Ladies and gentlemen, thank you for standing by. Welcome everyone to the Ligand Fourth Quarter 2023 Earnings Webcast. At this time, 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 hand the call over to Tavo Espinoza, Chief Financial Officer. You may begin your conference.

Hello, everyone and welcome to our earnings call for the fourth quarter and year-end 2023. During the call today, we will review the financial results we released prior to today's market open and offer commentary on our partnered pipeline and business development activity, after which we will host a question-and-answer session. Our earnings release can be found in the Investor Relations section of our website at ligand.com. Participating for Ligand today will be our CEO, Todd Davis; our COO, Matt Korenberg; and myself, Tavo Espinoza, CFO. This call is being recorded, and the audio portion will be archived in the Investors section of our website. It is our intent that all forward-looking statements regarding our financial results and commercial activity made during today's call will be protected under the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties. Actual events or results may differ materially from those projected or discussed. All forward-looking statements are based upon current available information, and Ligand assumes no obligation to update these statements. To better understand the risks and uncertainties that could cause actual results to differ, we refer you to the documents that Ligand has filed with the Securities and Exchange Commission, including our most recent Forms 10-Q and 10-K. With that, I will now turn the call over to Todd.

Thank you, Tavo, and welcome to everyone on the call. The end of 2023 marks the completion of my first full year as CEO of Ligand. And I'm happy to say that in the last year, we've successfully transformed the company to take Ligand to the next stage of growth. Slide 3 summarizes our financial and portfolio achievements in 2023, which underscores our strong momentum and the strength of our business model. First, we delivered strong financial performance. We grew revenue by more than 20% when you exclude last year's COVID related Captisol sales, while reducing 2023 cash operating expenses from above $90 million per year to below $40 million per year. This resulted in core adjusted diluted earnings per share of $4.06, which is 66% above the prior year. Second, we streamlined and improved the financial profile of the business through restructuring efforts. In addition to spinning out the OmniAb business, we also divested our Pelican protein expression platform via equity merger or spin out to form Primrose Bio. Both of these businesses are valuable technology platforms, but they require additional investment in infrastructure that was inconsistent with our core financial strategy. This enabled a headcount reduction from over 170 to 35 employees. This operational streamlining was completed even while adding significant talent in the investment, portfolio management and diligence functions to create a premier investment team. Accordingly, that team began to execute on our newly refined strategy in the second half of 2023. Third, we strengthened our royalty portfolio by adding several innovative and exciting new programs, including Sanofi's TZIELD and Takeda's soticlestat. We also expanded existing partnerships acquiring full rights to the recently approved ZELSUVMI and expanding a royalty investment in Palvella's PTX-022 program, which is in development for microcystic lymphatic malformations. Fourth, as shown on Slide…

Thanks, Todd. 2023 was a transformative year for Ligand. Today, I'll provide investors with an update on key developments from our partners across our commercial programs and our development portfolio. Ligand's portfolio includes more than 85 partnered programs that drive our royalty revenue, our Captisol material sales and our license milestone and contract revenue. Slide 10 shows our key commercial programs that drive the significant majority of our royalty revenue. Our current commercial portfolio includes over 25 different royalty streams and 30 commercial drivers overall. These eight programs are expected to contribute over 95% of the royalty revenue in 2024. The team at Ligand is focused on adding additional names to this list. Many of those additions will come organically from our existing partnered pipeline portfolio and some will come through new investments generated out of -- our now established field team as Todd mentioned. A few highlights from 2023. Kyprolis, which is an important drug for multiple myeloma, continued its strong performance with another solid quarter in Q4. Kyprolis is marketed by Amgen in a majority of the countries around the world as well as by Ono in Japan and by Beijing in China. For Q4 2023, these companies reported combined quarterly revenue of over $370 million. Year-over-year growth for the product was driven principally by volume growth with 2023 reported sales exceeding $1.4 billion globally. We earn a tiered royalty of 1.5% to 3% on global sales and expect continued growth in 2024. Our partner Travere is marketing FILSPARI in the U.S. and IgA nephropathy. Travere reported revenue of $14.7 million for Q4. Travere also continued to disclose the momentum on new patient recruitment. Travere had 459 new patient forms submitted in Q4, bringing the total since launch to 1,452. The continued addition of potential new patients provides…

Thanks, Matt. First, I want to highlight that I will be discussing non-GAAP results, which exclude certain items including stock-based compensation, amortization of intangible assets, unrealized gains from short-term investments, our share of losses absorbed from accounting or our investment in Primrose Bio under the equity method, expenses incurred to incubate the recently acquired Novan business amongst others. In addition, to help investors discern the performance of our core business results, we subtract Captisol sales related to COVID-19 and realized gains from the sale of Viking Therapeutics stock. I encourage you to review the GAAP reconciliation of these non-GAAP measures, which can be found in today's release available on our website. We delivered strong results in 2023 that met or exceeded the high end of our guidance range, with total revenue of $131 million and core adjusted earnings per share of $4.06. We ended the year with $170 million in cash and investments and no debt on the balance sheet. Slide 14 frames up our financial results in more detail for both the fourth quarter and the full year. I'll focus my discussion first on the full year results. Including last year's contribution from COVID Captisol sales, total 2023 revenue grew 21% versus 2022. Royalty revenue increased 16% to $83.9 million from $72.5 million a year ago with the growth driven by strength in growth Amgen's Kyprolis, Jazz's Rylaze and Merck's Vaxneuvance. The increase in royalty revenue was offset by a decrease in Teriparatide. We have been anticipating generic competition to enter the market, and it appears that may be beginning to materialize. Amgen reported total 2023 Kyprolis sales of $1.4 billion, which was 13% above the prior year and they attributed most of the increase to volume growth. Work announced total sales of $665 million for Vaxneuvance, which is…

Thank you, Tavo. In summary, we are very pleased with our 2023 financial results as well as the progress we've made over the last year, improving our investment capabilities and growing our asset portfolio. Our diversified portfolio including our major commercial royalty generating programs, late-stage pipeline form the foundation for compounding growth. This portfolio provides us with substantial cash flow to reinvest in new high value enhancing royalty opportunities. We are well positioned to execute against our goals in 2024 and deliver attractive growth and shareholder returns over the long-term. Thank you, everyone, for joining us for today's earnings call, and we will now pass it back to the operator and open it up for questions.

[Operator Instructions] Our first question comes from the line of Matt Hewitt from Craig-Hallum Capital Group.

Congratulations on the strong finish to the year. I guess several different topics. Maybe the first one regarding the Pathios opportunity. How should we be thinking about timing and potential structure of partnership or your intentions with that operating asset?

So as very similar to the way we've done in the past, creating Primrose Bio recently and back in 2014, '15, creating Viking and then eventually spinning out Viking as a standalone company in 2015 with the IPO. One of the things that we're pursuing with the Novan assets is creating this company called Pathios Therapeutics that is just getting started, that will create as a standalone independent company and we will seek external capital to fund at least a portion of. And then Ligand would license at assets the same way we licensed Viking 4 or 5 assets and set it up as a standalone company and that company will be prepared to commercialize and launch the product later this year when the product is ready to be launched. So it's one avenue that we're exploring. And right now, it's the one that we think is pretty high probability, but we're exploring all alternatives, including a license to the asset to a strategic.

And then regarding your contract and milestone guidance for this year, $15 million to $20 million with two PDUFA dates in Q2 should -- would it make sense to be factoring in a little bit more heavy weighting, if you will, in that quarter? Kind of assuming one of the two has a positive outcome? Or how should we be thinking about the cadence for the contract revenues?

Yes. Todd is taking a look just to make sure we have the numbers correct. But as we've talked about there's an approval milestone for the ensifentrine asset that is about $5 million that will hit if it's approved in June as expected. So other than that one big milestone, I don't think there's anything else. Todd, if you could add more?

Yes. There's the Travere European approval and a number of other milestones that we probability risk adjust. And so that's -- we do take the PDUFA dates into consideration at arriving at a range there.

And then maybe one last one for me as far as -- and you touched on this a little bit. Obviously, you've built out a really strong team to evaluate potential investment opportunities. You've got a nice backlog there funnel, if you will. As far as timing is concerned, is it really just about when the deals come together versus are you targeting -- hey, we'd like to have two this quarter, two next quarter? How should we be thinking about the timing on those?

Yes. The timing on these have to be flexible because you want to make sure you get all the way through diligence and you don't have a deal done until you clear diligence and final terms. So there is -- as there is any investment business, there'll be periods where there's a lack of activity seemingly in terms of closes and then there'll be periods where there's significant activity in terms of closes. But there's always this underlying deal activity going on where you're originating deals, evaluating, screening, taking a certain number of those that pass the screen into deeper diligence. And then without perfect predictability, a certain amount of those get to a close. So there's just a natural process to this. And we don't want to commit to closing a certain number of deals or certain timing within a year because you really want the flexibility to maintain investment discipline around that process.

Our next question comes from the line of Lawrence Solow from CJS Securities.

Just a couple of questions. I guess first question, just on the -- and you guys called it out on the royalties a little bit down versus Q3 and usually the tiering up. So -- and you called out teriparatide as the driver behind that. Just curious, as you look out to '24, a few moving parts here. Does the teriparatide number in that guidance? Does that -- is that lower now? Is there an offset to that? Have you kind of expected that, I guess it was only a couple of months ago? And then I guess just on the royalty outlook, I guess you kind of mentioned the FILSPARI consensus is like 110. So I guess are you guys kind of assuming that number in your guidance. Maybe you can just give us a little color on those couple of moving parts?

So, we're reiterating what we said in December we've learned a little bit more since including the new consensus number for FILSPARI, there's a little bit of upside there. We think that the drivers will continue to be Kyprolis, Vaxneuvance, Rylaze. And we have been prudent on teriparatide and we continue to be prudent going into the year. So we've -- we are seeing competition come in. We haven't received the full report yet from Alvogen, so there's still more to be learned, but we have been conservative in our assumptions.

And you're not assuming anything for ZELSUVMI this year, correct?

No.

And then just thoughts of Verona, obviously, the product and suffering is in their hands. But you mentioned, I think, that they've gotten some financing. The current belief today is that they're going to -- they expect to launch that themselves, obviously, COPD, a huge market, a lot of marketing expense and big pharma in there dominated by big pharma. Is that something they're going to try and go up against? Or are they actively looking for a partner?

We have no, obviously, specific knowledge on their plans, but they have a strong team and have over the last couple of years built that up so that they have the ability to launch this themselves. And that is our assumption in terms of our forecast and guidance around the product. But obviously, there's, we think significant upside around a potential larger acquisition, and this is a product within a category where we certainly think some of the larger folks should be interested in this asset because it's the first significant innovation in the maintenance of COPD in a long time.

And then just lastly, could you just remind us how many shares of VKTX you guys have currently?

We still hold about 1.7 million shares of Viking Therapeutics.

[Operator Instructions] Our next question comes from the line of Balaji Prasad of Barclays.

This is [Shan] on for Balaji. Just a quick one on Rylaze. Could you add a little bit more color on your comments with regard to the supply constraints? And could you also share your view on the short-term and long-term revenue ramp-up of these assets and the implications for Ligand's portfolio?

As folks know, Rylaze is marketed by Jazz, our marketing partner. The supply constraints we were referring to in my prepared comments were really related to the predecessor product. Jazz and Pelican or Phoenix, our prior technology platform collaborated to develop Rylaze to solve those manufacturing problems historically. And so those are all resolved now, and the new product is fully available as much as needed from a manufacturing standpoint. In terms of projections for the product or comments on the product's potential, we only can report what our partners report and Jazz did not provide guidance for Rylaze. I'd point folks to the publicly reported consensus estimates for the product. But last year, the product did about $400 million, a little bit less, I think, for the year and we hope to see growth given that Jazz highlighted that as one of its three key growth drivers.

There are no further questions at this time. Thank you, ladies and gentlemen. We will conclude today's conference call. We thank you for participating. You may now disconnect.