Thank you for standing by. My name is Danika and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Ligand Third Quarter 2023 Earnings Webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Simon Latimer, head of Investor Relations. Please go ahead.

Thanks, Danika. Welcome to Ligand's third quarter of 2023 financial results and business update conference call. Speaking today for Ligand will be Todd Davis, CEO; Paul Hadden, senior Vice President of Investments; Matt Korenberg, president and COO and Tavo Espinoza, CFO. Please note that there are slides accompanying today's call. These can be accessed by going to the investors section of our corporate website, where you can find the link to the webcast and presentation on the IR calendar page. we'll use non-GAAP financial measures and some of our statements will be forward-looking, including those related to our financial conditions, results of operations and financial guidance. Additional information concerning risk factors and other matters concerning Ligand can be found on slide 2, as well as 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 discussed and the closest GAAP financial measure can be found in our earnings release issued earlier today. Before we get started, I'd like to highlight that earlier today, we announced that we'll be hosting an in-person investor and Analyst Day on December 12th in New York. Our Senior Management Team will provide an in-depth update on our business strategy, an overview of our portfolio, financial outlook and other developments. We look forward to seeing many of you there and we'll provide more details on the event in the future. I'd now like to turn the call over to Todd Davis. Todd?

thank you, Simon and good afternoon, everyone. Thanks for joining our third quarter 2023 earnings call. I'm pleased to have the opportunity to speak with you today and provide an update on the company's performance and recent developments. We are approaching the one-year anniversary of my appointment as CEO and I'm very pleased with the strong execution by my colleagues and our partners over the last 12 months. By every measure, we've had a terrific year, a great quarter and are poised to accelerate our momentum as a business in 2024. adjusted earnings per share is growing. We've closed a number of exciting and diverse types of investments to execute on our strategy, which our team will detail in this presentation. We've cut costs and streamlined our business, and made a number of additions to the team, who have already made a significant impact on our business. In short, we have achieved everything we set out to do this year and are very well positioned for 2024. There are three drivers to our current performance and future growth. one, the commercial portfolio continues to generate growing revenues. two, we are seeing continued progress across our existing development stage partnered portfolio. this existing portfolio offers us significant future growth on a standalone basis. three, we have implemented a strategy to scale our business development and investment capabilities. This allows us to build upon the existing asset portfolio, adding new late-stage development and commercial assets to achieve more sustainable long-term growth. We are now seeing tangible results of this effort with several notable recent transactions that contribute to our goal of adding in high-growth risk-mitigated programs into our existing portfolio. We have a strong debt-free balance sheet and we have also improved our P&L by reducing overall expenses. The growth in our…

thank you, Todd and good afternoon, everyone. A pleasure to be able to address you in my first earnings call. I've been in the seat for a little over eight months now and our team is very pleased with the progress we have made to-date. We are excited about what we are building at Ligand and we help provide a small glimpse of things to come on today's call. We recently entered into four separate investments, in which Ligand invested a total of $77 million. These illustrate some of the different approaches we have in our team's toolkit. I'll review three of our most recent investments; tolerance, Ovid and Pelican transactions. By way of background, I joined the company in late Q1 this year. What attracted me to Ligand was an opportunity set that remains unprecedented. Specifically, the company has had a very important pivot point in both our own history, but also within our industry. During one of his first earnings calls, Todd laid out the significant imbalance between the supply of alternative capital and the demand for it. That imbalance continues and if anything has grown. We also stated our goal was to accumulate more royalty interest, specifically focused on driving sustainable high-profit growth. We will review some of our recent investments to demonstrate how we're executing against that goal. Moving to slide 7. we'd touch on our business development process. Perhaps the most important change we made at Ligand in the last six months was to build up a highly-proactive outbound global sourcing effort, capable of identifying attractive risk reward investment opportunities to acquire royalty interests. This requires experience, relationships and discipline. Creating a global business development pipeline and execution capability is something many of our senior team has done before. We are in the early innings…

thanks, Paul. It's been an exciting period for the portfolio over the last three months and today, I'm pleased to be able to provide investors an update on the developments across the commercial programs and the progress in additions to the partner development portfolio. Slide 12 shows our key commercial and late-stage pipeline assets including two new recent additions through portfolio investments. I'll touch on our new programs in a moment, but I always like to remind investors that our broader portfolio includes more than 75 additional partner programs beyond the 12 that are highlighted on this slide. The products listed here are a subset of our programs that are currently approved or in phase 3 development. Our current commercial portfolio includes over 25 different royalty streams and 30 commercial drivers overall. with the addition of TZIELD, there are now eight royalty bearing programs that we believe are significant enough that investors should focus on them in the near term, and I'll provide updates from Q3 on a few of those commercial programs now. Kyprolis, which is an important drug for multiple myeloma, continued its strong 2023 with another solid quarter. Kyprolis is marketed by Amgen in a majority of the countries around the world, as well as by Ono in Japan and Beijing in China. in Q3 2023, these companies are again, expected to report combined quarterly revenue exceeding $370 million. The year-over-year growth for the product has been driven by strong volume growth and the product is on track to exceed $1.4 billion of global sales this year. after receiving approval in February, this is now the second full quarter of Travere marketing Filspari in IgA nephropathy. We earned a 9% royalty on sales and we expect that this will be a significant driver of long-term growth for…

thanks, Matt. The third quarter of 2023 was an exceptional quarter financially with continued impressive performance in royalty revenue, strong Captisol sales, lower overall operating expenses and an improved outlook for the year, resulting in our fourth upward guidance revision this year. Total revenues for the quarter were $32.9 million, which represents a 22% increase when excluding last year's contribution from COVID Captisol sales. total revenues for the third quarter of 2022, including COVID-19 related sales were $59.2 million. Royalty revenue increased 24% to $23.9 million from $19.3 million a year ago with the growth driven by strengthened Amgen's Kyprolis and growth in sales of drugs using the Pelican platform, namely Pneumosil, Rylaze and Vaxneuvance. Captisol sales were $8.6 million this quarter versus core Captisol sales of $3.6 million in Q3 of 2022 with the increase due to timing of customer orders. total Captisol sales in Q3 of 2022 were $35.9 million with $32.4 million of that related to COVID-19. we did not have any COVID-19 related Captisol sales this quarter. Contract revenue this quarter was $0.4 million versus $4 million in last year's third quarter, the decrease was driven primarily due to the timing of partner milestone events. We continue to focus on managing costs to maximize our operating margins. in Q3, total R&D and G&A operating expenses decreased 17% when compared to the prior-year quarter, primarily due to a decrease in headcount related expenses associated with the spinout of the Pelican business. The decrease in operating expenses was offset by an increase in transaction-related expenses associated with the novan transaction. G&A and R&D expenses were $14.7 million and $5.5 million in Q3 2023 versus $14.9 million and $9.2 million in Q2 2022 respectively. GAAP net loss from continuing operations in the third quarter of 2023 was $12.8 million…

Thank you, Tavo. Our unique business model means that we have a lot of portfolio activity and a significant amount of new deal activity to follow. All of this activity is focused through the filter of our main objective, which is achieving superior reward relative to the risk we take on and delivering substantial predictable growth of earnings per share. We're very pleased with this quarter's results, as well as the progress we've made over the last 12 months. We've improved our investment in business development capabilities and have grown our asset portfolio, comparing where we are now to December of last year. In the last year, we have grown commercial product drivers up to eight plus captisol. In the last year, royalty revenue has grown from $73 million to our current guidance of $82 million to $84 million. We expect growth to continue for years off of this existing portfolio. In the last year, cost management efforts have reduced our operating expenses from approximately $92 million a year ago prior to the OmniAb spin out and other restructuring activities to today's annual cash operating expense run rate in the mid-$30 million range. As a result, in the last year, adjusted EPS has grown from $2.44 per share last year to an annual EPS run rate of approximately $4 per share, excluding gains from the sale of equity holdings. Meanwhile, the investment team has added three new assets to our growth portfolio over the last several months, is actively pursuing additional growth opportunities. Thank you, everyone for joining us for today's earnings call. I want to remind you that Ligand will be hosting an in-person Investor Day on December 12th in New York, where we will go into significant detail. I'd like to now open it up for Q&A.

[Operator Instructions] Your first question comes from Matt Hewitt with Craig-Hallum. Please go ahead.

Hi. this is Jack on from Matt. Congrats on the good quarter. recent $20 million acquisition of tolerance. How did that come about? And to be clear, there's no milestones related to TZIELD, correct?

Yes. hey, Jack, it's Matt. I'll just confirm that there are no milestones remaining in the deal that we are entitled to. and then I'll ask Paul to give a little color on how the transaction came about.

Yes. Matt [ph], this is Paul. [indiscernible] are our proprietary intermediary relationships. it's a very focused sale and we have some existing relationships with the inventor groups. So, that's all I can say for that question, but I hopefully that answers that.

Yes. that's helpful. And then for a follow-up with the $30 million investment of Ovid Therapeutics, you obtained 13% interest in milestones and royalties. First, in the milestones, could you please walk us through how much of the original 616 regulatory and commercial milestones is still available? And then second, are they structured similar to most of your existing milestones in that you received them upon trial starts, not completions?

Yes. So, we can't comment on the structure of the milestones and when they get paid, what I can tell you is $660 million is still on the comp. So, none of that's been paid yet. So, what we bought into was that milestone waterfall and then obviously the tiered royalties behind that that we mentioned on the call up to the 20%.

That's helpful. Thank you.

All right. Our next question comes from Larry Solow with CJS Securities. Please go ahead.

Hey. good evening, guys. Thanks a lot for call tonight. I'm not going to ask too many specific questions on the products, because I guess we'll get on some of these new products you acquired. Because I guess we'll get an update at the Analyst Day. So, just a few on the guidance, the little bump up for the rest of the year if I do my math, it looks like, it's like a couple million on the Captisol what you said, and then couple million on the operating expense side. Right. That'll kind of get us to probably $2.5 million after-tax savings is somewhere around there. Am I in the ballpark there?

That's about right. I would say the majority of the increase to the guidance was driven by the captisol sales this quarter. and certainly, the operating expense savings contributed that most of that had already been accounted for.

Got it. And in terms of Travere, I didn't read your transcript. but I guess, I did see the $8 million and it sounds like the funnel of sales opportunities growing there. Is there any word, they mailed the FDA yet? I know the PROTECT study came out. It was good, but obviously didn't meet statistical significance. I know it's still published by the lancet, obviously, it's getting pretty high praise, it's not that easy to get into the Lancet. Just trying to, has the outlook changed at all? Has anything get pushed to the right? Any thoughts? And I know, I guess the rights are Travere, but any thoughts that you guys could share on that would be great.

Yes. thanks, Larry. So, just to remind everyone the Filspari product was approved on an accelerated approval. And they were running a confirmatory trial or running the trial to the end to get to confirmatory endpoints. And the endpoints did slightly miss statistical significance for the U.S. version of the endpoint. What I would do is, I direct all investors definitely to listen to everything that Travere is saying and listen closely to what they're saying. But I think the company has high confidence that the product will remain on the market and that robust package of data that they've generated over the phase 2 and phase 3 programs clearly is supporting evidence for the benefit to patients. And that it would be a very surprising outcome for the product to be pulled off the market. the company hasn't commented on exactly what their conversations have been with the FDA so far. But they have said that they're in conversation with the FDA. and so we'll look to them to provide any more details, but we're pretty optimistic internally based on the public info that we see.

Okay. I appreciate that color. Just a couple on Pelican assets on Riley's. You mentioned Jazz, I think reported I think they're on a run right now, over $400 million in the U.S. Does that with the European approval, I know, I'm sure it's not a simple double, but is the European market inevitably similar size and just actually be like $1 billion potential drug at some point?

Yes. Thanks, Larry. The market for Rylaze and Enrylaze historically prior to this product -- in the predecessor product that was supply constrained was a worldwide product. And jazz marketed it around the world and they're certainly pursuing additional territories. The EU approval does add some potential for the product, but we'd point investors to Jazz's public comments as well on this. I think they reiterate frequently that in the U.S., it's a product without significant competition. And in Europe and some of the other markets around the world, there is a competition for the product. And so, if they can't comment, I can't comment on the potential size, but I would be surprised if it's as big as you suggested turning into $1 billion product worldwide. I don't think that's the opportunity.

Okay. That's a little -- it's a little bit too big. Okay. I said I'm all set. Thanks for taking the questions.

Thanks, Larry.

[Operator Instructions] If we do not have any other questions, then that concludes our question-and-answer session and today's call. Thank you all for joining. You may now disconnect.