hallum. Please go ahead sir.

Good morning, gentlemen. Congrats on a solid quarter and great first half of the year. Maybe quickly we can start with the easy one. It looks like gross margin on material sales continues to outperform, is that driven mostly by mix towards clinical or are you seeing additional efficiencies within your commercial supply as well?

Thanks, Matt. Yes. The mix continues to be favorable. I think on the volume side, I’ve said on a last couple of calls that we continue to benefit from the volumes at which we’re purchasing and selling Captisol and I think from the mix side, it’s more difficult to know which way the mix is going to go from quarter-to-quarter. From a volume side, I think we know enough now that we can say that the volumes should be at this level for the balance of the year, should benefit from the volume side and hopefully mix continues to be favorable as well.

Great. As I look at the reported royalty revenue, it’s maybe a little bit higher than we have modeled marginally, and just wondering it appears to me that outside of Promacta and Kyprolis you had maybe an uptick in royalties from other sources this quarter just wondering if you could get a little bit more granular on maybe which products or subset of products was driving that?

As you know obviously Promacta and Kyprolis are knowable ahead of time and those numbers obviously were exactly as you would have guessed. The rest of the balance the commercial royalties tend not to be reported by our partners and so they’re little harder to know but generally they’re products are all performing pretty well across that bucket and it is not one particular product over another.

Is CorMatrix booked on one quarter lag also was there any CorMatrix royalty booked in Q2? Or is that all going to start in Q3.

Good question Matt. CorMatrix is not on a one quarter lag because we have the annual minimum royalties and because of the reporting structure of CorMatrix, the relationship between Ligand and CorMatrix, we know those royalties monthly and we can book it real-time, so that maybe that might be the extra bit in there.

Next question is from Joe Pantginis, Ross Capital Partners. Please go ahead sir.

First, [indiscernible] can you provide any additional details on the 6972 program, how big the Phase 2 might be the kinds of endpoints you're looking at et cetera?

Thanks Joe and actually we just - the trial just got posted to clinicaltrials.gov as well, obviously it’s a double-blind placebo-controlled phase 2 study focused on our drug of course, we’re testing at three doses. So we’re looking at a 5 mg, a 10 mg dose and a 15 mg dose, also a placebo and the patients will be randomized 1 to 1 to 1. We expect about 132 patients in total and the primary endpoint is going to be HbA1c at 12 weeks. So I guess that's the general design of the study obviously we're really excited to be moving the study forward, we see a lot of potential advantages for glucagon receptor antagonism delivered in an oral small molecule way, obviously as you compare to other novel mechanisms to treat diabetes whether it’s a DPP-IV that comparative when you look at the data out there for glucagon receptor antagonist have showed fairly modest reduction in fasting plasma glucose, there is a potential for glucagon receptor antagonist to overachieve there, GLP-1s of course are only available injectable, we have a oral and SGLT2s are contra indicated for renally impaired patients and we think there is potential for LGD-6972 to be effective in renally impairment patients as well. So we are excited to get the trial running, we’ll get the data next year and look at it then.

And just I guess that you are at a good position as a company because you have the cash resources now several years ago to be able to run the study and correct me if I'm wrong, is it is the study that you will internally take the furthest before you're looking to partner because having such a relatively large randomized phase 2 study should put you in a pretty good position if the data are good from a partnering standpoint and leverage.

Joe, it’s John here. I'm mean you’re correct, your observation on both points partly the financial resources we have to, to make the investment but also our decision, our desire to take this further still with the goal of partner but the partner at a bit later stage, generally for new investors in context with our business we invent drugs, invent technologies typically license at the earliest possible point. Ligand obviously we are enjoying the success, increase profits and cash flows, we are diversifying our investments, obviously we make acquisitions, we have funded some start-up companies but this is another illustration of how we believe we are selectively in a discipline manner choosing to fund other projects that we believe have a potential to generate high value returns. Diabetes is a very large market, enormous medical needs, the cost to advance a drug are very, very high but this next study, the design is fairly straightforward, there are standard protocols and we believe that we can not only efficiently manage the study from a time perspective but also a cost perspective we can afford to do it and if the trial is successful it should generate significant data package for us that will be much more substantial for licensing prospects than what we have right now. So, as we have said over the last few years, this is what Ligand we expected it to look like, as we grow up as we mature as a company, we are pleased to have this program in house and obviously are excited to initiate the study in the next month or two.

Maybe Matt again, I know I'm asking you this to speak on behalf of one of your partners but when you look at the [indiscernible] it seems to have plateau over the last few months, they had a very, very strong start irrespective of the numbers just they found the slope of the curve I was just wondering if you have any comments on what's going on there?

Joe we followed the scripts as well obviously Pfizer remains very committed to the product in the US from our dialog with them obviously best to talk them specifically about the work they're doing on the commercial marketing side et cetera, they’ve had some recent approvals outside the US, so we're starting to watch that now as well but yes that's probably the most I can give you there without not wanting to speak for Pfizer.

The next question is from Carol Werther, H.C. Wainwright. Please go ahead Ma’am.

I was wondering Matt with all the incoming calls about Captisol, are the terms changing, are they improving for you?

Carol, thanks since the time we acquired the technology five years ago now, we’ve invested significantly in the IP portfolio, the safety database has grow significantly and there is more I will say clinical validation regulatory validation on a global basis and also commercial validation of products that candidly wouldn't be on the market if not for not Captisol. All of those things obviously increased the value proposition for our partners and we have seen that get reflected in better deal terms over time, technology has become more valuable, become more known and with that more streamlined regulatory and safety database that are partners enjoy, we do in general garner better terms than I’ll say the deals that existed when we bought the technology.

An also Carol just from a landscape perspective, it may be obvious by our report in the news flow in this call but over the last year or so it’s remarkable the volume, the quantity of positive data that is coming out of our partners for Captisol based programs, we can start with Amgen and Kyprolis of course, a lead commercial partner or licensee of ours, but beyond that Spectrum one, approval for EVOMELA earlier this year, a important new medicine, we talked about SAGE Therapeutics we talked about Melinta, Lundbeck, all of these companies are reporting very meaningful data in clinical results for a wide range of programs, this is always been a part of the business for the last few years, we had departed relationships but now the late stage nature of the data report is also I think really fuelling interest and increased demand for Captisol sample request. So in terms of landscape, we’re in a good place right now not only with our existing partners but with the platform to we believe continue to expand the Captisol based relationships.

Can you describe at all like should I just assume single digit royalty from the new partnership?

As Matt described, we've added tremendous value, the value proposition has increased and in ways we talked about over the last couple of years we are able to do move our pricing a bit but generally this is still a technology license, it’s recipient license tied to a patented formulation. Royalties are solid but compared to novel drug discovery like Promacta for instance, or our diabetes drug, the royalties are lower than those novel invention.

And then, as you look forward to the second half of the year you've signed at least I guess ten new partnerships I'm guessing correctly, what should we envision for the second half of the year?

So, we don't give guidance on shots on goal outlook, we talk about the current state and partly because we can't predict acquisitions and we also can’t predict attrition rates. When we report out numbers it is a net number, it’s accounting for everything that's currently actively funded. So we can’t give a forward outlook, however this year the number has grown by 10 its come through acquisition, we acquired CorMatrix, some royalty rights there, we have some new license agreements with Nucorion, this Chinese venture we describe, we've done a number of new OmniAb related deals. So as we look at that landscape of new deal making that's how our number is now over 150 shots on goal.

We have a question from Greg Fraser, Deutsche Bank. Please go ahead sir.

My first question is on the guidance and if you comment on your expectations for royalties and material sales that are in the $66 to $70 million target and also are there any key milestones payments that are included in that guidance range that you call out?

You’ll recall that at the beginning of the year that we gave some guidance that said royalties overall would be about half of total revenues for the year. And same for milestones and Captisol they’re usually about 25%, those are definitely approximations but they still hold for the balance or the full year in total. And so that should be able to get you to the royalty numbers and milestone numbers for the second half of the year. Obviously recognizing that royalties will grow each quarter as we get to the higher tiers for the second half of the year. On the milestone side, your recall also in the beginning of the year we gave a number of $10 million of approval rating milestones, the biggest of that was obviously the $6 million spectrum milestone beyond that there aren't any outsized milestones for the balance of the year that we think are big enough that its worthwhile mentioning there is just a continuing significant number of different events of programs moving through the clinic and few approvals that will all contribute in the second half.

Any chunkiness to the material sales expectation for 3Q versus 4Q, you mentioned [indiscernible] for the overall revenue but any chunkiness for material sales that we should think with that?

Material sales always very difficult to predict in terms of timing we are pretty consistent in saying that but we do see a larger fourth quarter every year and we expect the same this year as folks about getting to the end of their budgets and getting things in the calendar year.

I'm not sure if I missed this but did you say what OMT revenues were in the quarter?

No, recall again that when we - at the time of the acquisition, we gave guidance of $6 million for the year and as a reminder [indiscernible] [00:37:33] $12 million for next year for 2017.

And you're ’17 plus outlook hasn't changed since you took control of the business but those are numbers are up?

It continues to do well, maybe even better than expected I think we will probably update overall guidance and OmniAb specific guidance if at all at the end of the year but continuing to be favorable and see at least 12 million next year.

Last question is, what would say are the most important catalysts in the second half, you mentioned the clarity in the CLARION study for Kyprolis and the Melinta filing. What other events do you think investors should be particularly focused on in the coming months?

Greg, this is Matt Foehr and we have a number of actions coming up, we've got as I mentioned in that prepared remarks, [indiscernible] action coming up, we will see clinical data out of a number or some of our big six program as we've characterized them, SAGE 547, SAGE has talked about data events in the second half of this year also [indiscernible] program. Also mentioned as you said the filing of the [indiscernible]. So those are just a few obviously and now are the portfolio over a 150, we continue to see significant progress in the development pipeline and then on top of that commercially obviously EVOMELA just was launched in April so we will see commercial reports out of spectrum for EVOMELA as well which is one of the newer commercial assets in the portfolio.

We have a question from Lawrence Solow, CJS Securities. Please go ahead sir.

[indiscernible] filling in for Larry this morning. Speaking to primary commercial drugs and starting with Kyprolis, there was some voice coming out this year's ASCO meeting about potential increased competition in the space any thoughts there?

Yes, there has obviously been a lot of innovation in the multiple myeloma space for quite a while that’s no secret, we follow the space closely, we attend the scientific meetings, talked to experts, we’re close to it. As Amgen said on their call last week, the Kyprolis drug they see as a backbone of therapy, as a backbone of proteasome inhibition in the mission that would be combined with a lot of the other drugs and you see that you spend any time at [indiscernible] you see the number of trials that involve Kyprolis, it is a very large number of trials. So that is bearing out in the clinical landscape as well. So, we continue to see it as Amgen and obviously direct people to them for any kind of specific market dynamics questions.

Just some of the color, again just our perspective, Amgen is the market they should obviously be commenting directly about their products and plans but our view is that the market is growing, a good news is there is a number of promising drugs out there, patients are living longer, they’re staying on medications longer and as a matter of course the multiple myeloma category is increasing in terms of dollar potential. Kyprolis by our review is a widely used drug with investigator sponsored trials, we think that's an indicator of physician interest, success patients are having using the medicine and I think what we're reading coming out of Amgen is it’s a question of what these drugs are labeled for that all the new drugs aren’t sharing the same label, so usage might be different and secondly there is an expectation of concomitant use, drugs used in combination. So a variety of reasons when you look at the market factors coupled with as Amgen reports country by country new markets are coming online, in Europe, we know Japan recently saw approval for [indiscernible] license of the product. So variety of reasons coupled with the recent quarterly sales report we are encouraged by what we are seeing and hearing out of Amgen.

And then on Promacta, when might we see some results from the multiple cancer-related thrombocytopenia clinical trials and is that 2017 event?

Obviously over 40 trials ongoing with Promacta currently the MDS AML, a lot of work were continuing in expansion or specific indication aplastic anemia, continued work in ITP, the recent studies that have started up in bone marrow transplant as well. Also in the last couple of months Novartis has reported out the data specifically in the MDS AML at the [indiscernible] meeting in Europe showed some positive data in MDS AML there. We probably expect to see more data coming out of those trials in 2017. So we are keeping an eye on that and that's just based on the publicly available information.

[Operator Instructions] The next question is from the Gene Fox, Cardinal Capital Management LLC. Please go ahead sir.

Matt could you give us some insight into what the standards are for the CLARION study, are we looking at progression free survival and any insight because I think you said this is - this was originally designed by Onyx, so any color you can give us on how we should frame the results would be helpful?

Gene in terms of specifics of the design of a study, I will tell you what Amgen said publicly on their call last week which is that’s a study, the CLARION study phase 3 design versus [indiscernible] in newly diagnosed transplant in eligible multiple myeloma patients, the update that Amgen provided on their call last week was that they now expect data from that study in the second half of this year. So that was an update on their earnings call last week but in terms of any kind of finer details on the clinical trial, I’d really direct folks to go back to Amgen to discuss that.

That wraps up the line of questions, really appreciate the turnout this morning. I know it’s a busy day for earnings call as the quarter cycle winds up, just a quick outlook. We will be on the road we've been invited to a few conferences, we will be at the H.C. Wainwright Conference and the Morgan Stanley Conference in September. And then the Stevens Conference in November. We have a busy calendar of medical conference events as well with posters, presentations and partner updates, and we look forward to updating investors along the way. Thanks for your time and interest this morning.

Ladies and gentlemen this concludes today's conference, you may disconnect your lines at this time thank you for participating.