Ligand Pharmaceuticals Inc (LGND) 0 Q0 法說會逐字稿

Good morning and welcome, ladies and gentlemen, to the Ligand Pharmaceuticals announces first-, second- and third-quarter results conference call.

My name is Lee and I will be your conference facilitator.

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 it over to Abe Wischnia, Senior Director of Investor Relations.

Good morning and thank you for joining us.

As you heard, I'm Abe Wischnia Senior Director of Investor Relations here at Ligand Pharmaceuticals.

With me this morning are David Robinson, Ligand's Chairman, President and Chief Executive Officer; and Paul Maier, Senior Vice President and Chief Financial Officer.

We hope that by now you have received a copy of the news release issued late Friday.

That release is the focus of our call today.

The Forms 10-Q referenced in that news release were also filed on Friday.

Before we begin, I want to direct your attention to the cautions contained in the Safe Harbor statements that are included at the end of the news release and in our prior filings, as there may be forward-looking statements made this morning.

So at this time I will turn the conference call over to David Robinson for comments and perspective.

David?

Thank you, Abe.

Good morning, happy holidays and thank you all for joining us this morning.

I'm going to make a few introductory comments and open the call for Q&A.

I know that any and all of your questions can get answered during the time we have this morning.

We are pleased to confirm the completion of our financial reporting normalization process (indiscernible) do expect (indiscernible) shortly our application for relisting of our Company's stock on the NASDAQ national market.

That should take place within days.

And we are pleased that with that, we should be current with our SEC filings and with the normal delay times for NASDAQ to act, should look forward to relisting of the Company's stock (technical difficulty).

With that (ph), also look forward to continuing the dialog with all of our shareholders on the business and financial profile of the Company and to being able to redirect -- refocus our energies to our ongoing process of exploring all strategic alternatives to enhance shareholder value.

We believe that the financial results that you see with the first-, second- and third-quarter financial results and the continuing improvement in 2005 operating results and cash flow, which are highlighted by the results of the third quarter, should further strengthen the Company's financial profile and be a strong support to our ongoing strategic process.

Those results highlighted strong product sales, with product sales growth up 33% in the third quarter compared to the same period in 2004, and that reflected a 50% increase.

It also showed impressive improvement in (ph) product gross margins for the third quarter to 77% compared to 69% in the third quarter of 2004.

Coupled with expense controls that are now clearer and more evident in the third-quarter results compared to the prior year, those two factors have combined to produce a substantial further reduction in the quarter's operating loss to (ph) about 3.5 million.

That is an improvement both sequentially in each quarter of 2005 and as compared to the prior year.

In addition, the Company generated net operating cash of 6.8 million for the quarter (technical difficulty) September 30th, 2005.

And we ended the quarter to with about 75 million in cash, cash equivalents, short-term investments and restricted investments.

We believe that that (technical difficulty) a sequence of improving operating results, and our focus will continue down that track towards eliminating the operating losses, to expect to be over the next 12 months to generate net operating cash.

And we believe that that strength of our financial profile will conclude a long-term goal of the Company, and to do so during the strategic process.

We believe that the results that you see with the improvement in gross margins will continue and further strengthen the Company's financial profile.

I think with those comments, I would now like to turn the call over for question and answer, and will be happy to take those.

Abe, I will ask you now to set up the machinery to do that.

Thank you, David.

And, Lee, we are now ready to open the line to questions.

(OPERATOR INSTRUCTIONS) Tony Campbell with Knott Partners.

Good morning.

I'm wondering if -- I actually have three questions, if I might.

The first question, given that Ligand has over 600 million of NOLs, can you discuss how you perceive their potential value in the strategic process?

My second question is, I'm wondering if you could discuss the corticosteroid compounds that are not in humans yet, but I believe you are quite excited about their prospects.

And how much milestone revenue do you expect to receive in '06?

Tony, I will take two of those questions and I will ask Paul to handle the NOL question.

Thank you.

First one, on c-grams (ph), we are of course excited about 5552, our clinical candidate on IND track.

Basically, the profile of the compound is that it shows similar efficacy to the classical corticosteroids, Prednisone and Dexamethasone (indiscernible) broad range of anti-inflammatory and anti-cancer models.

So activity-wise, it's an exciting compound.

That excitement, though, is really enhanced by the elimination of some of the classical systemic effects of corticosteroids.

As you know, corticosteroids in long-term therapy cause substantial fat redeposition; they cause diabetes and blood sugar alterations; they often cause hypertension; they often cause reshaping of body tissue -- the classical buffalo hump and moonface that you see from chronic users of corticosteroids.

So our program over the past five or six years has been dedicated to trying to dial out in the animal models that typify corticosteroids as many of those toxicities as we can.

We have achieved a certain number of those, that is a separation of effects, keeping the efficacy and eliminating some of those side effects in animal models.

The clinical question of course is to be answered in humans, where we can calibrate if we will be able to retain the separation we saw in animal models.

If so, we believe it would be an extraordinarily exciting drug, either in oral or in topical form.

Now the effects of corticosteroids are also dependent in some ways on how they are delivered.

So if you picture corticosteroids are classically used in a broad range of anti-inflammatory auto immune diseases, and depending upon whether it is intravenous, whether it is oral, or whether it might be inhaler, as you often see in asthma, you may have a different profile of side effects.

So it is very important to see the translation in humans from some of the exciting data we've seen in rats.

We clearly have gained separations on a number of those side effects, including the hypertensive, the diabetic side effects and, to a lesser extent, some separation in bone toxicity.

So I think what we've targeted to do is to bring that compound forward.

We have right now run into some troubles with the oral bioavailability, but we think we've got those just about solved.

And so we are looking at potentially an oral and an IV form as the right ones to enter humans with.

As it relates to milestones and royalties for '06, we are not at this time, Tony, able to provide any forecasts or guidance for '06.

As you know, the forecasting of binary events is a very challenging thing.

And certainly it is very difficult to get that right.

So at this point in time, we try to disclose in our corporate presentation as many of the milestones as we think may occur next year, but we are stopping short of giving the financial guidance for 2006.

As we proceed further and get a little bit better information and handle on that for '06, we may be able to be more helpful with that.

Paul, I will turn it over to you now to answer Tony's question on the NOLs.

Yes.

With respect to the NOLs, just to give it some perspective, at the end of '04 we had federal NOLs of about $530 million, California state NOLs of around 94 million.

And in addition, we had R&D tax credits, about 25 million at the federal level and about 14 million at the California level, and the California R&D tax credits don't have an expiration.

With respect to the expiration of these, there is a schedule of expiration, and about 1% of the federal NOLs expire this year.

And going out into the future, in the next couple of years, the expirations are very small.

So, this represents a significant asset for the Company.

And the optimization of those NOLs was really dependent on what the outcome is of the strategic process.

And the maximum utilization would occur in the case where the whole entity would be sold to one entity, and depending on what structure would be used going forward, that would really optimize the use.

We intend, as we go through the strategic process, to dialog with any of the potential candidates to move forward with to bring all of this information to light so we will be in a very good position to articulate the information.

So we expect to focus on that as one of the assets that is a little bit hidden or off the radar screen for many companies.

I hope that answers your question, Tony.

Yes, it does.

Thank you.

Jason (indiscernible) with (indiscernible) Equities.

Good morning, gentlemen.

A couple of financial questions and a couple of scientific questions.

Financially, David, you had mentioned that you expect to be cash flow positive going forward.

Do you also expect at least pro forma earnings positivity going forward?

And the second financial question is just about the strategic process -- can you just give us an update in how that is proceeding?

Yes.

Thank you, Jason.

I think the answer to the first question, cash flow positive over the next 12 months, I think we are -- that is net operating cash, not strategic or investment -- but net operating cash generated from operations, we do expect to be cash flow positive.

And we are pretty confident of that.

You will have, of course, quarter-to-quarter fluctuations, some quarters larger, some quarters smaller.

And you could even have a quarter where you weren't net operating cash flow positive.

But I think we are quite confident that in the big picture, we are turning the corner of becoming cash flow from operations positive.

Clearly, we can be, with the structure of our non-cash charges, and generate cash from operations without being profitable.

So those two are not directly linked, as you can see from our financials.

We expect -- though we are not going to try to pinpoint the quarter or the amount -- we do expect to turn the corner on profitability as well.

That has been a long-term goal of ours, and so we do remain committed to that goal and committed to it going forward for 2006.

We are just at this point in time not going to give specific guidance as to which quarter and how much.

We will look at that as we proceed through the closure of this year.

We will relook at that to see if it is appropriate to try to be more helpful with some more color on the --.

For now, we are not going to get into the detailed guidance business again.

And the strategic process, how is that proceeding?

Yes.

I would comment only on this, Jason.

I believe it is accurate to say that we are very pleased with the initial level of interest from the conversations that have come in since our announcement.

Clearly, the process has been initiated and we are not going to comment in detail as we go through the process.

But I think at the outset, we would -- suffice it to say that we are very pleased with the initial levels of interest and we have plenty of potential partners to dialog with.

And we will now enter those dialogues in increasing depth going forward in the coming weeks.

I think the process at the outset is well organized, properly staffed.

I think we are confident of running a good quality process that will have the best chance of optimizing shareholder value.

A couple other questions.

Regarding ONTAK, can you provide us with any color on the results from your recent Phase II trial in peripheral T-cell lymphoma and in B-Cell NHL, and can you tell us when these results might be presented, either in a press release or at the scientific conferences?

Yes.

The short answer to that is I believe that the B- and T-cell data, in interim or abstract form, not full publication form, are being presented at ASH.

We typically, for new data, will ensure that our shareholders get a press release with regard to those results.

So I think that they will be available shortly, Jason, for everyone.

I think, obviously, we view the results as generally positive and supportive of the drug's activity, and look forward to the appropriate dialog in the scientific channel on that.

I think based upon overall results of ONTAK T-cell (ph), we are sufficiently encouraged that we intend to launch registration trials on ONTAK in 2006 in T-cell, to more broadly expand the label.

And we expect to continue at the larger Phase II trial the exploration of ONTAK in combination settings with Rituxan in B-cell non-Hodgkin's lymphoma.

So clearly, we are encouraged by the results.

Given the recent regulatory setback for Merck and Bristol PPAR modulator Pargluva, can you describe your prognosis for the four PPAR modulators you have in development with Lilly and in GW501516 partnered with Glaxo?

Yes.

That is a great question.

That's a tough too, Jason.

I believe our appreciation is that the PPAR field, as viewed by the FDA, has seen the hurdles for new drugs to emerge increased over the past two years.

Obviously, first was the ruling that for long-term efficacy studies lasting more than six months, companies were required to have completed the carcinogenicity studies on PPAR compounds before they could proceed to those long-term studies.

That delayed a number of drugs, including several of ours in development.

More recently, the Agency seems to be focused on whether a given PPAR -- whether it's a gamma selective or a gamma with alpha activity -- whether the profile of the drug clinically -- whether it brings advantages over existing marketed drugs.

I think the Agency seems to be with a heightened sense of concern that PPARs without advantages are not very interesting for them.

I think that that is an additional hurdle, fortunately, that each of our drugs in development, whether it be an alpha selective, such as 674 with Lilly, or a delta selective, such as 516 with Glaxo, or whether it be Naveglitazar, which is a gamma with some alpha activity, whichever of those, we've spent a lot of time in preclinical with our partners fact targeting to improve the profile.

What clearly needs to be done is each stage of the development process take the latest data in and share with the Agency that there are in fact clear advantages to these drugs over the existing marketed drugs.

And then I believe the Agency will continue to have a supportive position.

I think if at any time the data turns, let's say, less clear as to the advantages, whether they be efficacy or safety, then I think the higher hurdles will be tough to get over.

I think as it relates to our three drugs, we certainly have unique receptor profile drugs, 516, 674, and I believe the data is getting stronger on each of those.

With Naveglitazar, I think the Phase II data was very positive and very strong.

We are pending the carcigenicity data outcomes.

I believe those studies have been completed and I'm sure there will be a dialog with the FDA on those results.

I think there is good reason to believe that our drugs are in fact differentiated, do in fact have benefits, and we will have to see as the data emerges from the ongoing Phase II trials and from the FDA dialog.

But I think that additional drugs from the PPAR category are going to emerge.

I think we, with our partners, are the best-positioned to be those drugs.

So I think with some cautious optimism that you should always have when an agency is increasing the regulatory hurdles, I think our three drugs are very well-positioned to be able to meet those increased challenges.

My last question.

Does the apparent suspension, apparently because of efficacy, of the U.S. development of J&J's OROS hydromorphone, does that affect your view of the future competitive landscape for once-a-day opioids and how might it affect the landscape for AVINZA?

I would say, Jason, that that setback, to be honest, was not unexpected.

It's just a continuing thing of drugs in this category that the Agency is rejecting for a number of reasons.

This category has been one of the more difficult (indiscernible) drugs approved for many, many years.

This just seems to continue that string of difficulties.

So I don't think it's substantially different.

In many ways, that is good for the approved drugs because those that are approved, quite frankly, there are fewer new entrants to challenge and to complicate the marketing of the existing drugs.

So in many ways, we see that as positive for AVINZA.

I think it can be particularly positive if we can gain a shift in the quality and productivity of the sales call efforts we have out there.

Every competitive advantage situation has to be capitalized on, and we are certainly working extremely hard to try to bring our copromotion discussions to a closure so that we can become more effective and capitalize on some of these competitive advantages.

I think there will be, in the next several years, probably one or two drugs that do get through the Agency that have been hung up there for some years.

But I think this category is going to continue to be, for the next five years, quite frankly with very few entrants.

That means best-in-class products with effective motion (ph) still have a good chance to try continue to penetrate and gain share.

And that certainly is what we want to try to achieve with AVINZA.

Thank you.

Richard Mansury (ph) with (indiscernible) Partners.

Thank you.

Good morning.

Two questions.

First question, I would like to just focus a little bit about the thrombo-cytopenia drug that you are working in collaboration with Glaxo on.

Glaxo had an oncology day a couple of weeks ago and spent close to an hour talking about the exciting results of that drug, 115, which I think they are calling eltrombopag.

Can you comment on the potential of 115 and also I'm wondering if you could comment on the value that may exist in your internally developed thrombo-cytopenia compound, the 4665?

That is my first question.

I think that some years ago at one of our R&D days, we were very excited about S Phase (ph) 115.

And we gave some indications at that time that we felt it would be a potential 1 to $2 billion blockbuster drug.

At the time, I guess we were a little bit ahead of our time, become it didn't seem to get picked up by too many analysts or by too many believers.

I think now there are at least two and probably three reports by some of the major research houses on the market potential of the compound, which place it somewhere between 2.8 bill and 4.5 billion as a potential market for 115.

To think with all of these new pharmaceutical markets that are driven, and you can see it with erythropelaten (ph), that's GMCSF, something we believed for a decade is that these markets will explode and no one really knows how big they will become.

I think that, certainly, if you are looking for a better range than the range that is out there in analyst reports, we probably can't give it.

We are doing our own assessments.

But certainly this is a multibillion dollar franchise in the making.

Some of it will depend upon how GSK prices the compound; that will be a very important determinant of how big that market is.

And I don't think anyone knows exactly how they will price it.

Some will depend, of course, on reimbursement decisions, how the reimbursers will treat this new entity.

And that will be in part based upon the price and cost to those reimbursers.

Having said that, I think we are confident that short of significant errors in pricing or strategy, this is going to be a multibillion dollar franchise for 115.

And that is in part what motivated us, once we got 115 and a follow-on compound for GSK, 448, which is in Phase I, we put up an internal program part over (ph) and come up with our own chemical series and chemical, which resulted in 4665.

4665 was developed to be potentially, at least in the preclinical models that are used for this field, to be more potent and/or more efficacious.

Now in preclinical models, we obviously believe we've achieved that, and we are now headed to humans.

We expect to file an IND and commence Phase I in the first half of 2006.

And we believe there will be plenty of room in the market for our own drug, that even following several years behind 115 drug, this market will be growing for probably a decade.

So there is plenty of space in there for a second drug.

And depending upon how much commercial muscle were put behind our drug, it could actually help the market to grow.

I think that is one of the phenomenon you see with these new markets, particularly growth factor markets, where you're dealing with serious unmet needs.

But you are also with one or more large organizations out there to dialog with physicians, I think the market always seems to respond and grow faster.

So we see a robust future for our own compound, certainly as a second product in the class.

If it's just as good as 115 human clinical setting, I think we are still looking at $1 billion franchise in the right hands.

If it in humans translates to have some advantages, then I think with the right commercial muscle behind it, all bets are off, even coming into the market a little bit later.

I think this is a market that will flow to the best product, and I think that we will just have to see.

Sometimes preclinical advantage is in the human setting in this category, so what you are trying to do is normalize platelets.

Sometimes the preclinicals don't translate; you can get the job done without the higher potency and preclinical efficacy.

So we will just have to wait and see.

But I think we are confident that there aren't a lot of other competitive once-a-day oral drugs out there to worry about, and that we should be next in line with a good, focused development program to bring it fairly promptly to market in the coming years.

Presumably you own 100% of that compound, the 4665.

Given all the excitement, all the talk about this new market, this new theoretical market about attacking thrombo-cytopenia, is it fair to say that there might have been increased interest in that preclinical compound, now that these results have sort of hit the light of day?

I would say it certainly has helped that GSK has turned not just the flashlight but the major spotlight on this field.

We think it is good for patients; we think it is good for 115; we think it is good for 4665.

And, yes, we believe that that spotlight is, let's say, educating a number of people who perhaps weren't as aware of 4665 or where it was in development.

I think our program has been visible, but the focus was not as acute on 4665 until more recently.

And certainly, the quiet period that we went through as we were getting our financials restated left us without a lot of communication to third parties on some of the earlier pipeline.

So I think that is coming into focus now.

I'm sure there will be robust dialog and --.

I understand.

My next question, if you could just talk briefly about -- and thank you for elaborating.

If you could just talk briefly about Targretin and whether you have any thoughts in terms of other potential indications, specifically as in the non-small cell lung cancer market, do you still intend to pursue with a partner those plans?

Yes we do.

We've defined, analyzed, re-analyzed the data from our Spare I (ph) and Spare II trials.

We've added additional data on the biomarker and we've correlated that.

And after all of that good scientific work, including outside consultants looking at it, scrubbing it, giving us their input, we remain convinced that the data strongly supports an investment in a Phase III registration program for the subpopulation of high triglyceride responding patients or rich biomarker patients.

So we are working on the protocol design and intend to have a dialog with the FDA on that early next year to gain their agreement on the protocol for that study.

That information will be shared with potential strategic partners and we will be demonstrating to them the strength of the data and our conviction that that type of study is a very wise investment and should go forward.

So that is currently as we plan to do it.

We don't expect to launch those trials or trial, as we believe it will be, on our own.

We think the size of the investment and the nature of where we are with our financial profile, we should do that with a partner; not on our own.

Understood.

Thank you.

David Knott with Knott Partners.

Mr. Knott's question has been withdrawn.

Jonathan Kaye (ph) with (indiscernible) Capital.

Good morning.

How are you?

Good morning, Jonathan.

We are fine, thank you.

I missed a few minutes of the Q & A, so forgive me if this was covered.

But can you give us an update on the Organon discussions?

Yes.

About all I can say is the conversations are ongoing, obviously confidential.

About the only flavor I can give you is that we are pushing hard right through the holidays to one way or the other conclude our discussions with Organon by year end.

They are in the active phase, so I won't comment further on that.

I think they continue to be productive.

That timing guidance is helpful, thank you.

Ladies and gentlemen, we have reached the end of the allotted time for questions and answers.

Mr. Wischnia, are there any closing remarks?

Lee, thank you very much.

Ladies and gentlemen, thank you very much for joining us this morning.

This concludes our call.

I'm sure that if you have questions, you will give us a call.

And the replay of this call will be archived for the next 7 days.

Thanks and have a great day.

Ladies and gentlemen, again, thank you for participating.

This does conclude the conference.

You may disconnect at this time.