Ligand Pharmaceuticals Inc (LGND) 2007 Q1 法說會逐字稿

Good afternoon.

My name is Vanessa, and I will be your conference operator today.

At this time, I would like to welcome everyone to the Ligand first quarter earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer session.

If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad.

If would you like to withdraw your question, press star, then the number two on your telephone keypad.

Thank you.

I will now like to turn the call over to Erika in investor relations.

Please go ahead, ma'am.

Thank you for joining us.

With me this afternoon are John Higgins, Ligand's President and CEO; John Sharp, Vice President of Finance and CFO; and Martin Meglasson, Vice President of Discovery Research.

Before we begin, I want to remind you 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 2007 operational AVINZA and partner product loyalties and program highlights.

These statements involve risk and uncertainties and reflects 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 the 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, May 10th, 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'll turn the conference call over to John Higgins.

John?

Erika, thank you.

And thanks for everyone joining us this afternoon.

I'm going to provide an overview on our recent activities, our financial results, provide information relating to our 2007 plan and operating budget, as well as updates on our partnered and internal programs.

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

We have divested our commercial assets, we've cut operating costs considerably with our restructuring and we have a new management team and a new Board of Directors.

In addition, in the last couple of months, we have paid a stock dividend totaling $253 million, we've announced a share repurchase authorization of up to $100 million, and hired a new CFO.

The changes at Ligand since I joined in mid-January are nothing short of breathtaking.

I'm proud to report that our work has been well executed, the transition has gone smoothly and the team at Ligand is fired up about our future.

Now, before I turn to remarks about the first quarter, I want to acknowledge the contribution to Ligand and the excellent work by Tod Mertes, Tod has been our VP of Finance for several years and more recently has stepped up as our interim CFO.

Tod has worked tirelessly over the last couple of years during a busy and very challenging period of time.

And certainly Tod is instrumental in our ability to close on our recent major transactions.

I want to thank Tod, who is here with us this afternoon, on what will be his last conference call for Ligand.

In addition, I'm pleased to announce that I'm joined by John Sharp, our new CFO.

John joined us at the beginning of May, coming over from Sequenom, where he was VP of Finance and Chief Accounting Officer.

John has been a dynamite addition to our team and we have had a very smooth transition to our new CFO.

Now, turning to the business, I want to talk through some of our financial results for the first quarter initially.

In the first quarter we closed the sale of AVINZA to King Pharmaceuticals, bringing in $295 million in cash of which 50 million is held in escrow to cover certain potential indemnifiable claims.

While we had two months of sales prior to closing the deal, the revenue associated with the product sales is reflected as a component of discontinued operation.

Accordingly, the only revenue that we show is a $235,000 milestone payment from Wyeth for the selection of a compound to advance to pre-clinical development.

Total operating expenses for the quarter were 29.8 million, including 5.4 million for stock-based compensation and 7.3 million for one-time non-recurring expenses related to our restructuring.

We recorded a tax expense of 60 million in the first quarter, and I'll say given the nature of tax accounting and as a result of our operating losses, we expect to record a tax benefit of approximately $9 million spread over the next three quarters.

Accordingly, for the analysts who are modeling the tax line, our net tax expense for 2007 is expected to be approximately 8 million.

The Company has realized substantial gains on the sale of our assets and accordingly has utilized a significant portion of our net operating loss carry-forwards.

At the end of the first quarter we had NOLs of approximately $100 million, and we possibly have up to another $180 million in NOLs as a result of our past acquisitions of two companies that had significant NOLs on their books at the time of the acquisitions.

However, these NOLs are subject to IRS limitations which may restrict our ability to use them fully.

Now, I'd like to talk about our operating expenses, looking forward for the rest of 2007.

Our operating expenses for the remaining three quarters of 2007, that's April through December, are projected to be $46 to $48 million.

This includes $34 to $35 million for R&D related activities.

The R&D expense outlook will fund the completion of our phase 1 trial with LGD4665, it'll covers costs of preparing to initiate multiple phase 2 trials with LGD4665 in early 2008 including the manufacture of drug supply for those studies.

It will fund a drug study and optimization for four research stage programs and fund the pre-clinical studies for LGD3303.

G&A expenses for the next nine months are projected to be $12 to $13 million.

This outlook includes cost to cover our ongoing SEC investigation related to expenses, and other costs relating to non-recurring items that is pertain to our restructuring.

Total expenses by quarter is expected to be relatively flat over the next three quarters.

I want to make some comments about the operating plan.

Overall, I would say the plan that we were operating with will fund a very robust business, including the investment in the internal activities to advance our four programs.

Our view is that 2007 is clearly a restructuring and rebuilding year.

Our investments this is year will set us up for a streamlined business in 2008 when we expect to be conducting multiple Phase I and Phase II trials as well as announcing new drug candidates for numerous programs.

To put all of this in perspective with our restructuring, we have cut massive costs out of our business.

In 2006, and I think you'll find this interesting, our total operating expenses were approximately $150 million.

Where, in 2007, our full-year operating expenses excluding the one-time charges and discontinued operations, are projected to be less than $70 million.

These significantly lower operating costs coupled with a substantially strengthened balance sheet with the divestitures of our products puts Ligand in a much stronger and stable financial position than in recent past.

This outcome here in early 2007 speaks volumes to the major success of our restructuring activities.

I want to comment about royalty rates.

With the divestiture of AVINZA, which is our largest, has been our largest and, of course now has been our final commercial asset here in the first quarter of 2007, and with the advancement of drug programs in development by our partners, we are now at a stage where our royalty-bearing licenses have grown in importance to the Company.

As of today, with the filing of our 2007 10-Q, we are now disclosing the specific royalty rate in tiers for our most advanced programs.

Given information provided publicly by Wyeth, Glaxo and Pfizer, there's a possibility that all three companies may receive approval to launch products covered by royalties due to Ligand.

We are pleased with the excellent work our partners have done to advance the respective programs and are excited about the opportunity to receive royalties from new products.

Currently, we are receiving royalties from King Pharmaceuticals for AVINZA and for product specific royalty rates, please see our press release issued today or our 10-Q that also was filed today.

Now, moving on, I'd like to provide some program updates.

Let me start with our key partnered development programs.

In the area of TPO mimetic, Glaxo's med client continues to make progress with Eltrombopag, or Promacta for treating ITP and Hepatitis C.

they initiated a trial which Glaxo's calling the repeat trial, to evaluate a repeated dosing schedule of three 6-week cycles of Eltrombopag treatment in 50 patients with chronic ITP.

A Phase III trial with Eltrombopag for ITP was initiated for the indications well in December of 2006.

Glaxo also plans to initiate a Phase III trial in 2007 for Hepatitis C.

In the first quarter, switching gears, Wyeth announced that the FDA issued an approvable letter for bazedoxifene, branded as Viviant.

Viviant is a selective estrogen receptor modulator for the prevention of post-menopausal osteoporosis.

Now, two primary issues were noted with the approvable letter.

One, Wyeth needs to furnish final safety and efficacy data from the recent Phase III study of bazedoxifene, and two, it needs to resolve certain issues at its manufacturing facility.

There's some good news, just yesterday Wyeth announced that it has resolved the FDA's concerns at the manufacturing site in a satisfactory manner, and Wyeth has indicated that it expects to submit the additional data asked for by the FDA in a timeframe where the product could be approved by the end of 2007.

Wyeth expects to make two more regulatory submissions for Viviant by the end of 2007.

Specifically, they're looking at an NDA for the treatment of osteoporosis and, again, that is the treatment of as opposed to the prevention of.

And also, they looked upon an NDA equivalent for European filing for the prevention of treatment of osteoporosis as well.

In addition, Wyeth plans to submit and NDA for bazedoxifene-CE, branded as Aprela, for the treatment of vasa motor symptoms, vaginal atrophy and the prevention of osteoporosis also by the end of 2007.

We're very excited about Wyeth's achievements.

They made significant progress with their programs and with one approvable letter in hand and potentially three more NDAs to be submitted by the end of '07, no doubt this is a very, very advanced program.

Wyeth's publicly has stated that they believe the market potential for the bazedoxifene franchise could be in excess of $2 billion.

Switching gears, in addition, Ligand's partners, Pfizer, have announced plans to refile an NDA for lasofoxifene, branded as Aporia.

They intend to do this by the end of 2007.

Pfizer expects the results from a pool study, which they recently have completed, will address the FDA's requirements in terms of its safety and benefits.

Finally, with regard to the selective androgen receptor modulators, Ligand's partner TAP is continuing its Phase I trial with LGD2941 program for osteoporosis and frailty.

We're excited about the development and activity that all of Glaxo, Wyeth, Pfizer and TAP are conducting and again are particularly excited about some of the near term clinical and regulatory events for the more advanced programs.

Turning to our proprietary programs, a couple of highlights.

As we discussed in last quarter's call, our most advanced program is focused on developing drug candidates that mimic the activity of thrombopoetin for the treatment or prevention of thrombocytopenia.

Thrombocytopenia is a condition of low platelettes in the blood for which there is no meaningful medical treatment.

Our goal is to develop orally active safe and effective treatment, our lead TPO mimetic candidate, LGD4665, is currently in a Phase I dose escalating clinical trial.

The trial began in November of 2006.

The study is moving smoothly and we expect it will be completed in the fourth quarter of 2007.

As I indicated in my remarks about our R&D expense outlook for 2007, we intend to make the preparations to initiate multiple Phase II trials in early 2008, which will include manufacturing, the clinical drug supply, as well as to initiate long-term toxicology studies.

In addition, this year we are optimizing other lead drug candidates to fill out TPO mimetic drug portfolio.

Given the importance and magnitude of this market, our goal to get in a partnership with a major pharmaceutical or biotech company to advance LGD4665 through late-stage clinical studies and on it to commercialization.

On a separate topic as part of our alliance with TAP Pharmaceuticals, we have exercised options for development of certain selective androgen receptor modulators, or SARMs, and are engaged in pre-clinical research at this time.

Our lead SARM candidate is GLD3303 and we expect to advance this drug into a clinical trial in 2008.

Just a comment about our buyback program, switching gears.

When we announced our $2.50 per share dividend in April, we also announced that the Board of Directors had authorized up to $100 million share of buyback program over the following 12 months.

Now, since the time of that announcement the Company has been in a blackout period in terms of stock repurchases tied to our restructuring activities and quarter-end results.

We will not comment on the timing or amount of prospected purchases.

However, obviously on a go-forward basis any repurchases the Company makes will be disclosed in our 10-Q and 10-K filings.

Now, in conclusion, I want to say that people often times ask me why I chose to join Ligand.

I've been here four months and I've now had a chance to be on the road several times.

I've met with many, many people, investors and analysts in person.

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

And with that, there's a great fit with my professional interest and what Ligand needs as we manage this transformation.

More than that, and I felt that when I joined and I'm even more excited now, I was attracted by the great science and the R&D heritage of the Company.

There are a number of very exciting partnerships that are addressing important and promising medical markets.

The Company has a strong balance sheet, and also now a very strong financial resources.

Plainly, I will say I'm excited to be here.

In just a few short months we've made dramatic changes in the way we conduct our business.

I'm very impressed with the quality of our employees.

We've had several board meetings, I've met personally with all of our new directors.

We have strong scientific credentials, and our team has a tremendous work ethic.

As I said on our last call, 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 continuing to reach out to the vestment community through meetings, conference calls and the like with the goal of ensuring complete and accurate view of the new Company.

We are presenting at the Thomas Weisel Banking Conference in early September.

This is a great event which is held in Boston and it is one of the first conferences of the fall season.

In addition, we're working to secure other presentation opportunities and when those arise, we will update investors.

Thank you for your time and attention and I will turn it over to the operator for questions.

Thank you.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of David Webber from First Albany.

Thanks.

It's David Webber.

First question I have for you, John, is just wanted to get a better sense of what AVINZA sales were in the quarter.

I take it that the 18 million and change that you recorded in discontinued operations revenues, is that essentially what your AVINZA sales were before February 26th?

Correct.

Okay.

And then King reported that it sold $9 million worth after acquiring the drug.

So just the question is, on your 18 million, I assume that's the sell through accounting?

That is correct.

Prescription based sell-through accounting.

Okay.

Can you give us a sense of what it would have been on sell-in?

No.

No, I mean, obviously, companies intend to sell to meet the demand.

So all things being equal, there should be a lot of correlation between sell-in and sell-through.

Having said that, obviously our accounting is different than King's.

We expect that King is on a sell-in method.

The inventory levels were, we believe, fairly low at the time of the divestiture of the asset.

However, once King took it over, they have new accounting and obviously different channel relationships or expectations for inventory levels.

Aside from the number that they reported we can't comment on what they, what their expectations were for any quarter channel levels.

Okay.

And then, there are no royalties from King reported in this quarter.

Are they paid on a one quarter lag?

Yes.

Yes.

That's -- that is the way they will be recorded on a one-quarter lag.

We'll receive the royalties and book it in the quarter that the royalty is actually received.

Oh, okay.

Second question is, do you know whether Glaxo in order to file an NDA for Promacta will need the data from the repeat trial.

David, you're asking will Glaxo need the data from the repeat study to file the NDA?

Yes.

I would direct you, direct that question to Glaxo.

We don't have any information about what the regulatory requirements will be for and NDA submission for Eltrombopag.

Okay, fair enough.

And then last question, then I'll get back in the queue, on LGD4665, since you're talking today about planning the manufacturing material and planning multiple Phase II trials, how would that affect the potential timing of a partnership agreement?

Would you choose since you decide to go to do Phase IIs to wait until you have Phase II data to partner the drug?

David, we do not believe that we have Phase II data to enter a partnership.

But I'll just add that we aren't going to comment on our expectation for when we'll do a deal.

Clearly, we're going to drive the best deal we can in terms of economics and deal terms.

But also it's going to be based on the timing for when we can get data and other information around the program to optimize those communications.

But specific to your question, we do not think Phase II data will be required to enter a partnership.

Okay.

Thanks very much.

Thank you, David.

Your next question comes from the line of Richard Mansuri with Power Partners.

Hi.

Hello, Richard.

How are you?

Good.

I'm doing very well, thank you.

Great.

Two questions.

One, you mentioned that the Company was in or has been in a blackout period.

Are you currently in that blackout period or do you expect to exit that blackout period in the near future?

We are currently in a blackout as it relates to our quarter results that we're announcing here.

Typically, you're blacked out from the end of the quarter until you announce, actually it's two days after you announce.

That's a fairly typical blackout protocol for companies that have a blackout policy.

Aside from that, we are not going to comment, as I mentioned in my remarks, as to the timing or price points for when we'll be repurchasing stock and also, we simply won't be able to answer questions on a routine basis as to whether or not we are in a blackout period or not.

I understand.

My second question is, as far as LGD4665, I assume you're taking it in like dose ranging escalation studies.

How many dose levels do you expect there to be before you're able to exit Phase I and where are you in that process?

Yes.

A fair question.

And I'll just simply say that it is a dose escalation study clearly.

We not only have our own expectations for what we want to get out of the study, but also we can follow the good work that Glaxo has done.

Having said that, we have not disclosed the specific trial design of that study.

And at this stage don't intend to disclose any of the results or protocol features until we publish the data after the conclusion of the study.

But in this study, granted it's a Phase I so they're looking for safety, do you have possibility to see any evidence of efficacy in this Phase I trial?

It is designed as a dose escalation to help us identify the dose to start our Phase II trials and we'll leave it at that.

When we have our results, we will publish them in full.

Great.

Thanks.

Thank you.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of Geoffrey Hsu from OrbiMed Advisors.

Hi, John.

How are you doing?

Good, Geoffrey.

Just a couple sort of accounting-type questions.

I noticed your guidance for 2007 did not include stock-based compensation.

I'm just curious what you would expect that number to be for the year?

Yes, I'll ask Tod to comment on that.

Sure.

For the full year, it's expected to be in the range of 7 to 8 million.

The majority of that was incurred in the first quarter of 2007 in connection with the adjustment to stock options that we made in connection with the dividend, as well as some acceleration of options we had with change of control agreements for some of our departed officers.

So that was in connection with the restructuring.

So that's the 1.8.

That would be the 1.8, right.

Okay.

And then for the other royalties, Eltrombopag, bazedoxifene, lasofoxifene, will those also be recorded on a one quarter lag basis?

Yes.

Yes?

Okay.

That's it.

Thank you.

Thank you, Geoffrey.

(OPERATOR INSTRUCTIONS)

Okay.

Well, thank you very much.

We appreciate your time and attention.

And I will be on the road as I have been the last couple of months.

I'll be meeting with investors more going forward and certainly look forward to meeting with more analysts and investors in person.

Thank you very much.

This concludes today's Ligand first quarter earnings conference call.

You may now disconnect.