Welcome to the Ligand Pharmaceuticals Quarterly Earnings Conference Call. [Operator Instructions]. I would now like turning the conference over to Todd Pettingill, Associate Director of Corporate Development and Investor Relations. Thank you. Please begin.

Welcome to Ligand's third quarter of 2016 financial results and business update conference call. Speak today for Ligand are John Higgins CEO, Matt Foehr, President and CEO and Matt Korenberg, CFO. As reminder today's call will contain forward-looking within the meaning of Federal Securities Laws. These may include but are not limited to statement regarding intent, belief or current expectations of the Company and its management regarding its internal and partner programs. These statement involve risks and uncertainties and actual events or results may differ materially from the projections described in today' press release and this conference call. Additional information concerning and other matter concerning Ligand can be found in Ligand' earnings press release and public periodic filings with the Securities and Exchange Commission which are available at web www.sec.gov. The information on this conference call related to projections or other forward-looking represent the Company's best judgment based on information available and reviewed by the Company as of today, November 3, 2016 and do not necessarily represent the view of any other party. Ligand under takes no obligation to revise or update any statement to reflect events or circumstances after the date of this conference call. At this time I would turn the call over to John Higgins.

Thank you. Good afternoon, welcome and thanks for joining us on our third quarter 2016 earnings call. Ligand posted strong growth in revenue driven by record third quarter royalties of $15.7 million that's up 61% over the second quarter. We have had a productive last few months entering new licenses and further expanding the portfolio and there have been important developments for some of our late stage partnered assets. Of note Promacta and Kyprolis again achieved all-time high revenues in the third quarter which will drive our royalties for the fourth quarter. Novartis announced Promacta Q3 revenues of a $168 million that is up from a $117 million in Q3 last year and up from $158 million last quarter. This is the highest quarterly sales ever and on their quarterly earnings call slides Novartis highlighted Promacta as one of seven of its strongest performing global growth products and as a key growth driver of their innovative medicines division. Now another product I will add some comments about is Kyprolis as investors who follow us know Kyprolis is an drug that uses Captisol in its formulation, we have a license agreement with Amgen but are not involved in the commercialization or development of the drug. Kyprolis posted sales of $183 million in the third quarter that is up from $172 million last quarter. Ligand earns royalties on Kyprolis sales. Amgen's executives on their earnings call last week noted Kyprolis' sales increase was driven by higher unit demand and specifically mentioned that they see Kyprolis within the dynamic field of multiple myeloma as "the superior [indiscernible] inhibitor for relapsed multiple myeloma patients". It was also highlighted on that call that early launch result in Europe are seen as encouraging. In late September Amgen reported the Phase III clearing trial did not meet…

Thanks, John I'm going to start off this good afternoon reviewing some additional developments with our partner programs. I'll also provide updates on our licensing activity and the progress of our Phase II diabetes program. I will begin with some recent partner program developments. Our Captisol technology has seen some significant late-stage events recently. I know Lundbeck's US approval of carnexiv which is a Captisol-enabled intravenous form of carbamazepine for short-term replacement therapy for seizures. This approval came in early October so the $1.25 million milestone associated with the approval will be in our fourth quarter results. We are now set to receive a 2.75% royalty on-net sales following Lundbeck's expected launch of carnexiv core next year. It's worth noting that carnexiv's approval expands the regulatory safety database for Captisol given that it further raise per unit per therapy dosing of Captisol used I the US approved product. This can become important for current and future partners as they incorporate Captisol into their programs. In addition to the long patent coverage through 2033 and the validated GMP and multi metric ton scale of manufacturing at multiple manufacturing sites the expanded safety database for Captisol continues to be a significant value driver for partners in a key element when speaking with potential new partners who may require higher concentrations of Captisol to solubilize their active ingredients. In late October our partners at Melinta Therapeutics announced submission of their NDA for Captisol enable delafloxacin IV for treating patient with acute bacterial skin and skin structure infection. This NDA submission is follows Melinta's announcement of positive Phase III data for the program in early 2015. Given the drug's qualified infectious disease product designation Melinta has indicated that they could receive a regulatory decision for Captisol-enabled Delafloxacin-IV by the middle of next year. Switching…

Thanks, Matt. I'll started today with a review of some of the financial highlights from our earnings release issued earlier today. Total revenues for the third quarter of 2016 were $21.6 million and include a royalty revenue of $15.7 million. The royalty revenue increase of 61% versus a year-ago period largely reflected higher Promacta and Kyprolis royalties in the addition of our CorMatrix royalty income. Captisol material sales for Q3 were $4.2 million which was in line with our expectation and license fees and milestones for Q3 were $1.7 million which includes the revenue from the newly acquired OMT I'll turn next to gross margins associated with our material sales. In the third quarter as expected mix was heavier on the commercial side and margins were a touch lower than the first half of 2016. We expect this to be the case for the remainder of 2016. Related to cash expenses as Matt Foehr mentioned our GRA trial is proceeding well and related accelerated R&D cost for the trial will be in the expenses in Q4. At this time we're take tracking towards $28 million for cash expenses for the year generally in line with our outlook. For the quarter we reported adjusted net income of $13.5 million or $0.62 per diluted share. We had GAAP net income of $0.6 million or $0.3 per share. As mentioned in the press release we're evaluating the provision we booked for deferred tax asset in the third quarter of 2015. These changes will not impact our 2016 income statement. As background we closed the acquisitions for metabases [ph] and neurogen in 2009 and 2010. At the time the tax treatment regarding a certain portion of NOLs relating to capitalized R&D expenses were not limited by acquisition tax accounting. After consideration we're evaluating approximately…

[Operator Instructions]. Our first question comes from the line of Matt Tiampo with Craig Hallum. Please proceed.

Maybe quickly we can start spectrum -- we saw Spectrum's report of just under $6 million obviously EVOMELA but they have pushed out their call and it looks like they are doing -- they are looking at accounting around acquiring that program in the first place, maybe if you could just provide us with some color whatever you might have about their initial launch and whether or not there's any sort of meaningful stocking orders in that $6 million and then also about -- if you have any insight into what they're looking out on the accounting side, that would be helpful as well.

I can comment qualitatively on watch. Obviously we really value the partnership with Spectrum, it's a great partnership, they have done good work getting the product approved and launched. We because of our heritage with the product in having developed the formulation and done the initial clinical work negotiating the regulatory path and then starting the pivotal trial obviously know many of the investigators and the key opinion leaders in the area. The feedback we get both from them as well as from Spectrum has been very positive. I think the product seems to be very well received given the innovation that Captisol has brought to in terms of how it can be delivered in that setting. So from our perspective I think it appears to be going well still obviously early in the launch but we're excited about the product.

Yes. We don't know the specifics of what's the accounting issues or at Spectrum related to the product, but the only thing we do know is that they have confirmed for us it doesn't have any impact on us, number one and number two they continue to pay us on time and deliver royalty reports on time and all that sort of stuff. So there's no issue from our standpoint.

And then maybe if you can give is a little bit of color around the Captisol -- I don't want to call it a push out maybe that revenue that you think will be recouped in 2017 or do you think maybe just how should we think about the lumpiness of the Captisol revenue in Q4?

Just in a general sense kind of two major parts of Captisol. As you know, the clinical orders as well as commercial orders clinical generally has a higher gross margin. Commercial we enjoy for the most part we enjoy royalties as well as Captisol material sales. As we have said many times Captisol is lumpy, a I variety of things go into production planning but also as we’ve said, clinical and regulatory events can drive a Captisol material sale. So for instance if a regulatory filing goes in slightly later than maybe a partner expected, that could impact when a partner might make scale-up in validation batches for instance or if a trial reads out and indicates that more clinical work is going to be necessary, that can affect whether a label gets expanded or not and that can drive planning and ordering and things like that. While we have I'll say good visibility, very good visibility with our partners were in constant contact with our partners from a planning perspective and an ordering participants we obviously don't have control over when they need to take in the material, test it, put it into the systems get it into their warehouses and manufacturing plants. So definitely some lumpiness there. We think it's largely a timing element.

Okay. So you would expect to see a good portion of that volume in 2017?

In general, yes.

Maybe just, Matt, briefly it doesn't sounds like it but you still plan to file your Q on time despite looking sort of the looking back at that tax -- DTA?

Yes.

Our next question comes from the line of Joe Pantginis with Ross Capital Partners. Please proceed.

Two questions regarding internal operations and then two that might be a little more speculative because they are your partner products. So first internally, John you emphasized today obviously part of your ongoing business strategy always looking at acquisitions but the markets are taking a hit again. A lot of valuations have come in. Do you think there's any increase in the active nature in your "acquisition mode"?

The simple answer is yes. There's perhaps an increase in opportunities or the number of targets we're more actively evaluating. We have a got a really sharp team here that is continually looking at M&A ideas and notably in January we closed a significant acquisition of OMT, but market values frankly were a lot more expensive 18 months ago and now in some cases the same quality of assets the markets are looking unfavorable in valuations. We have seen values move down and that creates an opportunity. We are a very value conscious team. Targets need to fit in our business model, low cost structure, a chance to have partnerable technologies or IP but also we're very value-conscious. As I said, we do not need to acquire to grow this business financially. We have strong platforms we can continue to license, we have a discovery engine. So really the last year or so we have seen a very prodigious licensing record, but now in this environment we are more actively looking. Now, we don't telegraph deals, we don't guide to any deal expectations, but we will be opportunistic and comparison now versus a few years ago obviously several years ago we saw a week financial markets for pharma and biotech stock. That was an era where we are not positive or cash flow positive and frankly had a very limited balance sheet capacity and now we're frankly the environment for purchasing is quite a bit different with a stronger balance sheet.

And then you mentioned OMT as part of your answer so that's a good segue you know, with Captisol as an example you just need to manufacture more to be more simplistic about it with OmniAb obviously it's much more in-depth with regards to antibody development in the platforms. So right now you have about 15 I think or so signed deals with OmniAb. You're looking at potential more. Do you have currently I guess a cap or a capacity for that program?

Yes. I'll give a brief remark and ask Matt to add more color. The number is 22, is actually the number. We have done 7 or 8 deals this year since we have acquired OMT. So that portfolio continues to expand. There is definitely difference with Captisol it's more of a formulation, an excipient based technology and the development or the formulation costs are fairly low. Our investment is on improving the IT to know the safety database. With OmniAb, though, it's still a fairly low cost structure as you may know we have with our OmniAb platform three different species of genetically modified rodents that are the basis for antibody discovery and that's ultimately what we’re licensing out. We are looking for deals where partners assume most of the research and development work. So we are able to enter those sort of turn-key deals with some of upfront payments and annual maintenance payments but really looking at back milestones and royalty.

I'll just add on to that, Joe, as I said, we continue to see OmniAb as a key driver of new partnerships. There's a lot of interest in the platform and one of the other elements that I think is sometimes missed while John was mentioning that number of partnership we have added the number of programs and target that are being tested by those partners is actually much higher than just the number of partnerships. So there's a lot of work going on a lot of investment by these partners and the more we interact with them the more excited we become about the technology.

Sorry if I'm getting the number wrong. Like I said it's very easy if you blink and miss a few of those, so you guys are signings these deals so fast, but with regards to partnered products I just wanted to focus on the women's health franchise for a second, obviously you know and I mentioned this on the last call as well. Few of these scripts tends to be pretty flat still over the last quarter or so and with that said I know you can't maybe discuss it too much but wanted to see if also could get a quick update with your deal with [indiscernible].

Obviously Pfizer remains committed to do [indiscernible] they have got a dedicated sales force to it and are continuing to promote it in a high call position. So we're cheering them on, we're noticing the same thing as you see on the scripts but also see this as a product that has a real important place in treatment of menopausal symptoms. [Indiscernible] it's great to bring it up earlier a private company, not as visible to investors but they have had some successful financing events and have been aggressively pursuing regulatory path, a lot of interaction with the FDA and we're cheering them on as well. There's probably more updates to come on that in terms of more precise timing, but that's what I can offer now.

I mean my last question had to deal with and I guess it's the most speculative part with Sparsentan obviously the DUET data outperformed the Retrophin did announce today in the press release that they're looking for their regulatory discussion to happen around January. So I was just wondering and this is the speculative point, you know, the indications to this point have been around the possibility for this Phase 2b to represent a potential pivotal study. Do you have any comments supporting those notions?

Yes. Joe, obviously we saw Retrophin's update just came out little bit ago. Obviously they have got a meeting planned for January with the FDA to figure out the most expeditious regulatory path for it. We were really pleased with the data when it came out in September. It was impressive data that looked very good. So we feel like Retrophin has a good packaged data but really that's for them to comment on and update after they have their regulatory discussion.

Yes. And that’s in January so we'll know more as the markets will. They do have more clinical data coming out later this month at a major medical conference. So obviously we're eager to see what is reported out at that event as well.

[Operator Instructions]. Our next question comes from the line of Drew Jones with. Please proceed.

This is Garrett on for Drew. Just first a quick one kind of realizing you had kind of a slight reduction there for the 4Q versus expectations, how should we be thinking about I guess the pacing of 2017 and then kind of getting a feel of the royalty break down versus material sales and licensing revenue?

I think as we said, we reiterated the guidance for 2017. We still see it playing out that way and nothing about sort of pacing or correlating timing really will change all that significantly. Royalties will still be booked on a quarter lag and as a result Q1 will have a very high royalty number based off of Q4 2016 sales and then Q2 will reset and we'll increase through the balance of the year. We would still expect to see material sales as they will this year maybe not as exaggerated but as they will this year Q4 will still be bigger than any of the other quarters and same thing for next year, Q4 will be likely bigger than Q1, Q2, and Q3. And then on the milestone side that's harder to comment on specifically.

Our next question comes from the line of Gene Fox with Cardinal Capital Management. Please proceed.

Matt, you started to allude to it but can you comment about sort of the things that you have been able to accomplish with OMT since you have made the acquisition?

Yes, thanks Gene. Obviously we have added a number of new deals I highlighted a deal with Gilad with F-Star, with Taneo Bio [ph]. We did a deal earlier in the year with Emergent Biosystems and some others. So we continue to add on more partners. Tizone [ph] is another example of a company with a great cancer pedigree, a great pedigree of cancer researchers that also took a license from us for OmniAb. So we have been able to expand the partner base. I also think we have spent a lot of time -- much like we did with Captisol after we bought it in 2011 we have spent a lot of time on customer service, on interacting if you will with the partners making sure they're getting the support they need to increase their probabilities of development success. We see that as very important. We have invested substantially in the intellectual property and are seeing some meaningful expansion of the IP and also in next-generation animals as well that can expand what's called the antibiotic repertoire offered by the animals. So we have spent a lot of time and effort on that and continue to and plan to continue to. So we see it as a real exciting technology. I will also add upcoming here in San Diego in December there's a big Annual IBC Antibody Conference and at that meeting we’re actually getting all of our partners together as well as some prospective partners who have a lot of interest in the technology as well as some of our service providers who service some of our partners either supplying the animals or doing certain testing getting all of them together for something of a partner showcase, if you will, at that conference and really creating even more visibility for that targeted audience. Again, something similar to what we did with Captisol when we bought that as well really focusing on that market. And we continue to see through these interactions the partner progress we expect we'll see some Phase 1 trials start next year and the more we interact with partners the better we're feeling about the work that they're doing.

Next question I had is Novartis has been very successful growing the Promacta franchise. What do you all see as the -- on the horizon for additional uses for Promacta and where do they stands in terms of the clinical and regulatory structures?

Obviously, Novartis is obviously best to come out on precise plans around the brand. It's approved now for three indications, [indiscernible] adult and children, and Severe Aplastic Anemia as well as in boosting platelet in patients with Hepatitis C. Just looking at the ASH abstracts that came out this morning there's whatever about 13, 15 abstracts or so if not a little more showing Promacta use in expanded settings in aplastic anemia as well as in a number of oncology indications and so that's really probably where we'll see the next stage of data coming out for Promacta. In the mean time we have been very impressed with the work that Novartis has done expanding the global footprint and really growing the brand substantially since they took it over.

Last question for me. Any thoughts that you have on the path towards first line -- using the first line for Kyprolis in terms of where do we go beyond the CLARION study?

Obviously we don't control the development of Kyprolis, it's Amgen's drug. They're best to really comment on that directly. They commented on that at their earnings call last week and reiterated their commitment to expansion of Kyprolis and getting it into more patient hands who need it. So I really would direct you to Amgen.

Thank you. We have reached the end of our Q&A session. I would now like to hand the floor back over to management for closing remarks.

Well, again, thank you for joining us. It's been a busy year and the next two months our outlook is full with a number of internal activities. Again overall we're pleased with the business and how the portfolio is expanding. We have had substantial news flow from our partnered programs and look forward to not only continuing licensing to grow the portfolio through internal licensing but also as we discussed earlier to potentially taking advantage of the market environments. We appreciate your time on the call. Again we will be at the Stephens Conference next Wednesday and we will be meeting with investors later in the week as well. Thank you very much.

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