Good afternoon and thank you for standing by. Welcome to the Ligand Pharmaceuticals Quarter One Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker today, Mr. Simon . Sir, the floor is yours.

Thanks Rachel. Welcome to Ligand's first quarter of 2021 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.

Good afternoon and thank you for joining our first quarter 2021 earnings call. This year is off to an excellent start for Ligand, both operationally and financially. It feels great to be well into 2021, as now we're really beginning to leverage our acquisitions from last year typically, and the U.S. has advancing into a better phase of the pandemic. As the health environment improves in the U.S., we are seeing it now pick in business activity. The Ligand team across the board has done an excellent job managing the business this past year. And now we see increasing interest for licensing our platforms and expanding work with partners, including with new and existing big pharma partners who see the value our technologies bring. Also, I'm very pleased to report business travel is coming back for the leadership at Ligand. It's invigorating to be able to interact directly with our scientists, once again, across our multiple laboratories in the U.S., especially since we added many new members to our team through acquisitions during the pandemic. Matt Foehr will give an update on the business. And I know that each of our major tech platforms is performing very well. We have rebranded our protein expression platform from Pfenex to Pelican, the team of scientists we brought on board with that company is outstanding, and we see promising opportunities for new deals later this year, and good progress on some early stage internal programs. Our Icagen ion channel unit is firing on all cylinders. And again, the team driving that platform is a plus. They're brilliant scientists, with great instincts for partner support that fits so well with our business model. Our Icagen team closed a major new deal with GSK a few months ago and continues to deliver superb support to our partner Roche for multiple targets. The outlook for Icagen is very promising as we've been investing in internal -- in an internal program that we believe may be up for licensing in the coming months.

Thanks, John. The first quarter of 2021 provided a strong start to the year for Ligand. Total revenue for the quarter was $55.2 million, up from $33.2 million a year ago. With respect to royalties, royalty revenue increased to $7.1 million from $6.6 million a year ago. The pandemic negatively impacted sales for many pharmaceutical products in Q1, including Amgen's. Amgen reported $251 million of sales for KYPROLIS, our largest royalty bearing asset. These sales were lower than we expected. Amgen commented on their earnings call last week that they experienced negative pressure specifically on their oncology business due to the impact of the pandemic on patient treatments in Q1. But we've read that Amgen and the industry overall expect oncology sales to ramp back up later this year, with a success of COVID-19 vaccinations and as pandemic trends improve in major commercial markets. Captisol sales were $31.3 million in the quarter, and this is up 48% from $21.1 million a year ago. Our Q1 Captisol revenue came in a bit lower than we expected as the business was impacted by the extreme cold weather in the Southern United States, where one of our new Captisol manufacturing sites is located. As a result of the weather, the site pause manufacturing for an extended period of time in February, pushing out production of approximately 12 million of Captisol finished goods. Our contract revenue in Q1 2021 was $16.8 million compared with $5.5 million a year ago. The 2021 quarter includes strong contract revenue from all our technologies, with approximately $4 million from OmniAb, $3 million from Pelican, $4 million from Icagen, $3 million from Vernalis and $2 million from various new chemical entity Captisol and other technologies. While Q1 might be higher than the average we expect for the year, it illustrates the diversity and robustness of our contract revenue line. Adjusted diluted EPS for Q1 2021 was $1.41 cents compared with $0.89 last year, or an increase of 58%. The strong earnings performance this quarter was in part driven by a large volume of contract milestone payments, which are typically a 100% gross margin. We exited the quarter with approximately $339 million of cash, cash equivalents, and short-term investments. This cash balance reflects the repurchase of $104.5 million of convertible bonds during Q1. We now have about $391 million of face value of convertible bonds outstanding.

Thanks, Matt. This afternoon, I'm going to review the status plans in recent developments involving a couple of our core technology platforms starting with OmniAb. I'll then provide updates on certain partner programs with major events expected later this year, and also update plans for our Captisol enabled Iohexol program. OmniAb is our most valuable platform technology, and it continues to offer a powerful combination of advanced antibody discovery tools. Partners, who license our OmniAb technologies are supported by our team of respected scientists and a track record of quickly discovering high quality antibodies. Two OmniAb partners have submitted applications for approval, and we expect both regulatory decisions this year, which if approved, we believe will be the first of many for the platforms. Specifically, CStone Pharmaceuticals announced recently that they're investigational OmniAb derived anti-PD-L1 antibody sugemalimab has been granted breakthrough therapy designation by the China and NPA for the treatment of patients with relapsed or refractory extranodal natural killer/T-cell lymphoma. Sugemalimab has also been granted orphan drug designation for the treatment of T-cell lymphoma and breakthrough therapy designation by the USFDA back in October of last year. An NDA for sugemalimab is under review at the NMPA for stage four non-small cell -- non-small cell lung cancer. And CStone has said they expected determination with respect to this NDA in the second half of this year. As a reminder CStone and Pfizer formed a strategic alliance around the development and commercialization of sugemalimab in China. The other OmniAb program I'll highlight briefly today is zimberelimab, which is an investigational OmniAb derived anti-PD-L1 monoclonal antibody that was discovered using OmniRat. Gloria Pharmaceuticals filed its NMPA in China for recurrent refractory classical Hodgkin's Lymphoma with approval also expected this year.

Sure. Thank you. Our first question comes from the line of Joe Pantginis from H.C. Wainwright. Sir, your line is open.

Hey, guys. Good afternoon. Thanks for taking the question. A couple of questions. First, and Matt, thanks for the clarity on the Captisol and everything that's going on with that. So, with that said, I just wanted to -- let's go back to the core aspect of the business, as you've been seeing significant growth even before the remdesivir opportunity. So, how can you sort of describe your ongoing business development and the types of new deals that you might be able to bring in to continue the growth that it's seen?

Yeah. Joe, from a -- you're speaking from a Captisol perspective, I mean, candidly, the interest in Captisol in terms of inbound interests, sample requests, new licensing has really never been higher. We've -- the visibility of a product like that Veklury and the impact that Captisol had, it's clearly extremely important, right? Veklury playing a critical role as a standard-of-care, treated approximately 4 million patients in the course of about a year, that sort of scientific disability drives a lot of interest from the scientific community. And we see a number of new partners reaching out to us who are interested in Captisol largely driven by it. One its global reach, is it the validation of the science, the intellectual property portfolio we built up over many years, the drug master files, which have been enhanced substantially over the last year, not only from a safety database perspective, but also from a manufacturing perspective now that we have four manufacturing sites spread around the globe, including one here in the U.S. for final step manufacturing. And it's really that reproducibility, quality, scale, all of those things continue to create a lot of visibility for the platform.

Got it. That's helpful. And then Matt, I'll just stay with you then. Hopefully I'm not getting too much into the weeds here. But another one of your partners is really starting to gain visibility with it -- with their programs and that's Sermonix. So, I was just curious if you could just give a brief update on that because lasofoxifene obviously was developed for something different originally, but now has a cancer program. I was just curious if you could give an update on the status and maybe two seconds on the mechanism by which efficacy could be seen in a cancer setting.

Yeah. Yeah. Thanks, Joe. You're right to highlight it. Lasofoxifene is a program that really has a rich heritage at Ligand, back to our early discovery days, and has a large database of data behind it. We partnered it with Sermonix a very nice licensing deal largely because of the rich heritage and the data that had been generated over many years. It's a -- just as background, it's a potent selective estrogen receptor modulator or SERM. And the team at Sermonix has been making fantastic progress, progressing that quickly through trials in metastatic breast cancer. They also announced a partnership with Lily, and so they're progressing some trials with Lily as well. So, we're continuing to keep an eye on that and cheering them on and you're right to bring it up because it's a program that our science team is actually very excited about, and sees a lot of potential promising and it looks forward to the pending data.

Appreciate the updates guys.

Thank you. Our next question comes from the line of Larry Solow from CJS Securities. Sir, your line is open.

Great. Thanks and good afternoon, everybody. Clearly a bunch of moving parts. Can you maybe just -- just on the outlook and it sounds like -- just to clarify, so, Captisol sounds like the narrative there is just maybe moving in different directions a little bit, or up and down. But overall, are you still confident sort of hitting that $200 million number or does it seem like -- or we're reading at the range could be no much lower $200 million or maybe over $200 million. It seems like there's just more volatility around that in the short run. Is that fair to say?

Yeah. Yeah. Larry, I'll add a comment and then Matt Korenberg can double back on some of his remarks. Yeah. Summary is correct. The last really six weeks or so has been a period of partly enormous success with the vaccine rollout, the efficacy rate. Now the -- I'll say the abundance of vaccine availability. It's really a positive for getting this pandemic under control, at least in U.S. and some other major markets, that is impacting decisions. What we are hearing, we're talking to experts, it's this -- it's impacting the decisions around stockpiling and while stockpiling for any virals is absolutely strategy. We've seen it deployed in other cases here, if there's an abundance of vaccine, the efficacy is that high, the focus is more on treatment -- on treating. And what we are seeing is a lower stockpiling outlook right now. That's offset by India, through other markets where frankly, the incidence rates is skyrocketing. And we are seeing a very, very meaningful pickup of demand from our consortium partners. So, these are a bit of an offset. They're happening at the same time, literally the last six weeks or so, just -- since the end of last quarter into April and we are processing it. As Matt said, our guidance is unchanged. We feel good about the business. Q1 royalties a little below expectation. We think it's going to come back, partnering revenue is meaningfully higher for Q1, and we see that trend continuing and Captisol. Again, I think we need more time to really square up on exactly what we're rolling this year, but that is our outlook right now.

Right. And it sounds like -- just touching on that. It sounds like -- on the flip side of your contract revenue a little hard, I know some of that clearly is timing, and I know you don't guide to the quarter, but what that seems like, maybe that's ahead of the pace.

Yeah. Matt, do you want to comment on that?

Yeah. That's right, Larry. We -- as we said on these calls generally that there's a portfolio of contract payments and events that are happening at any one time, and we're always trying to give you and investors a window into what we think is going to happen in this year and probability adjusted view of that. And early on this year, we've had a lot more success than the averages would say. And so, the first quarter came in a little higher and the rest of the year, it looks like it's still on track. So, at the moment it does look like there's some nice upside from contract payments, but it's offsetting setting a little bit some of the comments that John made about the other business, other parts of the business, but right now, overall, the package still looks quite strong.

and obviously the main driver royalties, I think down 10%, just less multiple myeloma patients starts, I guess. But unfortunately these patients don't go away, right? So, sound like you're missing a haircut. I mean, the patients have to either -- eventually, hopefully for their sake would get back in -- get back to the doctors. Did you think that would start to ramp up, especially with most of -- a lot of other medical things are coming back. I kind of find it strange that piece where you would think would be one of the most important ones for patients is not coming back so fast, any thoughts there?

Yeah. No, good comments. The last five days has been very helpful. I think obviously for analysts -- for us. We're monitoring this closely, but a lot of earnings call and our observation, partly we got the royalty report and when they announced from Amgen, but big pharma, big oncology drugs last week the analysts report, they were just called, I'd say, it really surprised investors. The performance off of these major products was considerably lower than the street expected. It is -- it appears to be uniformly explained by low patient visits in January and February. Again, the worst days of the pandemic for the U.S. and the other major markets. And so there's a lot of consistency in Amgen and these other companies were following other analogs that might read on the markets are saying Q1 was soft. Here's why, but to your point that the disease persists -- the life-threatening nature of the cancer and these patients do need their therapies. The markets are recovering, restrictions are being lifted, and those markets are coming back. So, while it was a surprise, a bit of a disappointment last week, we were all processing. The market seems to be now recovered very nicely. Those stocks are coming back and people realize, you know what -- this is really a blip at least that's kind of the reaction, what we're monitoring. So, accordingly, while we may have given up a bit of revenue in Q1, we do see our trends coming back and partly the growth of the core brands even , but also the potential launch of new products by year- end again all that we feel good about.

Gotcha. And if I just may slip one more question. Thanks for the update on the Pfenex or Pelican on Merck and Jazz, your two large partners. Any update on Teriparatide and the biosimilar to Forteo. Is that something we might hear some news about during 2021?

Yeah. Larry, so with regard to Teriparatide so, Alvogen generated positive human factors data for the last remaining trial that needed to be run, that was submitted to the FDA in January. And we obviously are in close contact with Alvogen, and have a very collaborative relationship with them. The FDA has confirmed that the review is in progress, and that they will "endeavor to complete the review in a timely manner". Again, there's no PDUFA date for this, but it's actively under review at the FDA.

Got it. Fair enough. Great. Thanks guys. I appreciate it.

Thank you. Our next question comes from the line of Jacob Johnson from Stephens Incorporated. Sir, your line is open.

Hey guys. This is Mason on for Jacob. Just one or two quick ones from me here. First, looking at Pfenex, we're now Pelican for the $33 million in revenue that was expected to come from this platform in 2023. If you could -- is there any color you could give us in terms of their top four products call -- color on maybe if you had to rank order these top four products, which was going to contribute the most down to the smallest amount.

Hey Mason, thanks for the question. We continue to think that the Pelican business is going to be a significant contributor both this year, and long-term. The breakdown of that, we didn't give those numbers specifically. But generally speaking, you can think that, the Serum Institute vaccine in India has already launched. And so we're already generating royalty revenue from that program. The Jazz program that Matt Foehr talked about on the call already, we've got -- some milestones coming in from that program through the BLA filing, but also if and when it gets approved. And then, similar on the Merck vaccine program. Both the Jazz and Merck programs, both companies have said they intend to try and launch this year in addition to successful approvals this year. So, we'll get some royalty contribution there. And then lastly, on the Alvogen Teriparatide program, without a TE approval, they'll continue to ramp their sales and prescriptions there. But with a TE approval would accelerate both the pace of revenue on the royalty side, but also there's some milestones tied to the approval there. So, those are the big four contributors. But there's a lot of work being done on behalf of partners. Other than those four as well, that's generating contract revenue for us. So, it's kind of a mix of all of the above.

Got it. Thanks for that, Matt. Just one more. Understanding that 2020 was a pretty active year for you guys on the M&A front. As we look forward and more of the drug pipeline continues to shift towards biologic. And as we think about long-term capital allocation, would you think we'd continue to see biologics is an area of focus for capital deployment?

Yeah. I think that's a good way to summarize it. But I think generally speaking, we're focused on enhancing the technologies across the Ligand platform. But I think as I said and Matt Foehr referenced in his comments as well, adding technology to the already kind of industry leading tech stack of OmniAb will be important for the business as we go forward. And so, there's certainly a focus on that area and obviously that's directly bolstering the antibody space. So, generally speaking, I think, you're kind of right in your thinking of a focus.

Got it. All right. Thanks guys.

Thanks.

Thank you. Our next question comes from the line of Balaji Prasad from Barclays. Sir, your line is open.

Good afternoon everyone and thanks for the questions. So, just a couple pending from me. Firstly, on sparsentan. Can you help us think about the long-term value of this program after the Phase 3 data, which came out? And are you still like anticipating a potential 2023 royalties of anywhere between $10 million to $20 million, one? Secondly, on Captisol, a lot of color, but I just want to understand if there is any variations in economics for Ligand based on whether you sell it to Gilead or its licensing partners on Veklury. And the reason I'm asking is to try to understand the upside potential for the $200 million a year of guided to and reaffirm now in light of potential stockpiles, which could crop up based on what's happening currently. Thanks.

Thanks, Balaji. Yeah. So, on sparsentan, we gave some guidance on sparsentan on the last couple of calls and nothing's really changed from our guidance. Post an approval, we've surveyed the research communities views of the program. And it does look like they still having that $10 million to $20 million of potential royalty in 2023, and 2025 or so number of -- closer to $400 million or $500 million of end user sales, which translates to $35 million to $45 million of royalty to us. Ultimately, I think folks see the product peaking somewhere between $500 million and $1 billion on the one indication. And then if both indications are approved, that's FSGS and IgA nephropathy then potentially exceeding $1 billion over time and at a 9% royalty that's upwards of $100 million of royalty for Ligand. So, obviously, a very important product and we're excited to see the continued progress there. Turning to Captisol. Generally speaking, we haven't disclosed specific economics for any of the partners. But I think what we've said is that on average, the economics to Ligand are about the same across the universe of partners that are buying remdesivir -- Captisol for use with remdesivir. So, it's really more of a question of demand and need. And we've seen as we come to it already, significant increase in the demand out of India over the last two or three weeks, and in the U.S. the demand is going the other direction. So, it's offsetting and week to week, even it's incredibly dynamic. So, we are monitoring it very actively and we'll keep everybody updated.

Thanks, Matt. If I could just squeeze in one more question. I saw that recently that Ligand and Lupin settled a patent suit on Evomela. And I just trying to think of implications there. And see if there are any other major patent challenges that we need to be aware of from Ligand's perspective.

Go ahead, Matt.

Yes, Balaji, you're correct. The court documents disclose that Ligand and Lupin settled the patent case over Evomela. Terms of that are undisclosed. And generally, we'll update on those items further when we file our Qs as well. But that's pretty much the update we provide given the terms of the settlement.

Great. Thank you.

Thank you. Our next question comes from the line of Matt Hewitt from Craig-Hallum Capital. Sir, your line is open.

Good afternoon, gentlemen. Thanks for taking the questions. Maybe the first one, and this might be best for Matt Foehr. Last year was a record year for Captisol inquiries and samples. And I'm just curious, how are those discussions going? The conversations that you started having last year, are you seeing some of those initial trials or samples turning into clinical trials or maybe an update there?

Yes, thanks Matt. Yes, no doubt. The visibility that's been created around the Captisol technology, as I was describing earlier, continues to bring new potential partners to us and folks who know they've got compounds that have solubility or stability issues, they take a lot of different forms, right? Sometimes, sample requests can take a while to translate into progressing through a development program. Sometimes, folks know exactly what they need and can jump right into clinical trials. So there's a lot of variety and texture there. But, overall, we continue to see very strong inbound interest, a lot of diversity of partners that we're shipping to. Increased diversity in the types of programs they're pursuing, not only just injectable drugs, but inhaled drugs and intranasal gel caps, topical forms, a whole variety of forms that partners are pursuing, which is also really a testament to the scientific work that our teams put in in the safety database and technical database that's been built up over time.

That's great. Thanks. And then maybe one regarding the Captisol-enabled Iohexol. Thank you so much for the update on that. I'm curious, how long do you anticipate giving these partners to make a decision? Obviously, I think the expectation or the hope would be that if you didn't get the partnership signed, you could get that through a Phase II and potentially launch and run that program yourself. But obviously, if you're going to have meaningful dialogue with partners, you give them some time. I'm just curious how long that time might be. Thanks.

Yes. Matt, thanks for the question. Deals are always dynamic and every deal is a little different. But I think generally speaking, we would anticipate a couple months, at least, to figure out where the partners are going to want to go. And if they're going to want to move forward with trial, similar to how we designed it or different or move forward at all. So I think on the on the short end, it's a couple months on the long end date, it could drag out, but generally speaking, I think it's several months.

Understood. Thank you.

Thanks.

Thank you. Our next question comes from the line of Scott Henry from ROTH Capital. Sir, your line is open.

Thank you. And good afternoon. Just a couple questions. First, on the royalty line, would you expect your second quarter to be an improving quarter or all the way back to normal already? I certainly would expect second half to be at normal rates. But just curious how you think about second quarter if you have any comments on that.

Yes, thanks, Scott. Look, it's hard for us to say exactly, but the commentary that we're seeing out of many of the large pharma partners that are marketing products that are not necessarily tied to our royalties and also some that are tied to Are royalties, it seems that the messages are trying to deliver is that patient demand is back or getting back and that they expect that, missed patient visits in Q1 and early Q2 should be made up in the back half of the year. So I think at a minimum, we'd expect a trend to increasing quarterly numbers. But some of the comments could certainly be interpreted to anything missed will be made up in the back half of the year, which is why you've seen a lot of these larger pharma companies, perhaps missing a bit on Q1, but not changing guidance for the year. So, at the moment, that's, that's our hope and expectation.

Okay, thank you. That's helpful. And then could you remind me of what this person -- what amount this percent milestone is in Q4?

Yes, it's very -- it's like, just a smidge under $6 million -- $5.99 million. It was disclosed a couple years ago in a filing by both then Retrophin and then also us, so it's out there specifically to the dollar.

Okay, great. And then final, just clarification. The two approvals in China, I believe this, this CStone one is expected in the second half of '21. Have you given any sort of -- I realize there's not PDUFA a date for these. But any target for the Gloria approvals? Is that also second half '21 expectation?

Yes, Yes, Scott. It was -- you're correct CStone is anticipated to be in the second half year. Gloria's NDA was accepted on February 18th of 2020. So that's when an NMPA confirmed acceptance of the NDA. So difficult to say exactly when the timing will be, but I think generally folks are anticipating the second half of the year.

Okay, great. Thank you for taking the question.

Thank you. Our next question comes from the line of Dana Flanders from Guggenheim. Ma'am, your line is so

Great. Thank you for the questions. My first one was just on the biosimilar opportunity for you guys on for Forsteo in Europe, just wondering how competitive of a market is that? I know in the U.S., you have the potential to be exclusive for some time. So they're just trying to think of the relative contribution of Forsteo, you know, kind of us versus x us or versus Europe. And then just my second question, can you remind me is the generic consortium, how tied is that to India and wondering if your Captisol and Remdesivir is being used in other kind of emerging markets where we're seeing a spike in cases and the potential for that?

Yes, I will comment on the on the consortium and Matt K. may want to comment on the, the Europe and Forsteo. So the consortium actually it's -- not only the members of the consortium not only supply India, but 127 other countries as well, most of which are low and middle income countries, that obviously includes India. So they're obviously supplying other countries as well in addition in addition to India.

Yes, thanks, Matt. And Dana, on Forsteo, or Teriparatide, biosimilar opportunity. It's a good question important to point out that the product rights that we hold through Pelican and now Alvogen and others are actually worldwide rights. So we do have the potential to generate royalty or profit sharing around the world. I think, as folks probably know, the environment outside the U.S. is more dynamic. There's country to country and region to region, there's many biosimilars already approved in lots of different territories. In Europe, specifically, I'd say that's probably a positive that most of the territories already have approvals in our products are launching. But the competition those markets make the opportunity for us a lot smaller. Probably the second largest opportunity for us outside the United States is actually probably in China, where the product is partnered there and our partners is moving towards approval. And then obviously the U.S. will be the largest of the three general regions between the U.S., Europe and Asia.

Got it. Thank you.

Thank you. There are no further questions at this time. Presenters please continue.

Thank you, operator, appreciate it. Appreciate people turnout today and questions. Excited to be in 2021. We talked about the acquisitions that were foundational in fortifying our OmniAb business, expanding our technology offering. And we're really pleased to see the integrations going well. We look forward to updates throughout the year. We are at few virtual conferences coming up. Early June we'll be at Craig-Hallum and Jefferies and then in July, we'll be at the CJS Conference. So thank you very much. We appreciate you turn up.

This concludes today's conference call. Thank you for participating. You may now disconnect.