Ligand Pharmaceuticals Inc (LGND) 2007 Q4 法說會逐字稿

Good afternoon.

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

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

(OPERATOR INSTRUCTIONS) Thank you.

Ms.

Luib, you may begin your conference.

Great, thanks.

Welcome to Ligand's fourth quarter financial results and business update call.

Presenting for Ligand today is John Higgins, President and CEO; John Sharp, Vice President of Finance and CFO; and Martin Meglasson, Vice President of Discovery Research.

I want to remind everyone that today's call will contain forward-looking statements within the meaning of federal securities laws.

These may include but are not limited to statements regarding intent, beliefs or current expectations of the company, its internal partner program and its management.

These statements involve risks and uncertainties and actual events or results may differ materially from the projection described in the press release and this conference call.

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

The information in this conference call related to projections or other forward-looking statements represent the company's best judgment as of today, February 20, 2008.

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 I will turn the conference call over to John Higgins.

John.

Erika, thank you.

Thank you to everybody who is joining us.

Welcome to the conference call.

Ligand continued to make great progress in the fourth quarter and today are we're reporting on a strong year execution and successful transition to the new Ligand.

It is a theme we've talked about in our past calls.

Now with the full year 2007 behind us, we enter 2008 with solid financial footing and a promising outlook both with our partner program as well as our own research programs.

Over the last few quarters, our strategy has been focused around three things.

One, cleaning up the balance sheet.

Two, align the business towards our most promising opportunities.

And three, leveraging our R&D programs and pharmaceutical alliances to create value for the shareholders.

Today, I'm pleased to report that Ligand is running the leanest most efficient business it has run in years.

At the same time, we're funding important and exciting research programs and we've made meaningful progress over the last several months.

In addition to our internal programs, our partner programs are at the most advanced stages than ever before with three of our partners, namely GFK, Pfizer and Wyeth all are pending NDAs for drugs that were generated from Ligand drug discovery partnerships.

Our operating costs have been reduced significantly recently and we're currently enjoying a healthy royalty from King Pharmaceutical on their sales of Avinza.

Our balance sheet is strong with nearly 100 million in cash.

We have a large NOL tax benefit.

Essentially no debt and substantially reduced liabilities from our discontinued operations.

In addition, a couple of months ago we announced the positive data from our phase one trial with our lead program, and we have advanced drug discovery in a couple of other key areas of research, including a new area of research focused on developing an oral erythropoietin drug.

Our core strategy is to discover in advance the develop of our pipeline drugs with the goal of partnering them for later stages of development and product commercialization while at the same time running a financially efficient enterprise that has the potential to return value to shareholders through positive cash flow and profits from royalties from product sales.

The business has changed immensely in the last 18 months, make no doubt about it.

On behalf of our employees and the board of directors, we're pleased with our progress and Ligand's outlook.

Now, let me provide an overview of our progress from the key programs and I'll start with our internal programs.

Regarding LGD-4665, our small molecule TPO drug, we completed our Phase I studies and presented positive results last December at the American Society of Hematology Conference in Atlanta.

As we turn to '08, we will be advancing the clinical trials for three disease areas.

First, we expect to initiate a Phase II proof of concept trial for ITP by the end of the first quarter.

In the second quarter, we expect to begin a clinical trial for myelodysplastic syndrome, or MDS, a cancer indication and, finally, we expect to begin a trial for hepatitis C in the fourth quarter of this year.

In addition to these clinical studies, we expect to conduct numerous pharmacology studies with the molecule to further define the attributes of the drug.

In our partner programs, there are other key clinical and regulatory milestones that I'll highlight.

GlaxoSmithKline announced last December that they submitted an NDA for Promacta for short-term ITP.

With that, Ligand earned a $1 million milestone payment from GFK for that submission.

The company is currently conducting two Phase III studies in hepatitis C and GFK is also running studies in chemotherapy-induced thrombocytopenia.

We are very pleased with GFK's progress with Promacta.

Their team simply has done an excellent job executing on their clinical and regulatory activities.

Moving on to our partner with Wyeth, they announced in December they received a second approval letter for bazedoxifene, or Viviant, a selected estrogen receptor modulator for the prevention of post-menopausal osteoporosis.

They recently reported that the FDA expects to convene an advisory committee meeting in July of this year to review both the treatment and prevention of osteoporosis indication for Viviant.

With Aprela, that's bazedoxifene combined with Premarin, Wyeth announced last month they plan to meet with the FDA in February to support the planned NDA filings.

Another Ligand partner, Pfizer, submitted an NDA for Fablyn, formerly called [Aporia] for the treatment of osteoporosis.

Just a final note, in terms of our research programs, internally we've added an erythropoietin or an EPO mimetic research program to our pipeline.

This is an exciting program that builds on recent research activity and is an a testament to Ligand's great science and discovery capability.

In just a minute, Martin Meglasson will be going into more in that program.

We are encouraged by our progress our partners have made and view 2008 as a key (inaudible) for Ligand as we watch the news coming from various regulatory events.

Now I'll turn it over to John Sharp, our CFO, to highlight our financial performance.

Thanks, John.

During the fourth quarter, Ligand continued to take steps toward reducing expenses.

While we are very happy with the progress we've made to date, in 2008 we'll continue to focus on becoming more efficient and further reducing costs.

Now, turning to the fourth quarter financial results.

As a reminder, the results of operations related to the sale of our oncology products and Avinza are reflected as discontinued operations for all reporting periods I will be discussing today.

Total revenues for the fourth quarter of 2007 were $5.8 million compared with no revenue in the fourth quarter of 2006.

Fourth quarter 2007 revenues consist of $4.8 million of royalty income from King sales of Avinza and $1 million earned from GlaxoSmithKline.

Total operating expenses for the fourth quarter of 2007 were $14.3 million down from $26.7 million for the fourth quarter of 2006.

The reduction in expense largely reflects savings realized from our first quarter restructuring plan.

We recorded a tax benefit from continuing operations of $2.9 million for the fourth quarter of 2007 compared to a tax benefit of $18.8 million for the fourth quarter of 2006.

As a result, for the fourth quarter of 2007, we reported a $5.3 million loss from continuing operations compared with a $3.5 million loss for the fourth quarter of 2006.

The net loss for the fourth quarter of 2007 also includes a $1.3 million write-down of a $5 million commercial paper investment we currently hold that was highly rated at the time of purchase but was subsequently downgraded.

Our current investments now consist primarily of money market accounts and government obligations with a small amount in high-grade corporate notes.

For the fourth quarter of 2007, we realized $11.3 million of income from discontinued operations net of taxes compared with $144.9 million in the fourth quarter of 2006.

Our total net income for the quarter was $5.9 million compared with $141.4 million for the fourth quarter of 2006.

As of December 31, 2007, cash, cash equivalents, short-term investments and restricted investments totaled approximately $96 million.

In addition, at December 31 we had $10 million of cash held in a trust account to support potential indemnifiable claims on behalf of certain current and former members of our board of directors.

We also expect to receive $7.5 million in the first quarter of 2008 which is currently held in escrow to support potential claims by purchasers of our commercial products.

We have continued to repurchase our stock under our share repurchase program authorized by our board of directors.

As of today, we have repurchased a total of $6.5 million shares for $41.2 million.

As of the end of January 2008, we had 95.0 million shares of common stock outstanding.

Before I discuss our 2008 financial guidance, there are two other financial-related items I would like to update you on.

First, as you recall, Ligand declared and paid a special one-time cash dividend of $2.50 per share in the first half of 2007.

Based on an extensive analysis performed, the company has determined that the distribution qualifies as a tax-free return of capital to most stockholders to the extent of each stockholder's tax basis in their shares.

I will add that because of individual tax circumstances of stockholders may vary, each stockholder should consult their own tax advisers regarding the tax consequences to them of this distribution.

Second, I would like to discuss Ligand's net operating loss carry forwards, or NOLs, for tax purposes.

Subsequent to the sale of Avinza in the first quarter of 2007, we estimated and disclosed in our quarterly SEC filings that we expected to have approximately $100 million in NOLs available at the end of 2007.

We now have completed our analysis of the taxable gain from the Avinza sale as well as an analysis to determine the availability of NOLs from our previously-acquired subsidiary, [Serogen].

Based on both of these analyses, we're reporting Ligand has approximately $240 million of net operating loss carry-forwards available at the end of 2007.

Now, looking forward to 2008.

On the revenue side, we expect our royalty revenues from King sales of Avinza to be approximately $20 million plus we may potentially receive milestone payments from existing corporate partners.

As far as expenses, we expect our research and development expenses to be $24 to $26 million and general and administrative expenses to be $14 to $15 million.

We will also record a gain on sale lease back of approximately $2 million which will reduce total net operating expenses to $36 to $39 million, including approximately $3.6 million of stock-based compensation charges.

In addition to these expenses, we expect to incur a charge of approximately $4.1 million in the first quarter of 2008 relating to a one-time expense for lease cost as a result of vacating one of our buildings.

With that, I'll turn the call over to Martin Meglasson, our Vice President of Drug Research to review the recent highlights from our internal pipeline.

Martin.

Thanks, John.

Today, I will highlight three of our programs.

Our TPO mimetic program, our SARM or selective androgen receptor modulator program, and a new program to develop orally active EPO mimetics.

In our TPO mimetic program we reported promising results on our lead compound, LGD-4665, at the Ash annual meeting in December.

The results presented at Ash showed that LGD-4665 caused rises in the platelet counts of normal volunteers.

This is great news for our drug and it shows that our preclinical findings translate well into humans.

In January, a U.S.

patent was issued to Ligand covering LGD-4665 composition of matter.

Our research activities continue on TPO mimetics and this effort has been fruitful.

We have discussed previously that LGD-4665 is more potent than Eltrombopag and one manifestation of this is its ability to stimulate a rise in platelets after administration of a single oral dose.

We have discovered compounds that are even more potent than 4665.

One example is LGD-3532 which is active on human bone marrow in vitro at nanomolar concentrations.

This compound is chemically different from LGD-4665 and will be covered by a separate patent family.

In our SARM program, we have two compounds at the preclinical stage.

We presented data on one of these, LGD-3303, in a [plina] recession of the 2007 American Society of Bone and Mineral Research annual meeting.

We showed in an animal model of post-menopausal osteoporosis that LGD-3303 increased bone mineral density and strength.

Its action was through a combination of anabolic and antiresorptive effects on bone.

Importantly, its effect was additive with a bisphosphonate, suggesting that it could be a complimentary treatment to bisphosphonates, the current standard of care for osteoporosis or other antiresorptive agents as these are approved.

LGD-4033 is a SARM from a different chemical class than LGD-3303.

This compound stimulates the growth of skeletal muscle at low doses of the drug.

It stimulates bone also, according to changes in biochemical markers of bone turnover.

The goal with the SARM is to produce a safer, better tolerated drug than testosterone which could be beneficial in a variety of musculoskeletal disorders but is only infrequently prescribed because of concerns about its effect on the prostate.

LGD-4033 produces only a weak effect on the prostate and does not fully restore the prostate gland of castrate rats to the normal level even at very high doses.

This prostate-sparing high tissue selectivity suggests LGD-4033 could provide a safe, well-tolerated treatment for sarcopenia or muscle wasting such as occurs in elderly people as well as cachexia or osteoporosis.

We plan to file an IND for LGD-4033 in late 2008.

The final program I will talk about is a project to discover orally active EPO mimetics.

EPO is the hormone that controls the production of red blood cells.

Injectable protein based erythropoiesis stimulating agents, or ESAs, are currently used to treat anemia due to renal failure in cancer chemotherapy.

An orally active EPO mimetic would be more convenient, has the potential to produce better control, and could expand the current market to include anemia of chronic disease, or ACD.

Our EPO mimetic program leverages Ligand's own drug discovery technology used to discover LGD-4665 in our recent TPO mimetic development activities.

With that, back to you, John.

Thanks, Martin.

I'm pleased with how well Ligand is executing in our business plan and looking forward we set several important corporate goals for 2008.

Just a quick recap of those before we turn to the Q&A section.

By the end of this year, we're look for FDA action on three filed NDAs by our corporate partners.

One is for Promacta, which was filed by GFK.

The other for Viviant filed by Wyeth, and the third is Fablyn filed by Pfizer.

In our internal programs, we expect to initiate multiple clinical studies for LGD-4665.

We anticipate filing an IND for our lead SARM candidate by the end of this year.

And also, of course, we look forward to advancing our other pipeline programs.

Thank you for joining us for the call.

Operator, with that, we'll turn it over for questions.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of David Webber with Broadpoint Capital.

Hi.

Just a couple of questions, John.

First, I don't know if you have this information or not but can you tell us whether the Promacta NDA has been accepted for review and, if so, what the review status is?

We do not know.

And I don't believe that we would necessarily get that information unless it would pass on to us by investor inquiry from GFK, but they did file in December, about two months ago, and certainly we'll be looking for any other news or headlines from GFK in terms of their expectations for (inaudible).

Okay.

And then on LGD-4665, I think you alluded to this but more specifically, could we get a sense of the -- where we are with testing to establish the feasibility of once weekly dosing?

Yes.

We do plan to conduct a weekly pharmacology study.

We've not started it.

We expect it will probably be about a six-week course in healthy volunteers so with enrollment and trial, data collections, it is probably about a three-month study.

We expect to start that probably in the next couple of months and have the data by, I would expect, in the third quarter of this year.

That trial is very important.

We're intrigued by the long half-life and obviously the pharmacologic effects with dosing and our objective is to get that data in hand before we start our hepatitis trial.

Okay.

But the IT -- so then the Phase II studies and ITP and myelodysplasia would be daily dosing schedule?

That's correct.

Right.

Okay.

And then in terms of the revenue guidance, I guess you're -- are you making any assumptions in the guidance for royalties from Avinza about any major changes in the direction of that drug which, from a market share point of view is basically sideways?

No.

No.

And I appreciate the question.

It is pretty simple math.

The last two quarters of royalty to Ligand have been very similar, very comparable.

In fact, fourth quarter was up only slightly.

So, we are not making any judgment about the potential for price increases or the prescription trend looking at the 15% royalty that we'll enjoy off the product in '08.

That's our estimate for what the run rate is currently, about $20 million or so.

Okay.

And then there are, I assume there are potential milestone payments for approvals of Promacta, Viviant, and Fablyn.

Can you give us any sense of how large those payments could be?

Sure.

We do -- we are entitled to payments from all of the partners for various regulatory.

In total, or in aggregate, I'll say the most that we would get probably in the low to mid single million digit range and it is a combination obviously of whether we received payments is going to be based on timing but candidly, while the revenue will be valuable, they're very nominal payments in context to the import of those drugs getting approved.

But we'll have more information on that obviously as those regulatory events come to fruition.

Okay.

Then just one more question and I'll get back in the queue.

The income tax benefits that have been recording each quarter, about how much longer would you expect those to go on?

That will be over in '07.

Those are recorded because we do have taxable gain from the sale of Avinza.

In 2008 we expect to be in a loss position again and so there will not be any tax benefits that will be recorded.

Oh, okay.

All right.

That's what I figured.

I'm sorry.

One last financial.

The $7.5 million coming out of escrow in the first quarter, will that appear as revenue on the discontinued operation lines as well?

It will.

Okay.

Thanks very much.

David, thank you.

Your next question comes from the line of Derek Jellinek with Susquehanna Financial.

First, John, maybe could you kind of give us your thoughts about the upcoming M plate panel and the potential ramifications for Promacta?

Sure.

Derek, your voice is a little soft but the question is any comment on the upcoming panel meeting for the (inaudible) drug inplate.

There is not a whole lot that we can really add, in terms of expectations, except to say that we think that it will provide some useful information and some clarity from the FDA advisers on how they view this category of medicine and also obviously it is going to help put some more definition around the specific product profile for brand plate.

We look forward to it.

The panel date is less than a month away.

It is hard to predict exactly what the implication will be for GFK's drug, but we certainly look forward to that event.

Okay.

Maybe you can out outline, John, for us your partnering strategy for 4665?

Yes, we talked about this with investors and I think on past calls.

We now -- with our new Ligand, the business structure, we don't plan to fully commercialize products ourselves.

We may retain some commercial or co-promotion rights, but our objective with our pipelines asset is to seek partnerships.

We've got some very exciting drug research programs going on right now.

Specific to 4665, we're at a we think a very exciting stage where we can now advance into multiple clinical indications, get data from a whole series of different disease categories as well as run some fairly short and inexpensive pharmacology studies to further differentiate our drug from some of the other drugs in development right now.

So, again, it is an investment period.

Whether it is 6, 12, 18 months, we can't predict how long it is going to take to answer some of the key questions.

We think we'll continue to add value to our program and in the meantime obviously there's more awareness around the program, the Ash presentation created a lot of inquiries about the program and as we build our data set, we'll surely be engaging more and more in partnering discussions with the goal of partnering that program some time in the future.

I appreciate that.

Maybe -- you said advancing multiple clinical indications.

Can you maybe comment on why you're really not going for CIT?

A great question.

And to be crystal clear, it is not that we are not going for CIT.

I think we're trying to be very realistic as a small development company right now.

The first three indications we've laid out, we believe that TPO mimetic could be improved for many indications, [5, 6, 7 indications].

Potentially, of course, there may be some diminishing returns, but in terms of clinical ambition, we would like to pursue a clinical campaign in CIT.

We know that GFK is conducting studies in CIT, [Gamgen] has recently initiated study.

But for us, it is a matter of being very pragmatic with our resources and clinical time lines.

This is something that whether it is Ligand solely or in partnership, it is an indication that we're excited about principally because of the potency we've seen with 4665.

It appears to be not only safe but a highly potent compound that we think NCIT could be a very compelling indication.

So, it is not that we aren't interested or won't pursue it.

It is just a matter of talking about our nearest term priorities.

Great.

Thanks for the clarity on that.

Maybe follow on to that since 4665 is so potent, it seems like 3532 is more potent.

Where does that compound stand as far as getting into the clinic?

Are you pushing that one forward?

We are advancing it.

Obviously it is earlier stages, a battery of animal pharmacology studies that have to be conducted before you can file an IND.

But we feel that we've got some -- a very exciting recent research activity that is speaking not just one drug but really a library of compounds and as much as 4665 appears to be a very attractive clinical candidate, we're also pleased to know that we have compounds that are not only chemically distinct from an IP perspective, longer patent life, but also may have different pharmacology properties.

So, having said that, we're going to advance 4665.

That will get the headlines here in '08, but we certainly look forward to again spanning our library of other TPO mimetic compounds, too.

That's great.

Thank you for taking my questions.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of Neil [Weiner] with FoxHill Capital Partners.

Hi, gentlemen.

A couple of questions here.

Glaxo has indicated that they would know whether Promacta would get expedited review in mid February.

Have they indicated that to you?

They would know whether or not they would get expedited review by mid February.

Right.

Neil, a fair question.

We simply do not know anything in regard to that.

That sounds like a very reasonable time line if GFK had said that.

Knowing they filed two months ago in December.

That sounds about the right time lines for when they would get some clarity from the FDA but we -- although frankly I think we've got a very good relationship with GFK, we are not privy to any of their regulatory discussions with the FDA on those topics.

Okay.

I guess the second question is a follow-up to LGD-4665.

So, is it -- is it my understanding that you really are not going to get into advanced stages of discussions for strategic partnerships until you have a -- a more advanced portfolio of clinical investigations and that would be a year from now or 18 months from now?

The -- I think the simple answer is that Ligand has I think a great deal of opportunity, in terms of when we do a corporate deal.

And our objective is obviously to drive for the best partnership and the best partnership is not only economic terms but also to get a partner that is committed and really has the capabilities to aggressively advance the program.

I think the unique thing is that Ligand, we aren't short on cash and we aren't looking at some very significant go, no go decision point that would really define when a deal has to happen.

If a partner came along with attractive from a development perspective with good terms, we could do a deal sooner but also we believe that we're running some pretty important studies right now that are going to continue to add value to the program.

So, I think we've got a lot of flexibility.

We just as a general practice don't give specific guidance as to when we expect a corporate deal.

We've got, we think, an exciting molecule.

In the short term will be adding more value.

So, having said that, there is certainly perhaps more awareness around this program than ever before.

Noted by (inaudible)pending drug application.

There is a lot of public information out there at the medical conferences and we think the interest around this program for Ligand is actually increasing.

We're encouraged by that and, again, we don't talk about the specifics, partners discussions, but we think that we've got significant opportunity to keep advancing our program and potential partner discussion.

Thanks.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of David Webber with Broadpoint Capital.

Thanks for taking the follow-up.

Had a question I guess for Martin regarding LGD-3532.

Just from a medical point of view, since with a TPO mimetic, one thing you have to worry about is overshoot.

How much more potent do you want to get?

What's the utility of that in the end?

Yes, potency will only buy you so much in the clinic.

I think that with 3532 we may have a compound that where the doses will be smaller presumably because the smaller dose one might have some increase in overall safety of the compound but basically what 3532 and several other compounds from that cohort bring us are novel chemistry, a renewed patent to state, and then pharmacology that is an awful lot like 4665.

But I think over the long haul it provides a future partner with the ability to create a TPO mimetic franchise based on multiple generations of compounds with 4665 being the first generation of those compounds and compounds like 3532 being in a later generation.

Okay.

That helps.

And then John, I guess I don't know how evolved the thinking is on this subject yet but I was trying to get a handle on what pricing of Promacta and then eventually 4665 might be for an indication like ITP.

Can you put it in a ballpark?

David, certainly understand and respect the question.

It is impossible to answer.

We have no role inside the GFK with price of their products.

We talked a little bit in our investor presentations about the landscape.

We look at other drugs for anemia.

Pricing is anywhere in the $10,000 to $20,000 range for an annual chronic treatment which we do think are relative -- relevant ranges for potential pricing.

And some other comparisons are cost of care.

When we look at platelet transfusions, a transfusion can cost as much as $4,000.

And platelets only survive in the body for four to five days.

So, it is very expensive, particularly if you're getting multiple courses of platelets.

When you look at splenectomies and removing an organ, there is not only the cost of the procedure but also there can be significant therapeutic costs as well as management costs.

So, across the board, we think the environment may support fairly high chronic treatment costs but still provide a very significant pharmacoeconomic advantage to the existing treatment regimen.

That's a little background.

That's some perspective but having said that, we're a few years away certainly from pricing are own drug and we don't have insight as to how Amgen or GFK would go about pricing their products.

Okay.

That's fair enough.

A question on the stock repurchase program.

I think, certainly, we're over nine months into a plan that was envisioned to repurchase up to $100 million of stock, if I recall correctly.

We're a little over 40 million.

So can you just lay out the goals here and the time frame?

Sure.

Well, I'm not sure what you mean by the goals.

The time frame, this was set up -- it was fairly common that you authorize a dollar amount and then a period of time we set this up about a year ago actually, it was last March.

So that the $100 million authorization was open for one year.

That year technically expires next month.

Okay.

Do you expect to re-authorize it?

At this time, we have no plans to re-authorize it.

Okay.

Thanks very much.

There are no further questions at this time.

Are there any closing remarks?

No, not by the management unless there are other questions.

We do appreciate people's attention as we've outlined, there are numerous very exciting events that we're going to get answers to over the next nine months or so and certainly as soon as we get information, we'll be updating investors and you can count on us to keep our heads down and be working hard to drive our programs.

Thank you for your time and attention.

Thank you for your participation in today's Ligand Pharmaceuticals fourth quarter earnings conference call.

You may now disconnect.