Ligand Pharmaceuticals Inc (LGND) 2006 Q3 法說會逐字稿

At this time I would like to welcome everyone to the Ligand Pharmaceuticals conference call. [OPERATOR INSTRUCTIONS] Mr. Maier, you may begin your conference.

Thank you.

Good morning and thank you for joining us today.

My name is Paul Maier, and I am Chief Financial Officer of Ligand.

With me this morning is Hank Blissenbach, Ligand's Chairman and interim CEO.

We hope that by now you have seen the news release that was issued on Tuesday.

It is the focus of our call today.

The Form 10-Q for the third quarter 2006 was also filed yesterday.

We will try to provide an explanation of key issues outlined in these documents.

Since we have not yet closed the AVINZA transaction and finalized the proxy, and since we are in the process of determining the profile of the new Ligand going forward, we will not be entertaining questions on today's call.

Before I begin, I want to caution you regarding forward-looking statements we may make on this call.

These include statements we may make on this call.

These include statements regarding stockholder approval and closing of the AVINZA sale, expected expenses, inventory goals, redemption or conversion of notes, our CEO search, restructuring of the Company, and any distribution of cash proceeds from our asset sales.

Actual events may differ from our expectations.

For example, we may not be able to timely or successfully execute some or any of these items, and our expectations with respect to financial numbers, such as expenses and inventory may not be met.

I also direct your attention to the cautions contained in the Safe Harbor statement included at the end of the earnings news release as well as the risk factors that are discussed in our Form 10-Q which are important to understanding our business and our comments today.

You'll note in our news release and 10-Q that our financials include results from continuing operations, that's AVINZA, and discontinued operations, the oncology product line.

As you know, on September 7, 2006, we announced plans to sell our AVINZA and oncology product lines in two separate transactions.

Due to the requirement of stockholder approval, which has not yet been received, on the AVINZA transaction, the operating results for the AVINZA product line are presented in the financial statements as continuing operations.

The oncology product line sale was completed effective October 25, 2006, and as such, the oncology operating results have been presented as discontinued operations.

Likewise, assets and liabilities associate with oncology are presented as assets held for sale and liabilities related to assets held for sale as of September 30, 2006.

At this time, I'll turn the conference call over to Hank Blissenbach for comments and perspectives.

Hank.

Thank you, Paul, and thanks very much to everyone for joining us this morning.

This conference call will provide you with third quarter and year to date financial information and an update on recent events.

First, a brief summary of our financials.

Product revenues from continuing operations, that's AVINZA, were 36.7 million for third quarter, and 102.9 million for nine months ended September 30, 2006, compared to 29.9 million and 79.4 million respectively for the same 2005 periods.

These increases of 23% in the third quarter and 30% in the nine months of 2006 compared to 2005 were driven primarily by price increases and lower rebates.

Gross margin on AVINZA sales continued to improve and was 84.2% for the third quarter 2006 compared to 78.5% for the same 2005 period.

Spending on R&D increased 32% to 10.5 million for the third quarter 2006, and was up 22% for the nine months compared to 2005.

These increases were primarily due to investments in LGD 4665 and LGD 5552 which continued to move forward as our key lead drug candidates.

We expect to announce initiation of Phase I trials for LGD 4665 by year end 2006 and for LGD 5552 in 2007.

SG&A expense for the third quarter grew from 14.5 million in 2005 to 20.1 million in 2006.

This increase is due primarily to legal costs, investment banker fees related to the commercial product sales transactions, expenses in connection with the resignation of the Company's CEO, and costs related to Sarbanes-Oxley compliance.

We expect SG&A expenses to continue to be higher through the remainder of the year as outlined in our news release.

Net loss for the third quarter 2006 was 14.9 million, or $0.19 per share, compared to 6.3 million, or $0.08 per share for the 2005 period.

With that, I will finish my financial overview and ask Paul to comment on discontinued operations and liquidity before I wrap up with comments on recent events.

Thank you, Hank.

As a result of completing the oncology product line sale on October 25, 2006 the operating results of oncology are presented as discontinued operations, and are highlighted in a separate table in our news release.

Product sales grew to $13.3 million for third quarter 2006, and $42.5 million for the nine months of 2006 while operating costs and expenses declined to 11.3 million for the third quarter 2006 and 36.9 million for the nine months of 2006.

Income from discontinued operations was $1.2 million in the third quarter of 2006 and $3.4 million for the nine months of 2006, which partially offset losses incurred in continuing operations.

The Company had cash equivalents, investments, and restricted investments of 33.7 million as of September 30, 2006.

Operating activities used cash of $28 million during the third quarter, primarily as a result of reduced AVINZA shipments to wholesalers, consistent with the Company's goal to achieve certain targeted levels of wholesaler and retail inventory, in accordance with the King purchase agreement.

Subsequent to September 30, 2006, Ligand completed two of its three announced strategic transactions.

The Company received approximately $205 million in cash at closing of the oncology sales, of which $20 million was funded into an escrow account to support potential indemnification claims by the purchaser, and $38.6 million was deposited into a restricted account to be used for security -- as security for repayment of the King loan plus interest as outlined in our 10-Q.

I'm also pleased to report that Ligand completed the sale of its Real property located in San Diego in early November 2006, including paying off the existing property mortgage, resulting in net cash proceeds of approximately $34.8 million.

We also announced on October 30, 2006, that Ligand had given notice of redemption to the note holders of its 6% convertible subordinated notes, due November 2007.

The redemption date of the notes has been set for November 29, 2006.

As of September 30, 2006, approximately 128.1 million of principal amount of the notes remained outstanding.

In view of the $6.17 per share conversion price of the notes, we expect that the majority of the notes will convert into shares of Ligand common stock.

I'd now like to turn it back to Hank for further comment on recent events.

Thanks again, Paul.

First of all, we are pleased to have completed the sale of our oncology product line to Eisai which places the products with a strong company that will serve our oncology patients well.

We also acknowledge the contributions of our 58 former oncology employees, who have accepted employment with Eisai and wish them great success in the future.

As Paul mentioned, we are pleased to have completed the sale of our corporate real estate, another transaction resulting from our strategic process which strengthens the cash position of the Company.

With the completion of the redemption or conversion of Ligand's convertible subordinated notes, by the end of November 2006 we expect to have successfully eliminated virtually all of our long-term debt while significantly reducing cash interest expense.

As you know, the sale of AVINZA to King pharmaceuticals requires shareholder approval.

We have submitted a preliminary proxy statement which will be distributed as soon as we obtain SEC clearance and schedule a shareholder meeting.

We anticipate the AVINZA transaction will close shortly thereafter.

The SEC will be reviewing our proxy statement, and that review may affect our closing time line.

Meantime, our contract salesforce agreement with King became effective October 1, 2006, allowing a smooth transition following the completion of the Organon co-promotion arrangement as of September 30, 2006.

The King salesforces were trained and deployed upon commencement of the agreement in September and began calling on physicians on October 1, and are working closely with Ligand's specialty sales force to promote the brand and support the product and our customers until the sales transaction is completed.

Let me now bring you up to date on other items.

With respect to our corporate partner pipeline, our development partner, GlaxoSmithKline, recently announced during their October earnings conference call that Promacta, or Eltrombopag successfully met the primary end points in both its Phase III trial in thrombocytopenia and hepatitis C virus.

Secondly, our development partner Wyeth recently announced during their October investor conference that they expect the Viviant and Aprela, or bazedoxefine and bazedoxefine CE franchise to generate peak sales in excess of $2 billion.

As previously announced by Wyeth, the FDA accepted the NDA submission for the prevention of osteoporosis in October -- I'm sorry, in August of 2006.

Wyeth also announced it plans to submit an additional NDA Viviant for the treatment of osteoporosis.

And finally, Wyeth also indicated it was planning to file an NDA for Aprela for vasomotor symptoms, vagilatrophy, and prevention of osteoporosis in 2007.

The addition of conjugated estrogens to bazedoxefine for the relief of a wide range of menopausal symptoms is expected to add significant value to this product line.

Our Board search for a new Chief Executive Officer is well underway.

We are looking for a leader with strong business experience in the pharmaceutical background.

Our ideal candidate has a proven track record that will assist us in maximizing the value of our assets.

We will provide a further update as we conclude the process.

We are still formulating our plans and budgets for 2007 and beyond as we refine our expense structure and R&D investment priorities post completion of our strategic transactions.

Since the proxy statement has not yet been distributed, and the King transaction has not closed, we have not made a determination regarding distribution of the cash proceeds from the AVINZA and oncology sale.

These decisions will be made in the context of our new and restructured Ligand Pharmaceuticals by our Board of Directors and management in conjunction with our financial and legal advisors.

We are focusing on completing strategic events which will deliver more shareholder value as a new Ligand emerges.

Thank you for joining us today and for your continuing support of Ligand.

This concludes today's conference call.

You may now disconnect.