Welcome to the Ligand Pharmaceuticals Second Quarter Earnings Conference Call. My name is Vanessa, and I will be your operator for today's call. [Operator Instructions]. Please note that this conference is being recorded. I will now turn the call over to your host, Simon Latimer. You may begin.

Thank you. Welcome to Ligand's Second Quarter of 2022 Financial Results and Business Update Conference call. Some 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, including those related to our financial condition, results of operations, financial guidance and the impact of the COVID-19 pandemic and the expected timing, completion and effects of our previously announced plans to spin off the OmniAb business to become a stand-alone public company pursuant to a business combination with the Avista Public Acquisition Corp. II. Additional information concerning our risk factors and other matters concerning Ligand can be found in our earnings press release and our periodic filings with the SEC. We undertake no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. A reconciliation between the non-GAAP financial measures we discuss and the closest GAAP financial measures can be found in our earnings release issued earlier today. I'd now like to turn the call over to John Higgins.

Good afternoon. Thanks for joining Ligand's Second Quarter 2022 Financial Results Conference Call. We are executing well across the organization and are pleased to share our success this quarter, highlighted by strong royalty growth, major partner news and good progress toward our OmniAb spin-out. All aspects of the business are on or ahead of plan financially. As Matt Korenberg will go into, we are raising full year 2022 guidance due to our royalty revenue momentum. Couple of years ago in 2020, our initial outlook for royalties within the low $30 million range. Now we are forecasting more than $60 million in 2022. With our current portfolio of royalty generating assets, we are increasingly confident we are on a trend ultimately to surpass $100 million in annual royalties, excluding any contribution from OmniAb. After the spinout is completed, and we have more updates on late-stage regulatory approvals by partners, we will provide a more detailed framework for our financial outlook. We're excited about our business with the backdrop of what appears to be an improving environment for the equity capital markets. The industry has seen some major positive developments emerge very recently, and there has been significant M&A announced, both in number of deals and size of deals, which indicates the strength and the durability of our industry. We are increasingly excited for a spin-out of OmniAb, and we believe the market environment is strengthening for the debut of this special company. OmniAb has what we believe are best-in-class antibody discovery tools that are highly sought out by major industry players to help advance their work in direct discovery. As a stand-alone company, OmniAb will have a dedicated capital structure and a Board and senior leadership team with deep domain expertise to drive the investments and strategy for the company. The…

Thanks, John. Today, I'll review our financial results, update guidance and give a brief update on some of our major partner programs. The second quarter of 2022 was a strong quarter financially, with particularly impressive performance in the royalty revenue line. Total revenues for the quarter were $57.4 million. Royalty revenue increased 108% to $18 million from $8.6 million a year ago. Royalties on all of our major products grew year-over-year. In addition to Kyprolis, which posted its largest quarterly revenue ever, a significant portion of the total royalty growth was driven by Rylaze and teriparatide. Teriparatide, in particular, realized significant year-over-year and quarter-over-quarter growth. In Q2 2022, we realized $4.9 million of royalty on this drug versus our original expectations for less than $2 million. At the beginning of the year, we expected additional generic competitors for teriparatide by the middle of 2022, based on input from our commercial partner. That competition has not yet materialized, and as a result, the product is exceeding our expectations. Total Captisol sales were $29.5 million for the quarter, and this compares with $62.5 million a year ago. As expected and as we've discussed with investors, COVID-related Captisol sales are much lower this year versus last year. Core Captisol sales were $3.3 million this quarter, in line with our expectations and on track to meet our expectations for the year. Contract revenue in Q2 2022 was $9.9 million. This is lower than last year's second quarter of $13.6 million, but as investors know, contract revenue fluctuation is mostly due to timing of partner events and related milestone payments. Our GAAP EPS for the quarter was a loss of $0.05. Net loss for the second quarter of 2022 included a $1.9 million net noncash loss from changes in the value of Ligand's public company…

Thanks, Matt. I'm going to focus my comments this afternoon on our OmniAb platform as we continue to prepare for the business to become an independent publicly traded company in the fourth quarter. We're making good progress on our operational and strategic goals as we prepare to become a stand-alone public company. And as John said in his opening remarks, the path we are on to separate OmniAb into its own company is exciting, and momentum is building to further drive growth and expansion of the company post spin. Recent events and input from our partners validate our plans. Our team continues to be highly focused on value-creating areas that include gaining new partners, supporting existing partnerships and expanding the utility of the OmniAb platform. Just as some background for those on the call who might not be as familiar with it, the OmniAb discovery platform provides our partners with access to diverse antibody repertoires and cutting-edge high-throughput screening technologies designed and operated with the goal of enabling the discovery of next-generation therapeutics. At the heart of the OmniAb platform is the biological intelligence or what we call BI of our proprietary transgenic animals. Multiple species of animals have been genetically modified to generate antibodies with human sequences that facilitate the efficient development of human therapeutic candidates. Within OmniAb, we also have extensive capabilities centered around ion channels and transporters. We view these as differentiated capabilities for viable target to lead delivery and particularly for difficult and high-value ion channel targets. These capabilities were established and built around small molecules and have clear potential in multiple formats and modalities. In addition, these differentiated core capabilities can provide novel reagent generation, proprietary assays and in silico capabilities that support partner discovery programs and can be accessed when pursuing ion channels and…

[Operator Instructions]. We have our first question from Larry Solow with CJS Securities.

It's Pete Lukas for Larry. In terms of Kyprolis sales grew very nicely in the quarter. Just wondering how much of this growth is being driven by second-line therapy in combo with DARZALEX?

Yes. Thanks for the question. Yes. No, really nice quarter out of Kyprolis. Amgen obviously, with record sales in their territories. Ono in Japan had good sales, not quite a record quarter, but very nice sales for that region. And the China sales, we're estimating was kind of in line with the second quarter growth. So good sales all around. We obviously don't get details on exactly what line of therapy is driving or exactly where the sales come from, but anecdotally, we're hearing sort of what you're hearing that increased use with DARZALEX and the broader data set that Amgen and others have been putting out is what's driving some of that revenue growth.

Very helpful. And just one more quick one for me, switching gears here. Can you give us an update on the progress with VK2809 therapy for fatty liver disease? I know the enthusiasm has waned a bit around this one, but just would love to get an update on where we stand if there is one to provide.

Yes, sure. Obviously, the program you're talking about is the Viking's TR Beta NASH program that has been progressing significantly well. Obviously, the trial had some delays through COVID with enrollment and otherwise. We're working towards their data which they expect next year. And then following that, obviously, they'll likely have to run a pivotal trial to get to the endpoint. All signs, so far, our trial is on track and data should be solid.

We have our next question from Matt Hewitt with Craig-Hallum.

John, you had given us the 3 priorities for RemainCo. And I'm just curious, given the environment that we've kind of weathered here so far this year, I'm just curious if that's created any interesting opportunities from an acquisition standpoint as you look to bolster the royalty rates portion of your business?

Yes. Well, it certainly has -- we've talked about our business model, and we're dedicated to technologies necessary to discover, develop drugs but also royalty acquisitions, finding companies that need more capital support, doing our diligence and coming in. We excel in thriving markets when there's tremendous capitalization and fund flows. We've seen in the last decade tremendous inbound interest to license to access our technologies, but obviously, there's been a pretty significant contraction in the last 1.5 years. We're reading over 20% of companies public biotechs in less than 1 year of cash. And so this is creating an opportunity. Quality companies are on the wrong side of their stock price in desperate need of cash. So it's creating more inbound overtures to partner on some late-stage assets from an investment perspective. From an acquisition, you know our history, we've acquired a handful of, what we call, bucket biotechs, good companies with IP and data. But again, they really got stuck from a market timing issue. We're being more selective about doing those sort of acquisitions. We're good at it. We really have demonstrated a great track record of securing high-quality assets for very attractive values. But we want to be disciplined in terms of how much infrastructure overhead and cost we're bringing on. One final comment I'll make is we are highly engaged. We are throttling our activity a little bit with an eye towards completing the spin out. And we do believe we're very close. We haven't lost opportunities, but practically speaking, we want to make sure that we've got a clean story. There's no other public proxy issues that might interfere with closing this very important transaction for all of our shareholders.

That makes complete sense. And thank you for the details there. Maybe one more question. As far as the Pelican platform is concerned, obviously, you've had some really good success initially out of that program. But I'm just curious, what would be the next 1 or 2 opportunities coming out of the Pelican opportunity?

Thanks, Matt. yes, the Pelican platform has been performing extremely well. Obviously, 4 major programs that we talk about publicly on the calls and in our disclosures with the Merck, VAXNEUVANCE program, JAZZ, Rylaze, the Alvogen teriparatide program, and Pneumosil from Serum Institute of India. There's additional programs from Serum Institute of India, one in meningococcal vaccine. And then there's additional programs from Jazz that they're working on that are follow-ons there. And obviously, I mentioned today, the V116 program for Merck. All of those we expect will be kind of the next crop of growth drivers for the portfolio. And behind that, there's a handful of existing and new license deals that the team has done over the course of the time before we had owned the business as well as since we've owned the business that should fuel the growth for years to come.

Our next question is from Bruce Feldman with Morgan Stanley.

My question is simple. A couple of years ago, we came out with a product for post partum depression. I've never heard anything in your calls as to how that is progressing. Can you give us an update on that, please?

Thanks, Bruce. Yes, there are actually a couple of programs for postpartum depression in the portfolio. One was from a company called Sage Therapeutics that the program is now approved called ZULRESSO. It's had limited commercial success but has done about $1.5 million in revenue a quarter for the last several years as the programs commercialization has been limited to an in-institution or in-hospital delivery. A second partner called Marinus has a program called ganaxolone or IV ganaxolone, which was recently approved orally but the IV formulation is still in development, and that is being studied in that disease as well. So both of those are in the portfolio and progressing.

We have no further questions. I will now turn the call over to Mr. John Higgins for closing remarks.

Thank you. I appreciate the turnout of the questions. We are delighted with our performance this year. We're watching the equity markets. It's a challenging environment, but our execution has been superb. And I know it's not lost on our largest shareholders who've spent maybe more time in meetings with us, but we're effectively running 2 companies now -- 2 public companies. We have the management teams built out the infrastructure, and both companies are really very far along to be run independently. We continue to execute on licensing, new deal making, obviously, reporting on our partner events. But the momentum we have with the overall company, but specifically the momentum we have into the spin-out, we feel really, really good about. So thanks for your patience. It's been a long journey the last year or so as we've worked up our planning and had our process communicated. But we feel we are close, and we are really excited about all aspects of our business right now. Thanks for joining the call, public, in-person conferences are coming back. We will be live at some events this fall, but the next one coming up is in about 5 weeks, the HCW Conference in the middle of September. So if you sign up for that, we'll see you there. Thanks, everyone. Bye-bye.

Thank you. Ladies and gentlemen, this concludes our conference. Thank you for participating. You may now disconnect.