Ligand Pharmaceuticals Inc (LGND) 2006 Q4 法說會逐字稿

Welcome to the Ligand Pharmaceuticals fourth quarter conference call.

All participants are in listen-only mode.

Following management's prepared remarks, we will hold a Q&A session.

[OPERATOR INSTRUCTIONS] To ask a question press star one on your touch-tone phone.

If anyone has difficulty hearing the conference please press star zero for operator assistance.

As a reminder, this conference is being recorded March 15, 2007.

I would now like to turn the conference over to ^Ms.

Erica de La Cruz from Investor Relations.

Erica you may begin.

Thank you.

Good afternoon.

Thank you for joining us.

With me this afternoon are John Higgins, Ligand's Chairman, President, and CEO.

Martin Meglasson, Vice President of Discovery Research and Tod Mertes, Interim CFO.

Before we begin, I want to remind that today's call may contain forward-looking statements within the meaning of Federal Securities Laws.

These may include but are not limited to statements regarding the AVINZA royalties, program highlights, and business restructuring.

These statements involve risks and uncertainties and reflect Ligand's judgment as of the date of this call.

Actual events or results may differ from Ligand's stated expectations.

Additional information concerning risk factors and other matters concerning Ligand can be found in Ligand's public periodic filings with Securities and Exchange Commission, which are available at sec.gov.

Furthermore, this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, March 15, 2007.

Ligand undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

At this time, I will turn the conference call over to John Higgins.

John.

Erica, thank you.

This is my first conference call as Chief Executive of Ligand.

I'm delighted to be here.

I actually am not the Chairman.

Erica, thank you, though, for the promotion.

John Kozarich, very distinctive scientist is our chairman and a wonderful leader of our board.

I'm pleased to reach out directly to investors to share some perspectives on the Company and to provide updates on the business and I will continue to reach out to the investment community through meetings, conferences and calls with the goals of ensuring a complete and accurate view of Ligand among those who already know us and with the goal of developing additional interest in our Company.

Ligand has gone through a major transformation in a very short period of time.

We have divested our commercial assets, we have cut operating costs considerably with our restructuring, and we have a new management team and a new board of directors, each of whom is firmly committed to the direction we have set for Ligand.

People have oftentimes asked me why I chose to join the Company.

Those who know me know that I thrive on building success.

And with that, frankly, there is a great fit with my professional interest and what Ligand needs right now.

More than that I was attracted by the great science and R&D heritage of this Company.

A number of very exciting partnerships for important and promising drug candidates and a Company strong balance sheet and financial resources.

We are a Company that now enjoys unprecedented capitalization.

We are focused on early stage drug development, and through our transformation we have created a true modern-age emerging biotechnology Company.

I'm excited to be here, and I look forward to helping you create value with our assets.

In terms of program updates let me start with our leading proprietary program.

Our most advanced program is focused on developing drug candidates that mimic the activity of thrombopoietin for treatment or prevention of thrombocytopenia.

Thrombocytopenia is a condition of low platelets in the blood.

Naturally occurring thrombopoietin boosts the production of platelets and our drug candidates are being developed to help patients who have abnormally low levels of platelets.

This is a very important medical market comprised of a broad array of disorders including idiopathic thrombocytopenia purpura, or ITP.

Complications from cancer treatment, hepatitis C, and disorders of blood cell formation.

Currently there's no meaningful medical treatment for thrombocytopenia.

Our goal is to develop orally active safe and effective treatment.

Our lead TPO Mimetic's drug candidate, LGD4665 is currently in a Phase I dose-escalating trial.

The trial began in November of 2006 and we expect it will be completed in the fourth quarter of 2007.

In addition, we have a broad library of additional TPO Mimetic's compounds on which we are performing drug discovery research.

Given the importance and magnitude of this market, our goal is to advance LGD4665 through clinical studies as well as develop follow-on compounds to potentially develop ourselves or partner with other drug companies.

Let me now comment on our work with SGRM an acronym for Selective Glucocorticoid Receptor Modulators.

Although the overall SGRM program will continue to advance we have determined not to pursue further development of LGD5552.

As good laboratory practices studies failed to demonstrate desired preclinical safety characteristics.

We have a library of other potential drug candidates from which to optimize a new lead drug candidate to advance to clinical trial.

Our goal is to develop novel products that maintain the efficacy of corticoid steroids but lack the side effects of current therapy which can include osteoporosis, hyperglycemia and hypertension.

We are developing non-asteroidal orally active molecules that selectively modulate the activity glucose corticoid receptors, the SGRM molecules have anti-inflammatory activity in preclinical modules that may be useful against diseases such as asthma and rheumatoid arthritis as well as -[propraliprative] effects that can be beneficial in treating certain leukemia and myelomas..

We are also working with SARMs, an acronym for Selective Androgen Receptive Modulators.

As part of our alliance with Tap Pharmaceuticals we have exercised options for development of certain compounds and are engaged in preclinical research at this time.

We anticipate advancing our lead SARM drug candidate, LGD3303, in a clinical study in 2008.

The desirable clinical profile of SARMs include antibolic effect in muscle and bone and restoration of impaired libido or sexual function with minimal or no effect on prostate in men,the virallization of women and in general no adverse cardiovascular or hepatic effect at therapeutic doses.

Our tissue selective AR Agonist could be useful in the treatment of patients with osteoporosis, frailty, [cacexea] and sexual dysfunctions.

In addition to our internal activities with our proprietary drug program we have several important collaborations with large pharmaceutical companies in each of these areas as well.

In TPO Mimetics, our partner GlaxoSmithKline made significant progress in hepatitis and ITP trials during 2006.

In September, Glaxo successfully completed a Phase II trial in hepatitis C with eltrombopag, branded as Promacta, and a Phase III trial is expected to be started in 2007.

Glaxo has also completed a Phase II/III trial with eltrombopag for ITP and is currently conducting a Phase III trial for ITP.

Our partner Wyeth also reported important clinical progress and success in the fourth quarter of 2006, specifically in October, Wyeth disclosed positive results with bazedoxifene,branded as Viviant for osteoporosis, and with bazedoxifene CE branded as Aprela for menopause.

Viviant has a PDUFA date coming up in April of 2007 and an NDA for Aprela is expected to be made in late 2007.

Significantly Wyeth has publicly stated its belief that these two drugs combined could generate in excess of $2 billion of annual revenues.

Finally, Ligand's partner, Tap Pharmaceuticals is continuing its Phase I with LGD2941, a SARM for osteoporosis and frailty.

Now turning to our capitalization, with the sale of our commercial assets to King and Eisai over the last six months we have received nearly a $0.5 billion in cash.

At the end of February 2007, we had approximately 450 million in cash including 35 million held in escrow as a result of certain agreements relating to the divestiture of our commercial assets.

We are in the process of evaluating returning cash to shareholders through a combination of a special one-time dividend and a share repurchase program.

There are administrative and valuation requirements to finalizing any decision relating to a dividend and share repurchase.

We will announce our plans in this matter in the near future but at this time we cannot make a commitment as to the timing or magnitude of any possible return of cash to shareholders.

With our substantial restructuring and the recent closing of the AVINZA transaction we are finalizing our 2007 operating plan at this time.

On our first quarter conference call expected to be held in May, we plan to provide an outlook for operating expenses for 2007.

Again, in closing I will say I'm very excited to be here.

In two short months since I joined we have made dramatic changes in the way we conduct business.

I'm very impressed with the quality of our employees, our strong scientific credentials and our team's great work ethic.

As the new leader of Ligand, shareholders and employees can count on me to run the Company with the highest integrity, rigorous analysis with decision-making and transparent communication.

I look forward to meeting with investors and analysts, and we'll be on the road this spring.

We will provide updates on our schedule of investor events as we have them.

Thank you.

And with that, I'd like to turn the call over for questions.

[OPERATOR INSTRUCTIONS] One moment, please, for the first question.

Your first question comes from David Webber with Albany.

Thank you.

Can you hear me okay?

Yes.

Hello, David.

Hi.

Couple of questions.

I understand you're going to wait until the first quarter call to give us some -- the outlook for operating expenses, but can you in any qualitative way give us a sense of how quarterly operating expenses will compare to what they have been in 2006?

David, a fair question, but at this time we are not able to do that.

We'll have details certainly for the full year we'll give our spending priorities for 2007 on our call.

Again, we expect in May.

At that time we could give some quarterly comparison.

I expect that we will have some lumpiness as we have projects that will hit at various times throughout the year but at this point we've add very busy couple of months with the closing of the AVINZA transaction with the restructuring.

We really want to be very diligent before we give any specific details about our operating plans and expenses.

Okay.

Then in terms of your capitalization, just from reading the press release, there was an inventory adjustment of $18 or 19 million.

Is that the inventory contingency that could have been as high as $65 million?

Does that reflect taking care of that issue?

Yes, and I will let Tod amplify on that.

Yes, so that's exactly right, David.

There were two components of that 18 million.

In the agreement with King, they have provided for adjustments based on certain targeted wholesale and retail inventory levels.

We met the wholesale targets.

The retail, which we don't really have any control over, however, did contribute to the majority of that adjustment as we expected.

So, you're right, it was 18 million, and it compares to the 60 million that we reported in our pro forma statements in the proxy.

So there are no other future possible adjustments for what you received from King?

Well, there's -- those adjustments are still subject to finalization as some of that actual inventory information comes in.

At this point we don't expect that they would be material but there could be some.

Okay.

That's fair enough.

And then I wanted to ask about LGD4665, then I will get back in the queue.

Is -- I guess one question that I was wondering about is, since LGD4665 is an oral TPO Mimetics like of Promacta.

Is there any chance that GlaxoSmithKline might claim that it has some form of ownership of 4665?

David, we have extensive research in this area.

We are very excited about the work we have done and are also very pleased with the work Glaxo has done.

Everything I have been told and seen says we have full right and title to LGD4665.

Okay.

Great.

Thanks.

I will get back in the queue.

Your next question comes from Richard Mansouri with Para Partners.

Hi, two questions and one congratulations for stepping on board, and thanks to all the old and new board members.

John this company I think has been repositioned very nicely in comparison to historically.

I just had two questions.

One, in the most recent proxy statement that you filed there was some language in there that said that the Company may establish a royalty trust in the future, quote, should it prove more beneficial to our stockholders than managing and holding the collaborative research development programs.

Wondering if that's something that you guys are still at least considering?

Richard, the debt disclosure was made certainly, and [inaudible] that was part of my diligence just to understand from management and the board what the general thinking was on the strategy.

I will comment that the Company enjoys a list of very exciting partnerships that could be extremely lucrative in generating royalties in the future.

Specific to any decision, I'd offer with my newness on the job very preliminary.

There's no official plan or activity going down that path right now, but I think what is unique for our business, advances as our research is we also have some very late stage programs.

The analysis of that I expect we will look at over time, and it may focus principally on the tax benefits, and just the question of what is most efficient, again, for shareholders, doing what's right for shareholders to run those royalties through the Company directly or running it through a trust where the shareholders would get that.

Again, that's just an overview, but aside from the brief outline of that general strategy, no additional work has been done on that lately.

Understood.

Thanks for that.

Then secondly, as far as LGD4665, can you compare its profile, at least its preclinical profile, to the preclinical profile of Promacta?

How similar are the two compounds?

What are your thoughts?

I'll turn it over to Dr.

Meglasson.

Hi, this is Martin.

We can do at least a high-level comparison of the two compounds.

I think I would refer you first to a recent review published by David Couter that appears on the website for The Journal of Blood and compares a whole host of various molecules that act as the thrombopoietin receptor.

What will you find in looking in that review is that all of these molecules seem to interact with the receptor in a rather similar sort of manner.

I think has we do as well demonstrate in that our preclinical studies and I think that that lessens or mechanistic risk as we proceed on into patients.

What the specific attributes of our drug that we see are that it's more potent, when we study it in vitro using human bone marrow cells, it's more efficacious than eltrombopag.

Now, how that will translate into clinically meaningful benefit, it's really too early to tell at this point what.

What we certainly know for sure is that the two are distinct chemical entities, and as distinct chemical entities, there's almost certain to be pharmacokinetic and pharmaceutical differences between the two compounds as we proceed in the development with our compound and as GSK takes forward Promacta.

Understood.

Just as a follow-up to that question, John, in terms of -- granted, it's still early stage Phase I but is this a compound that would you consider if you get promising results, is this something you would consider partnering and do you think there would be interest from the pharmaceutical community in partnering such compound?

We will leave all options open.

We certainly have the resources and I think the very great infrastructure to advance it ourselves at this stage of development.

I do think there would be interest from other partners in as much as we have done partnerships in the past we know sharing the development costs and risks and certainly preparing for commercialization is very important.

So that may be a part of our future, but at this stage we are not committing to any specific partnering time line or activity.

Understood.

Thank you very much.

Once again, ladies and gentlemen, as a reminder, to register for a question please press star then the number Thank you very much.

Once again, ladies and gentlemen, as a reminder, to recommend story for a question please press star and then the number one on your telephone keypad.

Your next question is a follow-up from David Webber with Albany.

Mr.

Webber, your line is open.

Can you hear me?

Yes.

Sorry about that.

This question is perhaps a different way of asking the one that was asked previously but again on LGD4665 you mentioned, John, in your opening remarks that your goal was to advance the product through clinical trials.

Does that mean through Phase I or Phase II or Phase III?

Is there any set goal at this point?

No.

I mean, specifically, we can't commit to a specific plan, but right now in '07 we do believe we will be completed with our Phase I dose-escalation work, which has set us up nicely to commence potentially multiple Phase II trials in 2008.

In terms of developing short to near-term plans that is our outlook, and we'll have to evaluate, again, the cost, the clinical requirements, and whether it makes sense for us to keep advancing it ourselves, which we can certainly build infrastructure to do, or, again, share that in a more collaborative nature with a partner.

Okay.

And then regarding AVINZA, since royalties on AVINZA will make up the bulk of your revenues in 2007, I assume, when King pays you royalties, will that be on AVINZA sales recognized through the sell-in methodology or the sell-through methodology?

We expect it will be on the sell-in method.

Okay.

So can you -- I don't know if you have this number, but can you say what AVINZA sales in 2006 would have been on a sell-in basis?

David, I do not have that handy.

We can follow up.

We'll look at a prescription base model and follow up with you.

Okay.

Thank you very much.

There are no further questions at this time.

Please proceed with your presentation or any closing remarks.

Well, thank you that concludes our conference call.

Again, I gave an overview of our lead proprietary development programs, and status of our key partner program.

I want to reiterate I'm very excited to be here.

This is a tremendous opportunity for investors, for the employees who are still here, our management team and we look forward to solidifying our plans, and I look forward to getting out on the road and meeting directly with investors and analysts.

Thank you for your time.

Ladies and gentlemen that concludes your conference call for today.

We thank you for your participation, and ask that you please disconnect your lines.