Ladies and gentlemen, thank you for standing by, and welcome to the Ligand Pharmaceuticals’ Q4 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. I would now like to hand the conference over to your speaker today, Patrick O'Brien. Thank you. Please go ahead.

Thank you, Brandy, and welcome to Ligand's fourth quarter of 2020 financial results and business update conference call. All of our speakers for today's call are in separate locations. Speaking today for Ligand will be John Higgins, CEO; Matt Foehr, COO; and Matt Korenberg, CFO. We will use non-GAAP financial measures and some of our statements will be forward-looking.

Good morning. Thanks for joining our fourth quarter 2020 earnings call. The past year was outstanding, the year was still with opportunities and challenges and through Ligand had stellar financial, scientific and operating performance. As a life science technology company, we are built upon best-in-class technology platform to serve our large portfolio of partners and customers. Our focus is to deliver investors a high growth business driven by our royalty-based contracts. 2020 set the stage and we are now very well positioned for significant growth and expansion to the business in 2021. There have been four recent defining factors for Ligand driving our value. One, major expansion of our OmniAb antibody discovery platform; two, the most prolific acquisition year in our history, diversifying and adding to our growth prospects; three, serving Gilead to meet their Veklury production needs to help address the ongoing global health crisis; and four, stellar financial performance. I will now expand on into these four factors. First, I’ll comment on our growth for OmniAb business. We bought this platform five years ago and over the past year, we made major investments in the technology and expanded the team to solidify Ligand’s position as the industry-leading, best-in-class antibody discovery platform. OmniAb provides our partners with access to the world’s most advanced antibody repertoires in screening technologies to enable unparalleled discovery on next-generation therapeutics. It’s a highly efficient and customizable end-to-end solution for the growing antibody discovery needs of the global biopharmaceutical industry. At the heart of our OmniAb platform are both our AI-enhanced models and the Biological Intelligence or the BI of our proprietary transgenic animals that generate high-quality fully human antibodies optimized naturally through the animal systems. Partners seek out Ligand due to the quality of our science, our discovery efficiency and our proprietary inventions. We help partners create mono and bispecific antibodies that become leading drug candidates targeting some of the world’s most challenging health needs. The antibody market is exploding in size with major new treatments coming to market at an increasing rate. Antibodies are also the largest area of R&D investment in the industry.

Thanks, John. The third quarter of 2020 was a fantastic and another strong year for Ligand. Robust top-line growth driven by our Captisol material sales led the way in Q4 with strong financial results across the business. In addition, after closing the Pfenex transaction on the first day of the quarter, we spent the final months of the year integrating that business and team into Ligand capping off a very busy strategic agenda for the year that included four corporate acquisitions and the sale of our Vernalis business. We continue to generate significant cash with 2020 resulting in our eighth consecutive year of strong earnings and positive cash generation. Our fourth quarter financial performance was the most robust of the year. Total revenue for the quarter was $70 million, up from $27 million a year ago and they included $11 million of royalty revenue, $41 million of Captisol material sales, and $18 million of contract revenue. With respect to royalties, Kyprolis revenue of $272 million by Amgen for Q4 of 2020 was up over Q3 2020 and up year-over-year despite the fact that sales in 2020 continued to be impacted by the pandemic. Ono, again had an outstanding sales quarter for Kyprolis, posting $18.1 million in Q4, continuing its growth and reporting the largest quarter ever following the previous high in Q3 2020. Captisol sales of $41 million in the quarter, compared with $7.1 million a year ago, up more than five times the level in 2019 similar to our trends throughout 2020. Our contract revenue in Q4 2020 was $18 million, compared with $8.8 million a year ago, with the increase driven by several OmniAb related milestones and service payments, and our Icagen partnerships, which was also offset by the sale of our Vernalis business partly through the quarter. Adjusted diluted EPS for Q4 2020 was $1.62 or a 128% higher than Q4 of 2019. For the full year 2020, we achieved $186.4 million in total revenue, which is an increase from $120.3 million in 2019 as we reported or $106.1 million as adjusted for the sale of the Promacta royalty in Q1 2019. Including the Promacta adjustment, all three business lines increased year-over-year, despite the challenging environment in the COVID-19 pandemic. Adjusted diluted EPS for 2020 was $4.55 or an increase of 47% over the $3.09 as reported in 2019 or an increase of 81% over the $2.52 as adjusted for the sale of Promacta. We finished the quarter with approximately $411 million of cash, cash equivalents and short-term investments.

Thanks, Matt. Throughout 2020, Ligand's technologies had substantial positive impacts on global human health in highly visible and important ways. And now here in 2021, our technologies and our partners that use them are poised for major events in the coming months and quarters. This morning, I'll briefly review some highlights and updates for each of our four core technologies and I'd like to start with OmniAb and the suite of technologies within what we call, our Antibody Discovery Tech Stack. We believe OmniAb is our most valuable platform technology as it continues to offer a unique combination of best-in-class advanced antibody discovery tools and our partners who license the OmniAb technologies are supported by our team of respected world-class scientists with a track record of quickly discovering high-quality antibodies. We continue to innovate and invest in the OmniAb platform with internal R&D and technology development through collaborations with leading academic centers and through bolt-on acquisitions. Our partners value the work that we do and we understand the importance of quickly and efficiently discovering fully human antibodies in a variety of formats. In 2020, we acquired and integrated new technologies and scientists into OmniAb from xCella and Taurus Biosciences. The xCella technology brought us an ultra-high resolution and high-speed cell screening technology that facilitate antibody recovery and selection from our animals. This technology leverages engineering advancements that originally came out of Stanford University and uses proprietary AI-based computing approaches. The Taurus acquisition brought cow-based CDR-H3 humanizing binding domain antibody technologies to the OmniAb suite, what we now refer to as OmniTaur. Cow antibodies features some of the longest CDR3s of any species with unique genetic and structural diversity that can enable binding to extremely challenging biological targets with application in therapeutics, diagnostics, and basic research. So our OmniAb technology now…

Your first question comes from the line of Joe Pantginis with H.C. Wainwright.

Hey everyone. Good morning. Thanks for taking the question and congratulations on your real continued progress here. So, three things and the first one is really a comment or congratulations on sparsentan. I guess, you are really coming to the tail end here of a very strong developmental path and really talks to your early strategic moves when you bought Pharmacopeia and all the work that they did including randomized Phase 3 data that allowed you to leverage much higher economics for – as you said a drug based on estimates that are out there $502 billion in peak sales. So, congratulations to seeing the potential end-game here for that. So, I guess, my two questions are the following. First, with remdesivir, now that we have some general views about infection rates and what have you? Do you feel you are hitting a bit of steady state of remdesivir needs for the Captisol platform? And how do you see sort of the one or two year plan around that for remdesivir?

Yes. Thanks, Joe. This is Matt Foehr. I can comment there. Obviously, we’ve got – Captisol guidance out there for the year for 2021. As John was describing in his comments, there is a growing view and I think this is, if you talk to experts in the field that that COVID-19 will be an endemic disease. Obviously, Gilead has invested substantially in its randomized double-blind controlled trials for Veklury and shown really stellar data in terms of improving recovery times, et cetera. And we entered into a new ten year deal with Gilead’s supply deal last year, near the end of the year. So a ten year relationship gives us a binding visibility, a rolling forecast throughout the year and we feel very good about our outlook for the program. As you look now, there is still obviously a high level of hospitalizations. Gilead has quoted that approximately one in two case is hospitalized in the U.S. are treated with Veklury. And we continue to see obviously a high demand for Captisol. Beyond that, Gilead continues to invest over 40 interventional or observational studies for Veklury are ongoing, continuing to look at new settings as well, outpatient setting, new formulations, subcu inhaled formulations, all of which utilize Captisol, as well. Hopefully, that gives you a little more color and detail there. And then maybe others, Matt or John want to add to?

No. That certainly does. Thank you for that. And then, my last question really is a little higher level with regard to your underlying business here and I want to focus on OmniAb. I’ve been focusing for quite some time in my discussions with investors that OmniAb really represents a business onto itself. And you know you did brought in multiple tech platforms or what have you? So, I guess, my question is two-pronged. First, can you describe your overall inbound for OmniAb across the different tech stacks that you described and the different species and platforms that you have under OmniAb? Are there sort of – are they across the board? Or certain technologies favored more than others? And then, so, I’ll leave that as part one.

Yes, Joe, thanks. I’ll make just a general comment and then, Matt Foehr can get into to some more of the details. But, so, OmniAb, we acquired the platform five years ago and every year we’ve invested more in staff and computers, and also other tuck-in acquisitions. What’s fascinating and we know this in the industry, success, success, clinical research discovery success breeds more business. And early on, the first year or two of our operations, we had a good record of deal making. We are seeing more discovery success, pre-clinical and clinical starts and the word got around the industry and that’s where more deals. The last 12 to 18 months, what is becoming very clear is that, our further investments, Ab Initio, xCella, Taurus, we have an inside view into what the industry needs and we are bolting on other adjacent technologies that is really enhancing this platform. Industry insiders, industry players know this and they want and that is also further driving deal making. So we’ve always had best-in-class since we owned it. But our position and leadership prominence is only building. Matt, perhaps you want to comment more on the technical side in terms of our BI.

Yes. Well, honestly we’ve got a rich history continued innovation in genetic engineering in animals and that’s something that I’ll say, is really at the heart and it’s a rock foundational element of the OmniAb technology. But we’ve also shown a commitment to technology, developments around the BI, the biological intelligence of our animals itself. Right, so, sorting technology is things like the xCella acquisition that allow us to find lead antibodies faster out of our animals, obviously speed and depth of analysis matter a lot to our partners and we continue to add on to that that core of biological intelligence analogies. Some partners say is that, finding the right antibody, after you get an antibody response is like a finding a – perhaps a needle in a haystack. Do you want to find that best antibody to have the biologic qualities which we are looking for hits the target in a certain way has the manufacturability and other durability elements you want to see. It can be like finding a needle in the haystack and what, some of our partnership said as the biological intelligence puts more and more needles near the top of that haystack. So they feel they can find them more quickly to get the highest quality antibody in any element. And John was generally referencing, we have partners like Janssen and Merck, Genentech, Genmab, all of whom have had excessive high quality antibodies and are talking about those in scientific medical conferences that really begets more and more inbound interest around the technology.

That is really, really helpful guys. And then, just Part B is that is just I guess, and I am not sure your comfort level about describe – or discussing the competitive landscape, but it really comes down to the numbers game and I am talking strictly, factual points here. When you look at certain other companies and recent entrants to the public markets in the antibody space that are garnering significantly higher valuations just for an antibody platform, you just – based on my looks here, you have – it appears to have you have much better BI with regard to the number of species and tech platforms, numbers of partnerships and just greater numbers across the board. I don’t know, how much are willing to discuss the landscape.

Yes, Joe. Thanks. It’s fascinating, Ligand, a diverse company, multitude of technology platforms. We really serve a range of discovery needs that the industry requires. OmniAb is one part of our business. Investors ask questions and obviously do analysis across the board. But when you specifically focus on our OmniAb platform, the antibody business, it very well position against these other industry players. Some are still private and of course, this is out as much publicly available information. We are seeing a growing number of companies that are going public. We are seeing headlines around M&A. And what’s fascinating is that in antibodies, what we are talking about therapeutics, okay? So, that the medical category is the same, right? Mostly oncology-based targets, immunology, the medical category is the same. The clinical, the regulatory tab, and in general what that does the target customers, the partners are the same as well. So, we are all participating in the same market. So, when you start to evaluate or compare of these companies, you can look at the number of partners, the number of programs in discovery stage or in the clinic. You can look at the economics and across each one of these, we are very, very well positioned. We bought OmniAb. We had about 15 partners five years ago. Today we have over 50. The number of programs is well into the hundreds now. Many of them are early discovery stage but our success or hit rate is very high. We now have a very, very substantial calendar of partnered clinical events. Over 8,000 patients being treated in a multitude of trials. And notably, a lot of these other platforms are targeting really the first FDA approvals or major regulatory approvals out four, five or six years. For Ligand, it’s in 2021. It’s this year. So the number of programs are high. The number of partners is high that the later stage, major development and ultimately the backing economics for these companies are very similar. The pricing, the milestone payments, the back end royalties and so on. So, we feel very good about the business and I think there is going to be just heightened interest in profiling around this operation as 2021 progresses.

Appreciate all the feedback and thank you guys for indulging me.

Thank you, Joe.

Your next question comes from the line of Balaji Prasad with Barclays. Balaji, your line is open. If you are on mute, please unmute your line.

Hi, good morning. Thanks for taking the questions. John, just jumped on the call a few minutes ago. So, couple of questions from me. Have you started seeing order flows material increase from the generic companies who have in-licensed remdesivir, one? Secondly, could you provide us an update on the therapeutic equivalence status for Teriparatide? And lastly, is it fair to assume that the guidance increase in 2021 is all linked to the milestone payment? And since the last Analyst Day, are there any other programs where you have better visibility on milestones in 2021? Thank you.

Thanks, Balaji. This is Matt Foehr. I can take the first couple of questions. Obviously, as we’ve disclosed previously, we are supplying Captisol to the members of Gilead’s manufacturing consortium. We have a consortium to supply over 127 countries around the world and we are and continuing to supply those partners. So that continues to be a vibrant part of the Captisol business, as well. You ask about the Teriparatide Injection and Alvogen’s work towards therapeutic equivalence. I can’t report that. Alvogen filed a positive human factors data and that was submitted to the FDA in January. So that work has been completed. The reports were submitted to the FDA in January. So those are now under review at the FDA.

And, Balaji, I think your last question about milestones and visibility on milestones. I mean, in the past, we’ve talked to investors about our milestones in buckets of what we expect to hit and then some upside numbers. We haven’t quantified the upside this year, but obviously, the Travere milestone that we mentioned was in our upside bucket this year. And we do think that there was some other milestones that are in the upside bucket that may hit this year, but we continue to think that the current guidance reflects an average number of those milestones sort of properly risk-adjusted hitting this year and we can achieve those numbers. But there is still does remain some upside if some of these events come in timing-wise or more frequently than we might expect otherwise. So, there is definitely still some upside on the milestone side.

That’s helpful John. Thanks, Matt.

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

Good morning. Congratulations on the strong year guys. A couple questions on OmniAb first. There was a little bit of change in the wording in the press release this morning adding the AI and BI components. And I know, John, you pressed them a little bit, but I am just curious, are these recent additions to the platform? Or is it customers have been asking a more about those attributes and that’s something that you feel like, now is the time to kind of highlight them a little bit more?

Yes. Nothing new. The AI, the artificial intelligence, it has become more prominent the last 12 months, particularly with our acquisition of xCella and Aventis. When we look at our methods for using antigens for the discovery work, it’s a heavy computer-driven operation. And our customers know again, and it’s how we position our services. For investors, what we are finding is that there is an increasing audience that really understand the high value of AI. So, that bet is an evolution. But BI, the biological intelligence, really on our animal platform, it is best-in-class and frankly the only in class that has this complement of a multitude of species, the mouse, the rat, the chicken and now with Omnitaur and that is coupled with the AI. So, it’s been a part of our business for the last – ever since we’ve acquired OmniAb, but it’s expanded with these additional tuck-in acquisitions.

Understood. Right. Thank you. And then, speaking with OmniAb, so, I think CStone and Gloria are probably the likely first approvals or potential approvals to come out of that pipeline. Gloria, I think is the farthest along. Maybe walk through the process there in China as far as when could we hear something on Gloria? And what is the process once the Chinese agency approves the drug? Maybe walk through when that actually might start to translate in pure royalties.

Yes, Matt. So, you are right. Gloria and CStone are the two most advanced OmniAb partners with NDAs under review right now in China. Both are expected to be approved this year based on the filing dates and obviously, generally, there is a period also that a lead up to launch, et cetera. But we do expect both of those are potential approvals this year. Those are the most advanced OmniAb programs. So, hard to give exact details on precise rollout timing, post-approvals. The partners had basically just stated that they expect the approval this year. Based on the filing dates and the announcements around the filings, we’d expect Gloria to be a little sooner than CStone. So, in the earlier part of the year. But that will continue to longer and the partners have obviously done very good work, stellar clinical data and really have been ahead of schedule all along with both of those programs.

That’s great. And then the last one for me. Regarding Iohexol, you are going to be kicking off the pivotal trial this quarter. How quickly and maybe some details on the trial. I think you went over it a little bit on your Analyst Day. But just as a reminder, the details, how quickly, how many patients and as you look at coming out of that trial, I would imagine that you are looking to potentially partner, but is there a scenario where, given that this isn’t necessarily a drug, but this is an imaging agent. Is there a scenario where you would just take this on yourselves, maybe higher sales force and bring this to market yourselves? Anything, any color there would be helpful. Thank you.

Yes, Matt, I’ll comment on the clinical trial and then, John or Matt may want to comment on the kind of downstream approaches, as well. But the – first starting off with the product. It’s - we are initiating a pivotal trial for Captisol-enabled Iohexol participate in a – what is a $1.5 billion existing market, the contract agent market here in the U.S. The trial itself is a trial designed to demonstrate reduction in the incidence of contrast induced acute kidney injury or what’s called CIAKI, as well as equivalence of image quality following the administration of our drugs in the Iohexol as it compares to GE’s Omnipaque. The trial itself is a 540 subject clinical trial. As you said, we are gearing up to start that this quarter. It’s an adaptive design. It’s a randomized multi-center double-blind parallel group trial in patients with impaired renal function that are undergoing invasive coronary angiography. So, there will be a pre-specified interim analysis looking at rate of CIAKI. That will be performed after about 60% accrual. So we expect the trial itself to take a total of about two years that pre-specified interim analysis probably in the time period about 10 to 12 months into the trial. So, with a significant reduction in rate of CIAKI and a demonstration of image equivalence, that would potentially help for a 505(b)(2) path approval of CE Iohexol but with a label that would or could include the reduction in risk of CIAKI. So, a differentiated product with a kind of a clean and streamlined developed path.

That’s great. Thank you very much.

Your next question comes from the line of Scott Henry with Roth Capital.

Thank you. Good morning. And congratulations on a strong momentum really across the whole business. I just had a couple questions. First on Captisol. I assume, we are still at $200 million revenue guidance for 2021. Could you talk about how we should think about the cadence of the quarters for Captisol. Does that would be strong in Q4 thinking about this year?

Yes. Sure. Thanks, Scott. I think as folks recall, we gave an estimate for Q1 of $45 million back at our Analyst Day and then, on this call today, I mentioned it, I think the Captisol numbers should be relatively spread evenly across the year. Obviously, the pandemic has resulted in significant case increase in the fall, way fall, winter and then cases are starting to come down generally across the U.S. and the globe. But from a production standpoint, there is a little bit stronger lead time. So, we still see that the same $200 million is, as you indicated, and we still see a relatively even spread across the four quarters based on kind of current forecast.

Okay. Great. Thank you. That’s helpful. The second question is, obviously, there is a lot going on the pipeline and there is a lot of events in 2021. The question is, what would you view as the three to five largest kind of levers, catalysts that will be the primary ones for investors to focus on? I don’t know if you have any quick thoughts on that. But I thought it would be interesting.

Yes. Scott, thanks for the question. At the start of my call, I kind of framed four main factors defining our value and to break them down those four are really easy outline to work with to answer your question. OmniAb, the platform is doing very, very well. And so, looking for new license agreements, major late-stage data, BLA approvals and launches. So it’s a list of start but it’s going to – we believe deliver our first commercial revenue, royalty means of revenue this year. There is going to be more breakthrough data on some really important market-defining drugs and what we’ve done in the last 18 months, I think it’s going to be – in terms of acquisitions around that pipeline is going to be more obvious for investors. It’s clear to our partners. But, so that’s one factor. Our acquisitions, we are only three to nine months in on two major acquisitions, Pfenex and Icagen. Both are well integrated right now. We did one deal with GSK, but this year I think we are going to really, really start to bear fruit looking at not only revenue or earnings contribution, but also substantial moves in deal making around those. And quality additions to our portfolio, but I believe it’s also going to just reinforce our acumen as good M&A. On Veklury, the pandemic continues. I think the leadership that the oral pharma companies are – is providing is giving us hope that we’ll get this pandemic under control. But our partnership with Gilead for Veklury is frankly going to be still a major driver of our performance this year. And then, finally, just generally, what we are seeing with the P&L or the fourth thing I called out was just our financial performance. I started on describing licensing and operating performance and acquisition record. The financial performance is, it’s high revenue growth. So the top-line, we believe is going to look very, very compelling, attractive margins, disciplined spending, good margins. And then, with our significant share repurchase, two years ago, we had 23 million shares outstanding. Today, we have about 17 million. So that lean share base is going to deliver more earnings and cash flow per share. So, that’s going to be much more focus this year and what investors can evaluate.

Okay. Great. Thank you for the color. A final question and I don’t know that you will answer it. But I think in the prepared remarks, you said that the average price of the share buyback was $145, if I heard correctly. Could you give a range out of curiosity of the share buybacks?

Thanks, Scott. No, the actual average share price was $104 per share. We – so, yes, that’s about in total since November of 2018 we bought back, as John just referenced over 6 million shares or so total and average price of about – in the low $100 to $104, so.

Okay. That makes a lot more sense. That number seemed off to me, that’s why I asked the question. Thank you for that clarification.

Sure.

And we have time for one further question. Your last question comes from the line of Dana Flanders with Guggenheim.

Great. Thank you for the question. I just have one for Matt and related to just cap structure and priorities for cash flow, on a go forward basis, obviously, the cash balance has moved a bit lower just given your activity on the M&A front and share buybacks. But you will be generating cash flow - significant amount of cash flow next year. How are you just thinking about the cash available for M&A over the next 12 to 24 months? And given recent share price performance, how are you weighing some of the capital deployment opportunities you have, whether it’d be buyback or debt repurchases or M&A? Thank you.

Yes. Thanks, Dana. As folks know, we have about $500 million of face value for debt still outstanding and as I mentioned on these numbers today and we’ve put in the press release, we have about $400 million of - $411 million of cash on the balance sheet. If we project forward to maturity and the convert, we have plenty of cash to just repay the convert as is the under at the face value or the principal value of the convert. And so, from our standpoint, we have excess cash to the tune of $100 million to $200 million at least to go out and do M&A even if we did not refinance the convert or otherwise. While we still think our share price is significantly undervalued, we obviously have the opportunity to refinance the convert if we so chose. And so, from a strategic capital standpoint, we have the cash to do whatever we’d like to do. I mentioned in my prepared remarks though that, I think our focus has really been on a multi-pronged approach of large platform M&A as well as capital deployment or capital return to shareholders. We’ll continue to evaluate all that as we go forward. But in the next three to six months or so, I think we are in a mode where we are working through and making sure that all the platforms are running as optimally as they can. So fully integrating and getting everything up to our standards. We are nearly there. But I think it’s appropriate for us to digest that a bit. It doesn’t mean we won’t keep looking and M&A takes a long time and it’s very opportunistic. So, by no means are we close for business, but from a priority standpoint, I think we’ll – as I said, look for technology acquisitions that augment the OmniAb business, continue our lead in that business. We’ll look for new technology platforms and we’ll look to add major pipeline royalties that will be meaningful to Ligand. So, those three on the M&A front with a continued focus of evaluating share return or capital return as well as M&A.

Thank you.

Sure. Thanks, Dana.

And I will now turn the call back over to the speakers for any closing remarks. Yes. Thank you. Really appreciate people’s turnout today and questions. We are pleased to have 2020 behind us. A year of great opportunity and some challenges. But the team answered the call and we are really pleased with our performance. We are set up for 2021. We have invites in some virtual conferences. We’ll be on the road and we look forward to continuing to report on our progress. Thank you for joining our call.

This does concludes today’s conference call. You may now disconnect.