Welcome to Ligand’s second quarter of 2017 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 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 is related to projections or other forward-looking statements represents the company’s best judgment based on information available and reviewed by the company as of today, August 7, 2017 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 afternoon and welcome to our call. The second quarter of 2017 was very strong operationally and financially. And we are enjoying good momentum in all elements of our business. Our partnership reported numerous positive developments recently, we entered into three new deals in the second quarter, and we are raising our financial outlook for full year revenue and earnings given the momentum we see from the business at this time. First, I want to comment on the revenue performance of our three main royalty assets Promacta, Kyprolis and EVOMELA. All three products had excellent sales in the second quarter. Novartis reported $210 million for second quarter revenue for Promacta, that is the largest dollar increase over the prior quarter ever for the product gapping up $35 million from the first quarter 2017 sales of $175. Now compared to one year ago, Promacta revenues were up $52 million over Q2, 2016. Novartis is doing an excellent job managing the global clinical and commercial progress and we are more confident than ever the product is on track to exceed $1 billion in annual sales in the future. In addition to strong sales performance, Novartis reported that Promacta was approved in Canada for the treatment of pediatric chronic ITT and Novartis now its publication of study conducted by National Institute of Health, demonstrating that 58% of patients with treatment, naïve, severe, aplastic anemia achieved complete response at six months when treated with the products. The data are published in the latest issue of New England Journal of Medicine. Another product we are in royalty is Amgen's Kyprolis which incorporates Captisol. Kyprolis continues to perform well commercially and Amgen posted the highest quarterly sales ever with the product as well as the largest dollar increase over the prior quarter. Amgen reported…

Thanks John. I’ll start with a brief review of some recent developments with our partner programs and I will touch on licensing activities for our two primary technology platforms Captisol and OmniAb. I’ll also review the upcoming events for our Phase II Glucagon Receptor Antagonist or GRA program. Our partners at Eli Lilly recently highlighted Captisol enabled Prexasertib as a priority internal development program at Lilly. This a new program designation that Lilly has given to a small group of assets where they are now focusing what they describe as "the vast majority of their internal R&D dollars". By focusing on assets like Prexasertib Lilly has indicated that they are betting more aggressively on their portfolio assets that have what they call the highest foundational potential. As background, Prexasertib is a potent small molecule inhibitor of checkpoint kinase 1. CHK1 has emerged as an interesting target in cancers with D&A repair defects. Prexsertib is described as a first-in-class agent as Lilly has reported clinical responses in monotherapy settings in both platinum sensitive and platinum resistant ovarian cancer. In addition to monotherapy use in ovarian cancer Lilly indicates that they see possibilities for Prexasertib in other tumors as well and I note that clinicaltrials.gov currently lists eight actively recruiting clinical studies for Prexasertib in a variety of cancer settings. Prexasertib is an asset we previously highlighted in our partner pipeline, first as a next 12 assets back in 2015 and then again as a bay 6 asset earlier this year as part of the Captisol technology platform license agreement that we did with Lilly back in 2011. Lilly has also been recently highlighting the Captisol enabled merestinib program which is a multi-kinase inhibitor currently in a registrational phase 2 study in [indiscernible] cancer. It's also part of the platform Captisol license…

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 2017 were $28 million which is up from $19.5 million a year ago. Royalty revenue increased 46% to $14.2 million from $9.8 million a year ago and this increase primarily reflects higher from acting Kyprolis royalties in the addition of the EVOMELA royalty. For both Promacta and Kyprolis the higher underlying revenue reached a more royalty derived from our higher royalty tiers earlier in the year. Captisol material sales for Q2 were $5.6 million versus $3.9 million last year and license the milestones for Q2 were $8.2 million versus $5.9 million last year. Our corporate gross margin was over 96% this quarter, which is in line with our guidance for gross margin to be in the mid-90s for year. For the balance of 2017 we expect material sales to represent a larger portion of the revenue mix and as a result we see corporate gross margin lower than the first of the year although still in line with our guidance. On the expense side, our cash R&D and G&A expenses were $6.7 million in this quarter. For GAAP, the combined R&D and G&A total was $11.4 million, for the balance of the year we expect these amounts to be relatives consistent with approximately $11 million in combined GAAP expense per quarter and little $6 million per quarter in combined cash expenses. This gets you to the full year cash expenses of $28 million to $30 million as we signaled at the start of the year. Turning to cash flow, our cash flow from operations for the quarter was $10.4 million and assuming our updated guidance for revenue we’re on track for a full year EBITDA to…

[Operator Instructions]. Your first question comes Drew Jones.

Good performance in licensing revenues, it sounds like you guys are very pleased with OmniAb momentum, I think at the start of the year you guys had guided towards maybe four programs hitting clinical. Can you give us an update on where we are and maybe how many are on the cusp of hitting clinical?

Sure, I think the guidance we gave originally, I think it was three programs that would hit the clinic on the OmniAb side, and we obviously saw the Janssen program hit the clinic this year and generate a milestone. Matt's mentioned a few of the others that are in or approaching the clinic and so I think we’re on track there for that.

Yes, and I’ll just add a little more color from a technical perspective Drew. As Matt said very much on track, the Janssen program is in a Phase 1 now that started in June, but in addition to that we see partners that are either in the clinic or very quickly approaching the clinic based on the reports we are getting and we will continue to see news flow coming out of those but CStone, Gloria, Hanall, Activo, all of which are highlighting named OmniAb programs publicly. So, very much on track and we continue to be pleased with the progress of the partners, the commitments are showing the investment around antibodies that are being discovered with OmniAb and just the quality of those antibodies from the data they are sharing with us and presenting.

Great. And then a really nice sequential uptick for Captisol. How is that going to be split over the last two quarters to get to the $23 million guide for the year and also can you give us a little feel for clinical versus commercial split?

Sure, I’ll give first. Just overall big picture for the balance of the year if you just do the math from the $133 million guidance from what we have recorded so far. You will see that that is about $75 million to $76 million of revenue left for the rest of the year and then just doing math if you breakdown the royalties that everybody didn’t calculate based off of the Q2 partner revenue, you will see that royalty is going to be more heavily or more evenly split between Q2 and Q3. Overall, we see about a one-third, two-third ratio as we've guided in the past for the different quarters. But if overall about a third is going to come -- of revenue is going to come in of the balance of the revenue is going to come in Q3 and more than a third is going to come on royalties you can cut it back into some math that will give you the milestone in Captisol revenue will face a little heavier weighted to Q4 than Q3.

Yes, and just in terms of buying patterns on the commercial side, generally we have seen that Q4 is a larger quarter for commercial buyers, just given the cycle to and especially for some of our larger partners in terms of when they buy Captisol.

And your next question comes from Scott Henry.

Thank you and good afternoon. Couple of questions, first one and I don't know if you are going to have a lot of color on this, but I thought I asked how you think about it. EVOMELA has been a little choppy, great quarter in second quarter great quarter in fourth quarter Q1 was down a little bit. Are there chunky buying patterns here, obviously things are going well with the market share increase, just trying to get a sense of how representative 2Q is?

Yeah, well Scott good question. First generally speaking, we're really pleased with what Spectrum is doing. Many of our investors know Spectrum they're specialty oncology company and the product even at the time of the license three years ago we knew was a the good fit with their clinical focus. But clearly, we think they've done a very expert job of placing the product commercially. So just generally wanted to give that overview. You're right about the quarterly trends, we only have five quarters, we have the first quarter a little more than a year ago was one-month sales. So, we don't have a lot of history so far. We do know from what Spectrum has commented publicly that in the fourth quarter they had one or two specialty channels that were new customers and they did sell into the channel an extra that's maybe $2 million to $3 million, so that may have increased Q4 revenues by that amount and then could have pulled a little bit out of what have been the Q1 sales. So, I think as they're signing up new customers, signing new contracts, they're really driving the commercial channels. But having said as much, their market share growth is impressive. In the first six months, they reported 30% to 35% share. And now they believe they are commanding about half of the market share in just a years' time. So, we don't give projections by product. We make estimates based on sale side and another analyst they cover the product, we haven't heard projections specifically for the products from Spectrum this year. But on balance the trends look good and the market share gains particularly are very impressive.

Okay great. Thanks for that color. And when I look at your royalty generating products, they've all done very well in this quarter. And I guess the question is, the $87 million guidance doesn't really change. Do you feel really good about that number now? Do you feel better about it now than you did a quarter ago? Or just trying to get a sense of how much of this strength you expected versus whether it's been surprising one?

Yeah good perspective in terms of the timing and how all three of the products have come in really very strong. The Q2 revenues for each one was impressive and as investors know this year we are still booking royalties on a one quarter lag. So, what our Q2 revenues for the underlying product, we book as our royalty in the third quarter. What is interesting is last quarter we had one of our partners CorMatrix exercised a royalty buydown. They had a predefined right to buydown a royalty, it required $10 million payment we received 5 we'll get another $5 million at year end. But by buying that royalty rate down, our royalties for that specific product will be potentially $1 million to $3 million lower, of course it’s all set by this very large upfront milestone we got. So, what’s interesting is just by circumstance that corporate financing and restructuring happened last quarter, we’re doing very well on royalties and we’re making up revenue in milestone and contract payments with CorMatrix, that’s part of the reason why we’re able to raise guidance, but royalties so far, they haven’t taken a debt at all because of the strong performance by these other products. So, we see feel good about the royalty we feel very good about these underlying three royalty assets but really would want to see another quarter through 2017 before revisit the royalty numbers for 2017.

Thanks for that color. And then on the pipeline or I guess soon to be launched product, what is this timing around the Baxdela launch, how should be think about that and will that be a lag as well?

Scott, this is Matt Foehr, they haven’t giving specifics on exactly when they’re launched. Generally speaking we expect it will be sometime in the next couple of months here, that is usually what it takes -- they’ve been building up, they built up their commercial organization and contracting and getting ready for lunch etcetera so, we’re keeping our eye out for that but we generate expect in the next couple of months.

Yes, and we will book that on a one-quarter lag to the extent they generate any sales in Q3 we'll book it in Q4 but if they generate sales in Q4 it will be a 2018?

The next comes from Matt Hewitt.

Just one from me. On the four new licensing deals, how many of those were Q2 versus Q3 as far as initial payments are concerned?

So, in Q2 we did a new, so in May we did a new Captisol license agreement with analgesic, interventional analgesic also May we did a deal with xCella bio for OmniAb and then in June surface oncology more recently July, which is a Q3, we did the AMG 330 deal, with Amgen, which is also Captisol deal for AMG 330 which is an anti-CD3, anti-CD3 bispecific antibody that they’re developing for acute myeloid leukemia.

The next question comes from Larry [indiscernible].

Few follow up, most of my questions were answered but I could probably follow up on questions on a bunch. Just on the guidance so, just to clarify it looks like from the last time you guys updated. You’ve essentially [indiscernible] revenue up $1 million and EPS of $0.03.

Yes. That’s right, $1 million on the revenue side recently after tax.

Right, you had said that the royalties would be a little less than 87 because the CorMatrix and it looks like now you have reaffirmed that 87 number so you sort of that in that blank, so perhaps that’s $1 million, although you are not actually saying that, but you can roll with that. Just on OmniAb on the OMT, obviously great progress there. I know when you acquired you had expected that $12 million of revenue this year, you haven’t really broken out guidance on that, I don’t know why but are we still close to that number, or is it fair to assume we are above that?

Yes, good question Larry and I think generally your sense of the guidance is right. We overall and OmniAb on the OmniAb specifically the best way, we haven’t seen specific numbers but the best way that we’ve guided investors and analysts to focus on this from the milestone charts that we showed earlier on in the year at analyst day and otherwise that that show that we had about $6 million to $7 million of annual license excess fees or annual fees that we said was majority of that was all OmniAb related. And then top of that we said that we give milestones when they go into the clinic and so we announced the Janssen milestone earlier this year for million dollars as we couple of these others go into the clinic we may realize milestone from those as well. And so long-winded way of saying yes, we are still on track for roughly those numbers, it might be a little more, might be a little less, but generally speaking we are right on track there.

Okay and then on [indiscernible] I don’t know how much you can count, but the $10 million, the Q2 number or I guess maybe that was growing as part of that, -- itself equates to 30% share but does that suggest that the markets are only $80 million, $90 million and not maybe -- that was more likely $120 or something?

Yes, the market size is really a factor of pricing and at the time of launch where pricing was, I think Spectrum and others and we had quoted numbers between a $100 and $130 million and I think they used the word approximate but if you were exactly then yes of course your calculations are right at this price and that share. It's about a $100 million market.

Okay. And then just lastly on the LGD 6972, on what forums, -- is that just going to come on the press release and I guess you have full data at some future conference or is that actually going to be at the EFDA as well?

Yes, great question Larry. So, we would generally expect -- once we have the topline data, we would expect to release the top line data in a press release. We'll aim to present the data at a scientific conference in the future, we already know we will not make the late breakers or ability to get a podium presentation at the EASD because we are already past. It would be in the future meetings but we will announce the data at the press release.

[Operator Instructions]. Your next question comes from [indiscernible].

Hi, this is [indiscernible] thanks for taking my question. I wanted to know your EPS guidance, does that incorporate potential start of the Phase 3 GRA trials in 2017?

Thanks for the question, good question. What we said pretty consistently is that once we see the data for the Phase 2 trial, we'll evaluate the best next steps. We've been pretty clear though that we aren't planning to start a Phase 3 trial immediately. We're digesting data and consider our partnering alternatives and internal alternatives et cetera. And so, the guidance in any event it wouldn't happen this year if we did start a phase 3 trial. And so, it incorporates all the expense related to GRA for this year.

Yeah and then just generally with GRA, we feel like with the program we have a highly differentiated molecule, we're excited to see the data we'll see the data here in the September and then announce it when we have it. And consistent with our model we'd generally look to partner the program of course. So, we're anticipating and looking forward to seeing the data and we'll share it when we have it.

Got it. And then have you guys started this partnership discussion? Or are you going to wait for the data to start initiating these conversations?

Yeah, generally we don't provide details on kind of partnering dialog. I'll say the players that are the global players that are in diabetes are aware of the program and I think we've screened the data events as a value driving event, which is why we invested in the phase 2 trial. So, once we have the data, once we're able to present it we would expect to be progressing with dialog. But again, we're always careful to not promise any timelines around deals or anything like that.

Got it, yeah. And then on the [indiscernible] the $90 million financing agreement that you'd mentioned. I just want to confirm that that has no implication for your relationship with them for your agreements with them?

No, there has no implications for our relationship with them.

Got it, okay. And then maybe can you just talk -- I know we talked a lot about Captisol, but can you maybe talk about the changes and the pace of the partnerships relative to last year? Has that increased or stayed the same? Where are you in terms of the numbers partnerships and [indiscernible]?

The inbound interest in Captisol continues to be extremely strong. Our sampling numbers over prior periods are well over 20% right, so we're seeing inbound sample requests continue to grow. And I think that's one really a representation of recent validation of the technology with recent approvals like [indiscernible] with global expansion by a number of our partners into new countries where they're racking up additional regulatory approvals in added markets. All of those things really start to create a lot more momentum around the technology. And I'll say probably more importantly to a lot of partners is a continued expansion of our drug master file or safety database. We continue to add new tox studies to our safety database that our partners get to reference as they move drugs through development. So, we'll continue to see growth in the inbound interest. We've announced a few deals this year, clinical stage deal with -- we've referenced the commercial deal with [indiscernible] for IV ganaxolone. Also, commercial deal with interventional analgesics for an undisclosed compound. So, we continue to see inbound interest and later stage licensing deals and growth in our research deals as well which are kind of earlier stage precursor to downstream type commercial deals.

Well thank you everyone good turnout by the callers and questions, appreciate that. There is no other follow up. I just want to conclude by commenting, while the year's been good, we’ve had 5 months left and we expect to have a very busy and productive fall. Coming off Labor Day we have three conferences, we'll be at the City Conference in Boston, September 6th and 7th it’s the first time we had an invitation to that conference so we're pleased to be there. Rob and [indiscernible] will be in New York city September 10th and 12th and then we’re pleased to be Stephens Conference also in New York in early November, so will be on the road a fair amount and we look forward to further update. Thank you for time this afternoon.

This concludes today's call. You may disconnect your lines.